Home Ownership: an Economic and Legal Analysis

Stephen Landsburg has an economic and legal analysis of the pros and cons of homeownership versus rent.

Of particular interest is this point:

The tax code provides a big incentive to own rather than rent — and no, it’s not the incentive you’re thinking of. The mortgage interest deduction is not a net incentive to own, because it’s offset by the fact that mortgage interest is taxed as income to the lender — so there’s no net tax on the transaction, but no net subsidy either. Instead the relevant tax argument is this: If I rent you my house, I pay income tax on the rental payments. If instead I sell you my house for the present value of the stream of rents, I pay capital gains tax on the transaction — usually at a lower tax rate. There’s my incentive to sell, which of course the market will translate into an incentive for you to buy.

The entire post can be read at the Armchair Economist blog.