Does the U.S. tax treatment of housing promote suburbanization and central city decline?
AbstractThis paper examines the role of U.S. housing-related tax expenditures in creating incentives for decentralization and encouraging residential sorting by income and central city decline. Tax expenditures associated with the deductibility of mortgage interest and property taxes make housing less expensive relative to other goods and, hence, increase the quantity of housing and residential land purchased and lower the density of urban areas. Because the tax expenditures increase with income and the consumption of housing services, they lower the cost of geographic sorting by income typically associated with exclusionary zoning and other land- market imperfections. A direct consequence of this sorting process is that housing-related tax expenditures are concentrated in communities with the highest incomes and house values. These effects do not arise simply because of housing-tax policies alone, but rather from the interaction of these policies and other factors that affect local real e state markets, such as zoning or fixed housing capital stocks. Three models are developed to formally analyze these issues. In the authors' base case model in which there are no land-use constraints and local amenities are fixed, tax deductions related to home ownership result in population decentralization within the metropolitan area and a less dense central city, but do not induce sorting by income. Moreover, land prices in the city increase because the subsidy increases the aggregate demand for housing in all communities. Thus, the mere presence of the federal housing tax expenditures increases decentralization, but cannot generate America's patterns of income sorting and central city decline. These conclusions change in an important way in the authors' second model in which a land-use constraint, such as the type of minimum lot-size zoning prevalent in the suburbs, is introduced. In this case, the housing subsidies foster the separation of the rich from the poor. Inco me sorting results, and consequently, there is an increasing concentration of the poor in the central city. However, there still is no weakening of prices in city land markets in this model. The third and final model endogenizes the production of local amenities in the sense that they are made an increasing function of community income. In this case, three characteristics common to American urban form result: population decentralization within the metropolitan area, increased concentration of the poor in the urban core, and weak city land markets. These results indicate that America's current urban form reflects, at least in part, incentives arising from the interaction of the national tax and local zoning systems, rather than unique American tastes for low-density living environments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 97-13.
Date of creation: 1997
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Voith, 1996.
"The suburban housing market: effects of city and suburban employment growth,"
96-15, Federal Reserve Bank of Philadelphia.
- Richard Voith, 1999. "The Suburban Housing Market: Effects of City and Suburban Employment Growth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(4), pages 621-648.
- Martin Feldstein, 1982.
"Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital,"
NBER Working Papers
0753, National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1982. " Inflation, Tax Rules and the Accumulation of Residential and Nonresidential Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 293-311.
- Martin Feldstein, 1983. "Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 81-100 National Bureau of Economic Research, Inc.
- Richard Voith, 1999. "Does the federal tax treatment of housing affect the pattern of metropolitan development?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-16.
- Matthew E. Kahn, 2000. "The environmental impact of suburbanization," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(4), pages 569-586.
- Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000.
"Why Do the Poor Live in Cities?,"
NBER Working Papers
7636, National Bureau of Economic Research, Inc.
- Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do The Poor Live In Cities?," Harvard Institute of Economic Research Working Papers 1891, Harvard - Institute of Economic Research.
- Richard Voith, 1998. "Transportation investments in the Philadelphia metropolitan area: who benefits? Who pays? And what are the consequences?," Working Papers 98-7, Federal Reserve Bank of Philadelphia.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).
If references are entirely missing, you can add them using this form.