Tax breaks for the rich

I've long been suspicious and wary of the way in which most western countries subsidise home ownership. Partly because the subsidies are paid out in ways that divert funds from more productive investment; partly because they make it difficult for even hard-working ordinary people who aren't lucky enough to inherit property, to own a house; and partly because the wider economy begins to rely on unrealistically appreciating house values - so much so that government has a vested interest in continuing to prop them up.

Writing about the US, David Morris says:

For all but the very rich, houses represent the single largest source of lifetime financial savings. A low rate of home ownership, and the resulting low rate of savings, is particularly high among blacks and Hispanics. In 2005, government provided $150 billion to homeowners in tax subsidies. But the way the subsidies were structured did little to raise home ownership among these groups. Why not replace the housing tax deductions with a level refundable tax credit? .... Economists Richard Green ... and Kerry Vandell ... have examined such a system and predicted that it could increase overall home ownership by 3 to 5 percentage points. Even more impressive, a housing tax credit could increase home ownership by up to 8 percentage points among the lowest-income households.

Robert Brenner, in the Guardian writes that, following the crash and recession of 2000-01:

central banks turned again to the inflation of asset prices. By reducing real short-term interest rates to zero for three years, they facilitated an explosion of household borrowing that contributed to, and fed on, rocketing house prices. Inflated household wealth enabled increased consumer spending that, in turn, drove the expansion. Personal consumption plus residential investment accounted for 90-100% of the growth of GDP in the first five years of the current cycle. However, the housing sector alone was responsible for raising the growth of GDP by more than 40%, obscuring just how weak the recovery was.The rise in demand revived the economy.

Unfortunately, it's difficult to see how this merry-go-round can stop. Like a drug habit, or other poorly-thought out subsidies, these tax breaks become very difficult to end, even when the evidence of their woeful economic and social impacts has become obvious to all.