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Vladimir_M comments on Review: Selfish Reasons to Have More Kids - Less Wrong
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If mortgage interest is tax-deductible but rent isn't, then you have to pay higher rent in order for it to be converted into an interest payment that would come out of pretax income. I think this is how Michael Vassar said the market got so messed up, though I don't know if I'm correctly attributing it to him, or if the notion is unique to him (I expect not).
There are two puzzling observations here, though:
In booming real estate markets, rent may in fact be cheaper than the interest on the equivalent house price even considering the tax break. I suppose this is because people count on appreciation, but we know how good that assumption is.
The lack of mortgage interest tax breaks in Canada doesn't make people's attitudes towards renting vs. buying any different than in the U.S. The only observable effect, as far as I know, is that Canadians on average struggle to pay off their mortgages more quickly.