Opinion: 'The phasing out of mortgage interest deductions is inevitable'
What was once seen as the ultimate way to stimulate homeownership is now recognized as a barrier to affordable access to the housing market and a financial burden on the budget. The mortgage interest deduction is, in the words of Pieter Duisenberg (VVD!), president of the Court of Audit, part of "30 billion euros worth of measures that are currently ineffective." And that's just one of the powerful signals: in recent urgent letters, experts warn that by maintaining this deduction, politicians are actually exacerbating the problems in the housing market. Abolishing the mortgage interest deduction has now become politically inevitable, not only because it is one of the most powerful tools for partially solving the housing crisis, but also because the budget needs to be balanced.
The gradual phasing out of the deduction breaks this mechanism. If buyers can offer fewer overbids, homes become more affordable and the flow of buyers will improve. Families can move more easily, seniors can downsize, and the pressure on the rental market decreases. Moreover, the phasing out will generate billions for the treasury, which are desperately needed for investments in housing, infrastructure, and defense.
Of course, existing homeowners will lose some of their tax benefits, and a price stabilization or slight decline can be painful for those who recently bought at a high price. But this loss is offset by a broader societal benefit: first-time buyers and future generations will once again have the opportunity to secure affordable housing, while the budget will become healthier. The OECD underscored this analysis in a comprehensive report on the Dutch economy last July.
This has shattered the sacred cow. This creates room for debate no longer about whether the measure should be abolished, but about how it can be phased out smoothly. An abrupt abolition would destabilize the housing market and cause problems for many households. Therefore, a gradual, well-considered implementation is crucial. By starting with higher incomes, who utilize the deduction most and are least affected by the phase-out, the measure becomes more socially fair. A form of compensation or transitional arrangement can be applied temporarily to first-time buyers and households with lower or middle incomes. This prevents these groups from being disproportionately affected during a period when housing costs are already high.
Defended for years
The mortgage interest deduction has been defended for years as a support for homeownership, but in practice, it has proven to be a price-increasing subsidy that exacerbates the housing crisis, which, according to polls, is the most important issue in the upcoming elections. Because homeowners can deduct their mortgage interest for tax purposes, they can borrow more, which has artificially inflated house prices. First-time buyers hardly benefit from this advantage, but are nevertheless confronted with sky-high prices that force them out of the market.The gradual phasing out of the deduction breaks this mechanism. If buyers can offer fewer overbids, homes become more affordable and the flow of buyers will improve. Families can move more easily, seniors can downsize, and the pressure on the rental market decreases. Moreover, the phasing out will generate billions for the treasury, which are desperately needed for investments in housing, infrastructure, and defense.
Of course, existing homeowners will lose some of their tax benefits, and a price stabilization or slight decline can be painful for those who recently bought at a high price. But this loss is offset by a broader societal benefit: first-time buyers and future generations will once again have the opportunity to secure affordable housing, while the budget will become healthier. The OECD underscored this analysis in a comprehensive report on the Dutch economy last July.
Costs
The mortgage interest deduction costs the Netherlands over €11 billion and is one of the largest and most ineffective tax breaks in the country. Especially at a time when major structural austerity measures are needed, this presents an opportunity for savings that is hard to match in scale. While the mortgage interest deduction was long considered politically taboo, the two main contenders for the premiership have now made it clear that they are willing to reform the system.This has shattered the sacred cow. This creates room for debate no longer about whether the measure should be abolished, but about how it can be phased out smoothly. An abrupt abolition would destabilize the housing market and cause problems for many households. Therefore, a gradual, well-considered implementation is crucial. By starting with higher incomes, who utilize the deduction most and are least affected by the phase-out, the measure becomes more socially fair. A form of compensation or transitional arrangement can be applied temporarily to first-time buyers and households with lower or middle incomes. This prevents these groups from being disproportionately affected during a period when housing costs are already high.
Communication
A second prerequisite for a smooth implementation is clear communication. The government must clarify well in advance what steps will be taken and how long the process will take. Only then can buyers, banks, and real estate agents align their decisions with the new reality. An independent committee can monitor whether the effects on house prices, purchasing power, and mobility meet expectations, so that adjustments can be made promptly if necessary. A controlled reduction of the mortgage interest deduction will help the housing market and the national budget. Opposition to this adjustment, which almost all experts consider logical, means another standstill in one of the most important political issues in our country.
This article previously appeared on Advocatie: https://www.advocatie.nl/opinie-en-blogs/opinie-de-afbouw-van-de-hypotheekrenteaftrek-is-onvermijdelijk/
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