McMansion Busting – Democrats Propose Removing Tax Benefits For Homes Larger Than 3,000 Square Feet
August 27th, 2007 by MG
McMansion is a slang architectural term which first came into use in the United States during the 1980s as a pejorative description. It describes a particular style of housing that—as its name suggests—is both large like a mansion and as generic and culturally ubiquitous as McDonald’s fast food restaurants.
We’ve seen these types of houses pop up all over the radar. And now in the credit crunch that we’re in, the Dems are proposing that we remove the tax benefit for those purchasing such large homes.
Typically I see a lot of promises from this side of the political spectrum, but we’re usually left with much ado about nothing. In this case though, I think it’s an excellent idea. Many people make a great salary, but after childcare costs, health insurance, and other bills, are left with little extra. For those sinking several thousand dollars each month into their homes, there’s obviously some stretch room.
In addition to helping the sprawl problem plaguing Arizona, this also has the distinct benefit of lowering collateral damage. I’m curious to hear more:
To add to the mortgage meltdown miseries, the credit panic, the plunging home sales and the rising foreclosures, here’s a new worry: a proposed cutoff of mortgage-interest tax deductions for houses with more than 3,000 square feet.
One of Capitol Hill’s most experienced and most powerful legislators is drafting a “carbon tax” bill that would do precisely that. The chairman of the House Energy and Commerce Committee, John D. Dingell (D-Mich.), expects to introduce comprehensive climate-change legislation when Congress returns next month.
Besides imposing hefty new federal taxes on gasoline, the forthcoming bill would, in Dingell’s words, seek to “remove the mortgage interest deduction on McMansions — homes over 3,000 square feet.” Dingell said he recognizes that such a proposal will spark much criticism, but he also said it is essential to reducing carbon emissions by 60 percent to 80 percent by 2050.
As the article states, this is more about energy waste, but I think it will also help neutralize the “eyes bigger than the pocketbook” problem that helped get us into this mess to begin with.
But it’s also not without it’s critiques:
But real estate and building groups were quick to offer critiques. Lawrence Yun, senior economist for the National Association of Realtors, produced preliminary estimates that ending mortgage-interest tax deductions for all single-family dwellings larger than 3,000 square feet would result in a national median-house-price decline of 4 percent on all homes, not just large houses. Yun said there are at least 10.4 million single-family houses with interior areas of 3,000 square feet or more, about 15 percent of the nation’s owner-occupied housing stock.
Dingell’s plan could also push up foreclosures because every 1 percent decline in median price leads to an additional 70,000 foreclosures, Yun said, citing industry research. A price decrease of 4 percent in a national market already swamped with foreclosures could add 280,000 to the total.
Linda Goold, the NAR’s tax counsel, challenged the Dingell plan on operational grounds. “We strongly support increasing energy efficiency in houses, but basing [taxation] on square footage rather than actual energy usage doesn’t make sense,” she said.
Goold also questioned the enforceability of a federal tax increase tied to the dimensions of structures. “Who is going to do the measurements?” she said. “Different people measuring square footage can come up with different numbers. That’s why MLS [multiple listing service] listings usually say the square footage is approximate.”
I think 3,000 square feet is a good barometer here. Although I’d also support a way to add a gray area of a couple hundred square feet if the owners can prove justification like an unusually large family, etc.
It’ll be interesting to see how this fleshes out. Currently 3,000 square feet comfortably fits about 5 to 6 bedrooms, with a good sized kitchen, family, and living room.
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1441 sq ft in my neighborhood (and specifically my lot) gets me a workable kitchen, dining room, Living room, home office, 3 bedrooms and 2 1/2 baths. I think 1.5K sqft is completely unnecessary for average living.
But who wants to be average, I’d really like a home theater room…. and a dedicated space for home brewing with a temperature controlled fermentation room…. and another bedroom for when family from out of town comes to visit… etc.
Drawing an arbitrary “line in the sand” and saying more than this is too much is really not something the government should be doing.
We shouldn’t be subsidizing mortgages in the first place, it helped fuel the bubble. So don’t think of it as punishment, but cutting off handouts.
These deductions are to help the lower and middle class afford homes. If the rich have a problem affording a million dollar house, settling for a smaller $800,000 house isn’t going to put them close to being homeless.
I’m a capitalist at heart, but I think this is a good compromise. Especially with it’s environmental impact as well. I pay more money each month to air condition 3 rooms I never even go in..
This is a bunch of B.S.. Depending where you live a 3000 Sq. Ft house isn’t one for the rich. In Wisconsin middle income families own these sizes houses. You don’t sound like a Capitalist, you sound like a socialist. More liberal class war fare at work. Just take away the hard working middle class Americans reasons for a better life. People that think like this make me sick to my stomach.
It only makes sense if those who have large houses “cheated” in some way to get the money to purchase it. Since this might be true for some but not all or the majority, there is no way you can punish people for being successful and working hard.
The only reason for giving people tax breaks to buy a house is to artificially influence the housing market. Since it’s already being artificially influenced, there can be nothing wrong with artificially influencing it to produce smaller houses.
They’re not really taxing you more, they’re just not taxing you less. The tax break is intended on lowering barriers. A key word in that last sentence was “break”. If you want to buy a 2900 sqft home the government’s going to give you a “break”. If you want to buy a 3000 sqft home, you’ll have to pay up what it’s worth, with no break.
If you went for deregulation, then no homes would get the break, over or under 3k. This would prevent people who are buying homes into the hundreds of square feet from buying homes at all.
