John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... 
Former HUD Secretary Henry Cisneros spoke on a wide-variety of housing and real estate topics in Denver today.
Is it time to write off the second-home write off? Cast your vote at the end of this blog.
The mortgage deduction on second homes may need to be eliminated to help reduce the federal debt, former HUD Secretary Henry Cisneros said today in Denver.
Cisneros, who was also was the four-term mayor of San Antonio, said this morning that he knows he is “parting with his home-building brethren” by taking that position. Many of the homes in Colorado’s mountains, for example, are second, vacation homes. Cisneros is the executive chairman of Los Angeles-based CityView, which is developing the Peloton housing community in Boulder.
Bipartisan Task Force
During a wide-ranging interview with reporters,Cisneros noted that he serves on a bipartisan task force looking at ways to trim the nation’s debt. He said the debt had been about 30 percent of the GDP historically, has doubled to about 60 percent, and in the next 10 year or so it is projected to be “100 percent-plus of the GDP.” Later Tuesday afternoon, in a private interview with InsideRealEstateNews, Cisneros clarified his position on eliminating the second-home mortgage deduction, noting that the Bipartisan Policy Center Debt Reduction Task Force has not “reached the debate phase yet,” so he can’t say he officially opposes eliminating the second-home mortgage deduction.
“But It is hard to defend the interest-deduction for second-homes, vacation homes,” Cisneros toldInsideRealEstateNews.
In order to combat the growing and long-term debt problem, Cisneros said that some “common sense” measures must be taken. He said he has “pledged to keep an open mind,” on a wide number of ways to reduce the size of the debt. To get the debt under control, ultimately will take a mixture of new taxes, cutting government expenditures and growing the economy, he said ”We can’t just grow ourselves out of the problem,” he said. “It will take all three- new taxes, cutting government spending and economic growth.” Cisneros said that the task force is focusing on ways to reduce the debt, as opposed to the “year-to-year deficits.”
“Dagger in the heart”
It would be a disaster to eliminate the second-home mortgage deduction, especially at a time when the vacation housing market is on the ropes, said Jim Cook, of Colorado Group Realty in Steamboat Springs, .
“Tell that liberal Cisneros – Henry -Hank – that is the stupidest goddamn thing I have ever heard,” Cook said. The mountain resort housing market, he said, “is all ready destroyed” because of the economy, and removing the second-home deduction ”would just put the dagger in its heart.” Rather than eliminate the mortgage deduction, Cook said that a better idea would be to increase transfer fees, as long as a portion of the fees are given to the county to help fund affordable housing.
Cisneros, when told of Cook’s comments, understood his frustration and reluctance to eliminate a major financial incentive to buy or own a vacation home. Currently, homeowners can write off up to $1 million in mortgage interest on either a first or second home. “You hate to do anything to deflate the housing industry, especially at this vulnerable time,” Cisneros said. “But the problem of the debt is not going to go away and we are going to have to make some very tough choices.”
Primary home mortgage deduction safe
However, Cisneros said one thing that will remain in place is the deduction on most mortgages for primary residences. Increasingly, pundits have talked about eliminating the mortgage write-off, which costs the Treasury about $120 billion annually.
“It is not going to happen,” Cisneros said about the mortgage deduction for most homeowners. “That is a third-rail in America. It’s like saying you’re going to privatize Social Security, or something. It’s embedded in the American psyche. ”
Fannie, Freddie need to stick to knitting
Meanwhile, on other issues, Cisnersos, who last week attended the U.S. Treasury Department’s Housing Finance Summit, said he opposed eliminating Fannie Mae and Freddie Mac, although he wants them to return to their core businesses of supplying a secondary market for mortgages. He said Fannie, Freddie and FHA-insured mortgages, and other government programs, account for about 9 out of every 10 mortgages made, and that volume can’t be picked up solely by the private sector, as some would like. He said country’s such as Mexico, which do not have a secondary market to provide liquidity for making mortgages, do not have a homeownership rate as high as in the U.S. He did say that Fannie and Freddie had strayed from its mission of providing liquidity in the market. Instead, it packaged risky mortgage instruments that led to Fannie and Freddie being taken over by the government, as the nation’s housing market collapsed for the first time since the Great Depression. Cisneros said executives at the institutions had become more interested in paying themselves “huge bonuses, making them some of the highest paid people in Washington,” rather than serving their core duties.
