Suburban development gets preferential tax treatment in the US. As a result, it is cheaper to spend a dollar on housing than on something else, so it encourages people to spend more money on housing. The tax code also favors new construction over renovation and infill development.

These protections are pervasive throughout federal and state tax codes, but a few rules stand out:

homeowners can deduct their property and mortgage interest, profits on home sales are not taxed, and new construction is a tax shelter.

1) Homeowners get major tax breaks.

Mortgage interest does not count as taxable income. In other words, homeowners can write off interest paid on their home loan in what is called the Mortgage Interest Deduction (MID). The MID was designed to encourage homeownership, but it largely benefits wealthy people who would have bought a home anyway. The MID encourages these people to spend more on their house, because the higher their tax bracket and the bigger their mortgage, the more they save.

The deduction = (tax bracket) * (mortgage interest). So if you’re in the 25% tax bracket and you pay $5,000 per year in interest, you save $1,250 on your taxes. If you buy a bigger, more expensive house and pay $10,000 per year in interest, you save $2,500.

Property taxes can also be deducted from a homeowner’s income. This has a similar effect to the MID, and it makes housing a much more attractive investment. It also encourages homeowners to lobby for regulations that increase their home’s value, because they are not taxed on increases in that value. This further tips the scales for people who own their home and against those who rent.

These lavish tax breaks push Americans towards the suburbs, because they encourage people to buy homes when they might otherwise rent. They also encourage people to buy larger homes than otherwise, because a dollar spent on a larger mortgage goes farther than that same dollar on any other purchase.