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Another Look at Tenure Choice, Inflation, and Taxes

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  • James R. Follain
  • David C. Ling

Abstract

The purpose of this paper is to explore the impact of inflation on the demand for housing. The first part of the paper presents a theoretical model that identifies the effects of inflation on the after-tax cost of housing and the choice between rental and owner-occupied housing. The second part discusses the results of a simulation model that measures the effect of inflation on the aggregate demand for housing, the aggregate homeownership rate, and the price of housing. The paper concludes that while inflation can be expected to increase the aggregate demand for housing and the price of housing relative to the general price level, inflation should ultimately lead to lower rates of homeownership. A corollary that is probably more relevant today is that lower inflation rates should reduce the real value of the housing stock and increase the homeownership rate. The paper also contains forecasts of the impact of the Tax Reform Act (TRA) of 1986 upon housing demand and the probability of homeownership for a variety of households. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • James R. Follain & David C. Ling, 1988. "Another Look at Tenure Choice, Inflation, and Taxes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(3), pages 207-229.
  • Handle: RePEc:bla:reesec:v:16:y:1988:i:3:p:207-229
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00455
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    Cited by:

    1. Winston T.H. Koh & Edward H.K. Ng, 2004. "Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period," International Real Estate Review, Asian Real Estate Society, vol. 7(1), pages 71-97.
    2. Andrew Narwold, 2004. "Ownership of Residential Rental Property in Regional Housing Markets," ERSA conference papers ersa04p494, European Regional Science Association.
    3. Wood, Gavin A., 2001. "Are There Tax Arbitrage Opportunities in Private Rental Housing Markets?," Journal of Housing Economics, Elsevier, vol. 10(1), pages 1-20, March.
    4. Arrondel, Luc & Lefebvre, Bruno, 2001. "Consumption and Investment Motives in Housing Wealth Accumulation: A French Study," Journal of Urban Economics, Elsevier, vol. 50(1), pages 112-137, July.
    5. repec:bla:econpa:v:35:y:2016:i:4:p:332-346 is not listed on IDEAS
    6. Blackley, Dixie M. & Follain, James R., 1996. "In search of empirical evidence that links rent and user cost," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 409-431, June.
    7. Forgionne, G. A., 1996. "Forecasting army housing supply with a DSS-delivered econometric model," Omega, Elsevier, vol. 24(5), pages 561-576, October.

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