“Fannie and Freddie should be restructured to focus on the essential mission of providing liquidity for housing purchases,” Cisneros said. “That mission must be performed for the American housing sector to prosper.”
Fan of tax credits
Cisneros also said he still thinks the federal home buying tax credit was a good idea, despite the National Association of Realtors’ reporting today that existing home sales fell by 27 percent in July from June, twice what analysts had predicted. He said the tax credits helped the housing industry and the economy, at a time when both were vulnerable. Cisneros also lauded Denver Mayor John Hickenooper for using federal stimulus money to keep people from losing their homes to foreclosure through the Take Root Denver program. The program will allow the city to buy, rehabilitate and re-sell more than 450 foreclosed homes through 2013 ”I believe we need to do everything we can to keep families in their homes, and not lose them in foreclosures…It is hard to envision a national economic recovery that doesn’t include the housing sector, since it is such a large part of gross domestic product.”
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AND, eliminate the deduction for ANY personal (i.e., not business-related) mortgage.
I say this as someone who takes the deduction every year on our income tax return.
You should be buying a house because you want to own/decorate/personalize your residence and not because of spiffs from the government.
David, Puulease get over “own/decorate/personalize your residence”. You must have a chummy little nest that serves your yummy needs. So what is your point? Some people own a house to stay dry when it is wet and warm when it is cold. Or, maybe, just to park their motorcycles in their living room.
The real point is the government needs to stay out of everyone’s business. Tax here, deduction there, credits, no tax, big tax, little tax, luxury tax, second home deduction….. Enough already. We need the invisible hand. “Thank you, Adam.” That’s all. Then guys like Cisneros can try and justify their developments on the strength of their economics alone. “Cisneros is the executive chairman of Los Angeles-based CityView, which is developing the Peloton housing community in Boulder.” I’ll be there are some tax advantages built into that project. Maybe they should eliminate those tax benefits as well.
That would be a great start to completely getting rid of the mortgage deduction, the accumulation of wealth for the average family in America. If you own your own home, your children are more apt to go to college (because of that one accumulated asset). The American dream turned into an ATM card over the last decade. 90% of the taxes are paid by 10% of the people already. Lets even out the playing field, create some jobs, and maybe even try to create some people that want to work, get America back on it’s feet.
Jim Cook is a douchebag who only cares about his own selfish interests.
And, yes, this is a personal attack.
I take offense to Dave’s comment about Mr. Cook. If you don’t look out for your own selfish interests, who is going to look out for you? The government? As the owner of a real estate office in the mountain communities we have seen true devastation because banks won’t loan on condominiums even with 30% down. We have asked our Senator to promote legislation that would consider us a resort area and thus allow condo financing to happen. Currently many parts of Florida have this designation. Instead Mr. Polis decided to push legislation for affordable housing instead. As we saw with the great tax incentive, there just aren’t enough first time buyers to make a lasting impression on the housing market. In order to soak up the excess inventory, we need to make it easier for investors, not harder. Removing the second home deduction is insanity. Extending it to investment property would make much more sense. Quite honestly we as a nation need to put an end to the endless handout programs in Washington. The only job sector with any significant growth this year was (drumroll please) GOVERNMENT! We cannot have our government spend our way out of this economy.
1. “our Senator… Instead Mr. Polis”
Uh, Jared is your rep and not your senator.
2. Read your own words: “Extending it to investment property would make much more sense. Quite honestly we as a nation need to put an end to the endless handout programs in Washington.”
What do you think the deduction is? It is a “govt handout”.
“The Bigger the Government, the Smaller the Citizen”
You don’t grow an economy by raising taxes – you grow a government by raising taxes. the bigger the government, the more people rely on that government to see them through rather than do for themselves.
Quoting here:
Five reasons why bigger government makes less impressive people.
