Taxation and housing markets with search frictions

Abstract

Housing taxation is an important policy instrument that shapes households' choices about homeownership and renting as well as the evolution of the housing market. We study the effects of housing taxation in a model with search and matching frictions in the property market and a competitive rental market. We show a new transmission channel for a housing tax reform that works through a 'shifting' effect from landlords to tenants. We calibrate the model in order to estimate the long-run effects of a recent housing market taxation reform and the extent of property tax capitalization on house prices. We show that property taxation on owner-occupied dwellings has a negative effect on property and rental prices, whereas taxes on second homes have opposite qualitative effects. The simultaneous increase in both these instruments may mitigate the dynamics of prices and rents as well as the change in the ratio between the share of owners and renters, leading to a partial capitalization taxation on prices.

Global greenhouse gas emissions from residential and commercial building materials and mitigation strategies to 2060

“…This can lead to land urbanizing at a faster rate than the population, resulting in ‘ghost cities’ and a higher vacancy rate, especially in shrinking or population-outflow regions 79 , 80 . The policy options for dealing with high vacancy rates and underutilized building capacity also rely on cross-sectoral policy packages including upstream land resources management 80 and downstream taxation on vacant and rent dwellings 81 . Another example is the split incentives faced by tenants and owners in building operations.…”

Implications of US Tax Policy for House Prices, Rents, and Homeownership

“…We calibrate the interest rate on deposits, r , and the mortgage rate, r m = r + κ , to 4 percent and 5.5 percent. 18 The interest rate on deposits is calibrated to approximately match the average real interest rate of 3.8 percent on a 30-year constant maturity Treasury bond over the period 1977 to 2008. Similarly, the mortgage interest rate spread, κ , of 1.5 percent matches the spread between the nominal interest rate on a 30-year fixed-rate conventional home mortgage and the nominal 18 An online Appendix examines the response of the model to tax reform under a lower interest rate of r = 0.02 .…”

Housing Sustainability: The Effects of Speculation and Property Taxes on House Prices within and beyond the Jurisdiction

“…Previous studies have adopted various approaches to determine the influence of taxation on house price volatility. Most studies have used policies related to transaction or retention links of housing and aggregate national-scale data to assess policy implications on housing prices [56,57]. In addition, they have either framed the analysis in the context of market distortion [47,49,52,58,59], analyzing investment behavior [60,61], or cost-value analysis [62,63].…”

“…Studies conducted to assess the retention taxes have framed their analysis in the context of cost capitalization [16,56] and impact variation [66][67][68] due to variation in population income level, tenure status, investment choice, and service value. The aggregate outcome of these policies is not uniform.…”

“…Similarly, recurrent property taxes implemented by local governments to fund public services are highly dependent on the quality of services provided. The relationship between tax rate and public service expenditure determines the quality of public goods [50,56]. However, the impact of property taxes on house prices may cause a differential outcome.…”