The idea of our Public Benefit Housing system is to have a apartment blocks bought by non-profit organizations which take out mortgage on the property which it then pays off and never refinances. Then the units are rented and some are subsidized to help benefit employees of non-profit entities. What this seems to leave out is a tax benefit that is offered by the United States federal government to those households paying interest on mortgages.
Can this tax structure be of benefit to those living in this public benefit housing system? I don’t know, this would take a tax attorney or something, but here is how it could work.
If the people in the units were actually those that owned the mortgage, then part of the “rent” they were paying would go directly to paying the mortgage interest. Indirectly this is what is happening– the fees paid by the residents is going into a pool and much of that is going to pay the mortgage. But if it were structured such that the occupants were actually on the mortgage document for as long as they were an occupant, then that part of their rent might be able to be applicable to the home mortgage deduction system.
As I understand how the home mortgage deduction system works is that a person can deduct from their income the amount they pay on interest on their home mortgage. This means that if you make $50,000 a year and pay $10,000 a year in mortgage interest (and it is mostly interest most of the 30 years), then your new income from a federal tax point of view is $40,000. Thus the difference in taxes paid might be 28% of the $10,000, or $2,800. Thus the government is offering a subsidy to mortgage holders of the incremental tax rate or currently about 28%. This can be seen as a decrease of the cost of holding a mortgage by almost 28%.
Can we fashion our Public Benefit Housing system to take advantage of this? Can people that live in the apartment system be on the mortgage for the purposes of getting this deduction? This might take a flexible credit union, or it might take flexibility on the part of Fannie Mae, the quasi-government entity that buys most mortgages from the banks. But if this is possible, then this has the benefit of making the “rent” in the apartments be less expensive to the tenants that pay taxes. Unfortunately it also makes it more beneficial to keep a mortgage going by remortgaging even if it is not needed, which will benefit competitors that do not have a mandate to escape debt when they can, but at least there might be some benefit.