1. People who are able to take care of themselves and do so are generally better than people who are able to take care of themselves but rely on others. Of course, there are times when some people have absolutely no choice and must rely on others to take care of them. Life is tragic and some people, despite their best efforts and their commitment to being a responsible person, must have others support them.
Even if one believes that the ideal society is one in which the state takes care of as many of our needs as possible, one must acknowledge that this has deleterious effects on many, if not most, citizens’ moral character. The moment one acknowledges that the more one takes care of oneself, the more developed is his or her character, one must acknowledge that a bigger state diminishes its citizens’ characters.
Presumably one might argue that there is no relationship between character development and taking responsibility for oneself. But to do so is to turn the concept of character, as it has been understood throughout Judeo-Christian and Western history, on its head. The essence of good character is to care of oneself and then take of others who cannot take care of themselves.
2. The more people come to rely on government, the more they develop a sense of entitlement — an attitude characterized by the belief that one is owed (whatever the state provides and more). This is a second big government blow to character development because it has at least three terrible consequences:
First, the more one feels entitled, the less one believes he has to work for anything. Why work hard if I can look to the state to give much of what I need, and, increasingly, much of what I want? Second, the more one feels entitled, the less grateful one feels. This is obvious: The more one expects to be given, the less one is grateful for what one is given. Third, the more entitled and the less grateful one feels, the angrier one becomes. The opposite of gratitude is not only ingratitude, it is anger. People who do not get what they think they are entitled to become angry.
3. People develop disdain for work.
One of the effects of the welfare state on vast numbers of European citizens is disdain for work. This is in keeping with Marx’s view of utopia as a time when people will work very little and devote their large amount of non-working time writing poetry and engaging in other such lofty pursuits. Work is not regarded by the left as ennobling. It is highly ennobling in the American value system, however.
4. People become preoccupied with vacation time.
Along with disdain for work, one witnesses among Western Europeans a preoccupation with not working. Vacation time has become a moral value among many Europeans. There have been riots in countries like France merely over working hours. In Sweden and elsewhere, more and more workers take more and more time off from work, knowing they will be paid anyway. In Germany and elsewhere, it is against the law to keep one’s store open after a certain hour, lest that give that store owner an income advantage and thereby compel a competing store to stay open longer as well. And, of course, Americans are viewed as working far too hard.
5. People are rendered more selfish.
Not only does bigger government teach people not to take care of themselves, it teaches them not to take of others. Smaller government is the primary reason Americans give more charity and volunteer more time per capita than do Europeans living in welfare states. Why take care of your fellow citizen, or even your family, when the government will do it for you?
This preoccupation with self includes foreign policy: Why care about, let alone risk dying for, another country’s liberty? That is the view of the world’s left. That is why conservative governments are far more supportive of the war efforts in Iraq or Afghanistan than left-wing governments of the same country. The moment the socialists won in Spain, they withdrew all their forces from Iraq. The new center-left government in Japan has promised to stop helping the war effort in Afghanistan.
Of course, there are fine idealistic individuals on the left, and selfish individuals on the right. But as a rule, bigger government increases the number of angry, ungrateful, lazy, spoiled and self-centered individuals. Which is why some of us believe that increased nationalization of health care is worth shouting about. And even crying over.
Uh Dave, you are right. Then again he certainly doesn’t represent me or my views whether he is a senator or a representative.
On your second point…if you are going to give a handout…which handout is going to stimulate the economy? I don’t think any of us who own investment property are necessarily looking for a handout, but we are tired of the extended unemployment benefits and other “gifts” given to those unwilling to work.
I apologize for the profanity, the message remains the same. Mr. Cisneros further goes on to state that Colorado is just about out of the housing crisis. What planet is he from actually ? Our inventories here and nation wide need to be absorbed before we will even come near to exiting the state we are in. A recent study stated that 10 years worth of jobs can be credited the the construction of one home (appliances,lumber industry, plumging fixtures, etc.) The extrapolated number of jobs totally is in excess of 2,000,000 annually. Building homes and buildings is one of the few manufacturing areas that we still control in the U.S. with local workers, but since we are close to being out of the housing crisis, I guess those numbers do not matter.
J. Cook