How does the government love housing?
The Government Accountability Office counted the ways. The federal government’s involvement in the housing industry — which is between one-sixth and one-fifth of the economy — is “fragmented across 160 programs and activities,” it found in 2012.
Through spending programs, the tax code, government-sponsored enterprises and regulations, the government touches every aspect of the housing market.
Credit programs, not direct spending, are the government's No. 1 tool for boosting housing. Congress is lumbering toward reform of the most notorious of those, namely the bailed-out, government-sponsored enterprises Fannie Mae and Freddie Mac. The bipartisan leadership of the Senate Banking Committee introduced a bill in March to unwind Fannie and Freddie that likely will be the template for legislative reform of the country's system of housing finance.
Fannie and Freddie together guarantee nearly three-quarters of all new mortgages, according to Freddie Mac. The two companies do not issue loans, but buy them from lenders and package them into securities to sell to lenders.
It’s hard to assess exactly how much the government spends on credit programs like the ones extended through Fannie and Freddie. Currently, the two are highly profitable, paying the Treasury $130 billion in 2013.
But in a fair-value accrual basis of accounting, the two business' insurance programs would be a $28.4 billion liability to the government over the next 10 years, the Congressional Budget Office recently estimated.
Although the debate over Fannie and Freddie will monopolize the conversation about housing policy for months or years, a handful of other government programs are comparably significant.
Here are three:
1. The Federal Housing Administration provides guarantees for mortgages for low-income Americans. It also has an associated government-sponsored enterprise, known as Ginnie Mae, which packages the loans it guarantees into securities. In an appraisal similar to the one it ran on Fannie and Freddie, the CBO found that the FHA and Ginnie Mae will cost the government $60 billion over the next 10 years.
As for its economic impact, the FHA had a $1.3 trillion book of insured loans at the end of 2013.
2. The Federal Home Loan Banks are a system of 12 banks that provide low-cost funding to member banks that make mortgage loans. Although the government doesn’t guarantee the FHLBs, they do lend “at rates that benefit from an implicit guarantee,” said Alex Pollock, an American Enterprise Institute fellow and former president and CEO of the Chicago Federal Home Loan Bank.
Between advances to other banks and mortgages held for their own portfolios, the FHLBs have about $510 billion in obligations.
Among the GSEs, FHA and FHLBs, as well as smaller programs run through the Veterans Administration and the Department of Agriculture, the vast majority of home loans in the U.S. benefit from some kind of government credit guarantee or aid.
3. The mortgage interest deduction: Homeowners are allowed to deduct the interest paid on home loans of up to $1 million from their taxable income. This provision is the third largest "tax expenditure" in the tax code, which the Joint Committee on Taxation expects to total about $70 billion in foregone revenues in 2014.
The deduction, meant to boost homeownership, is highly regressive. The CBO estimated that three-quarters of the benefits of the deduction accrue to the top quintile of income earners in 2013.
The mortgage interest deduction is far from the only tax preference for housing. For instance, capital gains on home sales are also excluded from taxable income for some earners, another $25 billion subsidy.
GSEs, credit programs and tax code provisions far outstrip the government's direct involvement in housing. Uncle Sam will spend roughly $20 billion on housing vouchers, $10 billion on project housing, and $6.5 billion on public housing in 2014, according to the Office of Management and Budget.
But those are only the biggest government programs — more than a hundred more litter the federal register.
“It’s a wide net. It goes a lot of places,” Pollock said.