By Nicole DiMichele, CEDAM Policy Intern
For the 7.1 million American households for whom even a modest rental home is unaffordable and unavailable, life is a daily struggle for survival. Families in this situation find themselves making impossible choices between food and rent. When illness, job loss or other tragedy strikes, they often become homeless. Michigan residents are presently stuck in this struggle for survival. As a result, many working individuals and families in the state of Michigan are living without the stability and opportunities that a home provides.
Homeownership has become a struggle for some families, as even renting is more costly than many working individuals and families can afford. In Michigan in particular, renters need to earn $14.77 per hour in order to afford a basic apartment, while minimum wage rests at only $7.40 per hour. There are only 28 affordable housing units available in Michigan for every 100 extremely low income renters (income at or below 30% of AMI) in the state. This means that there is a shortage of 234,068 units of available and affordable housing for these Michigan renters.
In addition to this lack of affordable housing, housing incentives within the federal tax code that should reach those individuals in the lower and middle classes in reality disproportionally benefit higher income people. The mortgage interest tax deduction (MID) is a part of the tax code that allows some homeowners to deduct a portion of the interest they pay on their mortgage from their taxable income. Under the current law, homeowners who itemize on their tax returns can deduct the interest paid on mortgages on first and second homes up to a total of $1 million, and the interest on up to an additional $100,000 in home equity loans. Only 24% of all taxpayers claim the MID, because they have enough income to file itemized tax returns. Most Americans, particularly low-income families, do not itemize their taxes. The top 55% of taxpayers who claimed the MID (those with incomes of $100,000 or more) received 77% of the total benefit.
This leaves those with lower incomes unable to receive this housing benefit, widens the gap between the wealthy and the poor and adds to the difficulty of becoming a stable homeowner.
Throughout 2013, CEDAM recorded stories from nine people and families across Michigan about their ability to find housing they could afford. You can watch the video here. Many of these stories are characterized by sudden life changes that resulted in a struggle to find a place where rent did not cost 80-100% of monthly income. Some interviewees lived out of their car or cheap motels; others moved in with relatives or ended up in nursing homes. The demand for housing priced at the lower end of the market is high, the supply is limited and the wait is years long. This is why people are homeless in our country. The message is clear: we need to find a way to create more affordable housing.
So how do we fix this problem? What is the solution? The United for Homes Campaign offers solutions to this housing crisis.
The United for Homes Campaign proposes to modify the current mortgage interest tax break by reducing the size of a mortgage eligible for a tax break to $500,000, and to convert the deduction to a 15% non-refundable tax credit. There will be a cap on the amount of mortgage for which the interest can be deducted at a level that represents where most mortgages are. This not only saves money, but it also targets the benefit more toward middle and low income homeowners. Reducing the mortgage cap from $1 million to $500,000 will have a minimal impact in Michigan. Data shows that only 0.7 percent of new mortgages in Michigan are above $500,000.
A secondary benefit of switching from an interest deduction to a tax credit is an increase in funding available to the federal government to fully fund the National Housing Trust Fund, a program meant to provide funding for affordable housing initiatives and end homelessness in America. This program has never been funded; once funded, however, Michigan would receive an estimated $146,100,000 to build and preserve affordable housing for extremely low income people for every $5 billion invested in the National Housing Trust Fund.
Please consider endorsing the United for Homes campaign and encouraging a solution to the housing crisis in Michigan. Help end homelessness now.
(Statistics provide by the National Low Income Housing Coalition “Out of Reach” report)