The mortgage tax advantage is just one component of it.
After WWII we made (mostly suburban) homes be retirement investment vehicles for (almost exclusively white) working class people. That was a terrible choice for all future generations of the working class. Now most people (white or not) are priced out. It’s been great for the boomers and the real estate & finance industries, though, thanks to asset price inflation.
The stock market is not the largest part of the economy whose prices
are inflated by bank credit. As the biggest asset category, real estate is by
far the largest market for debt. The Federal Reserve’s quarterly Flow of
Funds statistics show that by 2007-08, about 80 percent of new bank loans
were real estate mortgages. Most such loans are to buy property already
in place, just as most stock market transactions are for shares long since
issued.
The effect is twofold: it inflates asset prices ranging from real estate to
entire companies, and yields banks interest that imposes a carrying charge
on buyers. That is what makes bubble economies high-cost. Housing prices
are inflated, requiring mortgage debtors to pay more. Companies borrow
to buy other companies, increasing the volume of corporate debt simply
to finance ownership changes. And education is financialized, enabling
students to afford higher tuition costs by committing to pay monthly debt
service out of what they earn after they graduate.
The resulting financial overhead consists of claims on the economy’s
actual means of production. Yet most people think of these bonds, bank loans
and stocks and creditor claims as wealth, not its antithesis on the debit side
of the balance sheet. This inside-out doublethink is a precondition for the
bubble economy to be applauded by the mass media, keeping its corrosive
momentum expanding.
From the corporate sphere and real estate to personal budgets, the
distinguishing feature over the past half-century has been the rise in debt/
equity and debt/income ratios. Just as debt leveraging has hiked corporate
break-even costs of doing business, so the cost of living has been increased as homes and office buildings have been bid up on mortgage credit. “Creating wealth” in a debt-financed way makes economies high-cost,
exacerbated by the tax shift onto labor and consumers instead of capital
gains and “free lunch” rent. These financial and fiscal policies have enabled
financial managers to siphon off the industrial profits that were expected
to fund capital formation to increase productivity and living standards.
The mortgage tax advantage is just one component of it.
After WWII we made (mostly suburban) homes be retirement investment vehicles for (almost exclusively white) working class people. That was a terrible choice for all future generations of the working class. Now most people (white or not) are priced out. It’s been great for the boomers and the real estate & finance industries, though, thanks to asset price inflation.
From Michael Hudson’s Killing the Host (PDF):