Lesson here:
1) Limits are arbitrary, and silly things happen when you get close to them.
2) Unlike in sports, giving one player a point is not the same thing as taking away from the other player. People who think so misunderstand the interplay of fairness, greed, and capitalism.
The AMT or Alternative Minimum Tax is probably enough. 160K combined income and you’re deductions get chopped at a fixed level. If you can afford one of these, you probably are in the highest tax bracket already. So the only affect is pissing off this market segment (probably republican anyway, maybe that’s the reason).
It’s an interesting limit. But with 3 children and working from home I find that the houses I find would be 2800+sq feet to suit our families needs. Even those usually only have 4 bedrooms, not 5 or 6 the article mentions. It seems that the excess footage comes from extra rooms, such as dining room plus breakfast nook, multiple living areas, multiple bathrooms and the like.
At the same time, I would love to find a home that had a small “carbon footprint” even at that size. I think that’s where the difference should be made.
It’s a dumb barometer. 3,000 sq ft is a huge house for a couple without kids, but for an extended family living in a single house, or a family with 4+ kids, it’s not at all unreasonable. Further, size is a mediocre barometer of how energy efficient a house is. I put a second floor on my home, upgraded the wiring, split the house into several heating zones with independent programmable thermostats, upgraded the insulation — in all I halved my energy consumption in the process while doubling the size of my house.
A more logical “carbon tax” would be to tax energy consumption, would it not? What if you lived in a 4000 sq ft hole in the ground that’s off-grid using solar and wind power. A self-sustained castle, as it were. Why should you pay more for your mortgage as a carbon tax? Doubly so if your mortgage was used, in part to fund making it off-grid and hyper energy efficient? Also, it’s punishing people for the debt, not the size of the house. If you have a 3000 sq ft house and it’s paid off, no sweat. It only affects people that got a large house without having sufficient funds to put a good down payment or buy it outright (or, perhaps those taking out a second mortgage for some reason), you know, hard-working people trying to move up. No mortgage debt (rich enough to pay it off, or too poor to get the mortgage) and you’re good. Small house but 10 plasma TVs using 5x the national average in electricity — you’re good too.
If you believe that granting tax breaks subsidize mortgages, why not simply eliminate the mortgage tax deduction entirely (AMT already phases this out for higher-income families)?
Why not 4,500 square feet? Haven’t politicians screwed over the middle class enough?
…..or why not raise the 15% tax on private equity that allowed Warren Buffet to pay only 17.7% on the $46,000,000 he made last year.
Over in Australia, there’re moves afoot to copy the U.S. in making primary homes tax-deductible. Currently, it isn’t.
There are more than one way to skin this McMansion cat. On it’s own a McMansion, once built, doesn’t cause any more greenhouse emissions. It’s the cost of keeping it heated, and cooled.
For instance, a sufficient increase in the electricity charges would make McMansions more expensive to run. For instance, the rates can go up beyond a certain amount.
What about input costs? Urban sprawl is best addressed by housing developers having to stump up money for additional highways. Land clearing can be addressed by bringing to reality carbon trading.
Governments should not dictate to people what sized houses they should live in. Rather, they should make sure that the prices these people pay for their houses properly incorporates the costs it imposes on the government, the environment and on other people.
[...] Removing Tax Benefits For Homes Larger Than 3,000 Square Feet Interesting approach, but unlikely. Democrats Propose Removing Tax Benefits For Homes Larger Than 3,000 Square Feet McMansion Busting – Democrats Propose Removing Tax Benefits For Homes Larger Than 3,000 Square [...]
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Legislators will simply be outwitted by clever homeowners. They’ll partition their McMansions into duplexes and “rent” to their grown children, mothers-in-law, renters, or a home-based business.
It’s either all or none.
I imagine that changing the rules of the game after people purchase their house is going to lead to a lot more than 1% foreclosures. If people buy a house at the limit of their ability to pay based on the assumed tax discount, than eliminating that discount will be a tremendous burden.
Of course they could just sell, or try to sell, but how many of you would like to have to move out of your house based on a government change?
Maybe the effect of this won’t be that high given the phase out of deductions and AMT, depends on the correlation with high income. In some parts of the country, a 3000 sq ft house may not be that expensive.
A much better idea would be executions for government fraud and bribery convictions like China has started doing.
The government already gets too much money. The problem is it all goes to their friends instead of the citizens.
Tinker, tinker, tinker. Then when you’re done tinkering, let’s move on to tweaking. Today it’s 3,000sf, tomorrow it may be 2.967.45sf.
Does it ever occur to you that these endless changes and adding complexity to the tax code may be worse than the current villain-of-the-day?
I’d take any stable tax code over this constant change. My mom raised six kids in a +3k-sf house. In Mississippi. She’ll gladly take 300k for it today. It’s no McMansion (built early 70′s), but if you move it to some areas around SanFran, it’s a million-dollar home.
3k home size limits are nuts. Manhattan 500sf units are worth more than large-sized Olive Branch MS houses.
Get a grip, peeps. Not all of us live in your overheated and sprawling ‘hood. I have no taste for your local conditions dictating my world.
Its so strange to non Americans the size of what Americans call home.
In Singapore regardless of wealth (whether you got $1 or own a Hard Drive Factory) you are basically limited to a apartment because of the lack of space.
But no one complains its just the way it is.
But here in the States we have basically limitless land in much of the country so we can have anyone who is part of the middle-middle class or the upper-middle class can own basically a mansion.
[...] McMansion tax – I’m shocked this hasn’t been proposed by somebody in the Charlottesville area. [...]