Two new reports underscore the need to make tax benefits for homeownership better targeted and to achieve better balance between federal subsidies for homeownership and rental housing. The National Low Income Housing Coalition is proposing modifications to the mortgage interest deduction (MID) that will achieve both these objectives, while producing savings to fund the National Housing Trust Fund. The Government Accountability Office released its report, Tax Expenditures: Background and Evaluation Criteria and Questions, the week of January 7. The report provides criteria for assessing federal tax expenditures, which cause the federal government to forgo a significant amount of revenue. “If the Department of Treasury estimates are summed, an estimated $1 trillion in revenue was forgone from the 173 tax expenditures reported for fiscal year 2011,” the report says. “Since 1994, we have recommended greater scrutiny of tax expenditures, as periodic reviews could help determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of other programs with similar goals,” the GAO authors write. The report suggests five questions, each with sub-questions, meant to gauge a tax expenditure’s value: 1. What is the tax expenditure’s purpose and is it being achieved? 2. Even if its purpose is achieved, is the tax expenditure good policy? 3. How does the tax expenditure relate to other federal programs? 4. What are the consequences for the federal budget of the tax expenditure? 5. How should evaluation of the tax expenditure be managed? The report uses MID as an example. “[O]ne rationale for the MID is that it encourages home ownership. To the extent that the deduction is effective, it increases housing demand, which may raise the price of housing. Depending on how much the deduction increases housing demand, some of the benefits of the tax expenditure will flow in the form of higher prices and incomes to other parties [beyond homeowners] such as home builders, mortgage lenders, and real estate agents,” the report says. Another study released by Smart Growth America finds that the federal government spends $450 billion dollars on real estate each year, but little of this investment is directed towards low income households most in need of housing assistance. The study surveys federal budgets between FY07 and FY11, focusing on 50 federal programs funding real estate. The inventory covers programs providing loans, loan guarantees, tax breaks and direct grants to real estate projects or individual homeowners across the country. Direct loans and guarantees make up the bulk of real estate-related spending. Between FY07 and FY11, the federal government spent $1.4 trillion on loans to support single-family, multifamily, rural housing and commercial development. However, the report notes that most loan and guarantee programs favor the development of single-family properties. Support for the development of multifamily rental units comprise just 16% of total federal housing and real estate outlays, even though renters make up 35% of the U.S. population. Over the five-year study period, federal loan guarantees for single-family homes totaled $1.1 trillion, compared to just $112 billion for multifamily. Tax expenditures compose the second largest group of federal real estate-related outlays. The largest tax expenditure is the MID, costing the government $400 billion dollars over the five-year study period. In comparison, total HUD spending over the study period was $184 billion. Because MID is claimed by homeowners who itemize their mortgages, the deduction favors higher income households. Most federal spending on housing programs between FY07 and FY11 benefited high income households. The average housing subsidy in FY08 benefiting households earning over $200,000 totaled $6,253, while the average subsidy benefiting low income households earning below $10,000 totaled just $833. The report makes several suggestions to guide future federal real estate investments. First, the researchers support balanced housing spending, with more consideration for funding multifamily housing choices in order to reflect current demand for rental and multifamily units. Second, the authors say reinvestment in existing communities is more cost-effective, and should be favored over the development of new neighborhoods and infrastructure at the fringe of regions. Lastly, the report calls for the federal government to devote greater resources towards supporting a housing safety net for low income families.Click here to view GAO-13-167SP.Click here to download Federal Involvement in Real Estate: A Call for Examination from Smart Growth America’s website. Click here to read more about the proposal to fund the NHTF with savings from modifications to the MID. Click here to endorse the proposal to fund the NHTF with savings from modifications to the MID.