The impact of taxing vacancy on housing markets: Evidence from France

Vacancy is a common phenomenon across developed countries. Policymakers seek to reduce vacancy as it is seen as a challenge to housing affordability, especially in large cities. Taxing vacant housing is becoming a more popular tool among lawmakers, and yet this instrument has never been properly evaluated. This paper provides the first evaluation of a tax on vacant housing. First, I develop a model to understand the mechanisms of vacancy creation. Then, I use the quasi-experimental setting of the introduction of a tax on vacancy in France in 1999 to identify the causal direct effect of the tax on the vacancy rate. Exploiting an exhaustive administrative dataset, which contains information on every housing unit in France from 1995 to 2013, I implement a difference-in-difference approach combined with a propensity score matching strategy. Results suggest that the tax accounted for a 13% decrease in vacancy rates between 1997 and 2001. The impact is especially concentrated in long-term vacancy. Results also suggest that most of the vacant units were turned into primary residences.