Living The Dream
Having spent a few days in London earlier this week, I was reminded of that peculiarity of the British system of real estate ownership: the leasehold. When I first traveled to England 45 years ago, most properties were sold as leaseholds; now, little by little, one tends to see more freehold sales. The concept behind the leasehold is that the landlord sells a lengthy lease, essentially getting the rent up front. The vast majority of properties have thus remained in the hands of a relatively few owners. Most leases are for 99 years, diminishing gradually in value as their term wears on, so a lease of 90 years is, of course, worth far more than a lease of 20 years. And when my daughter recently bought her flat, she had the interesting experience of having it offered either way: she could pay x dollars for the leasehold or, for another 10 or 15,000 pounds, she could own the freehold. Naturally, being a New York girl, she chose the latter!
These observations come to me as I have been thinking much in recent weeks about the endangered mortgage deduction and its peculiar place in American culture. Such mortgage benefits exist in only two other countries of which I am aware (the Netherlands and Switzerland) , and almost all the nations in the developed world pay higher taxes, which would render such a deduction that much more valuable. Why is it that our government has so chosen to incentivize home ownership, while in countries like the U.K. it was accepted that most people, even those who bought leaseholds for millions of pounds, would not actually own their homes?
To me it feels very much like a part of the democratic fantasy which animates our American spirit. In the European countries, there were historically those who owned land, more often than not hereditarily, and those who worked either on the land or for the owners. In indigenous cultures generally the land was unowned, beyond owning, a gift to the people from the gods. But Americans have from the first embraced the concept of the rugged individual, who carved his own life out of the (often harsh) environment and was beholden to no one. Of course such a person would want to own his property, whether he traveled West to claim it or bought it from another. Thus it was that when the general interest deduction introduced early in the last century was repealed in 1986, home mortgage interest remained deductible.
The recession of 2009 has put many homeowners underwater, and many more have lost most if not all of the equity in their homes. But throughout the country the desire to own is still powerful. It is a central part of today’s American dream. And the mortgage deduction, although often not worth SO much in today’s ultra-low interest rate environment, is a cornerstone of our government’s support of that dream. Do we need it? I don’t know. But Americans certainly WANT it and see it as a concrete way in which the government helps them build wealth and protect their families. Now time will tell how the government prioritizes this slice of the dream as our new, more austere budget priorities necessitate a re-thinking of the entitlements we have all come to take for granted.