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The tax treatment of housing: its effects on bounded and unbounded communities

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  • Richard Voith
  • Joseph Gyourko

Abstract

This paper examines the potential impact of the federal tax treatment of housing, which provides tax advantages that increase with income and house value, on the pattern of development in U.S. metropolitan areas. The authors argue that the tax treatment of housing is likely to have impacts on older, developed communities with fixed boundaries, such as central cities, that differ from those on suburban areas, where there is an elastic supply of land. Using simple analytic models, the authors show that the tax treatment of housing not only increases the incentives for lower density development, but it also provides incentives for increased sorting of high- and low-income households into separate communities. Given the very large magnitude of the annual subsidies to housing ($65 billion) and the fact that these subsidies accrue to a relatively small share of home owners, the authors believe that the impact of these subsidies on the pattern of metropolitan development is potentially very important.

Suggested Citation

  • Richard Voith & Joseph Gyourko, 1998. "The tax treatment of housing: its effects on bounded and unbounded communities," Working Papers 98-23, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:98-23
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    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/1998/wp98-23.pdf
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    References listed on IDEAS

    as
    1. Follain, James R. & Ling, David C., 1991. "The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 44(2), pages 147-68, June.
    2. Peter Mieszkowski & Edwin S. Mills, 1993. "The Causes of Metropolitan Suburbanization," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 135-147, Summer.
    3. Follain, James R. & Ling, David C., 1991. "The Federal Tax Subsidy to Housing and the Reduced Value of the Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 44(2), pages 147-168, June.
    4. Joseph Gyourko & Richard Voith, "undated". "The Price Elasticity of the Demand for Residential Land," Zell/Lurie Center Working Papers 329, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    5. Edwin S. Mills, 1987. "Dividing up the investment pie: have we overinvested in housing?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 13-23.
    6. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 619-652.
    7. Richard Voith, 1999. "Does the tax treatment of housing create an incentive for exclusionary zoning and increased decentralization?," Working Papers 99-22, Federal Reserve Bank of Philadelphia.
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    Cited by:

    1. Judith Yates, 2003. "'The more things change?' An overview of Australia's recent home ownership policies," International Journal of Housing Policy, Taylor & Francis Journals, pages 1-33.
    2. Richard Voith, 1999. "Does the tax treatment of housing create an incentive for exclusionary zoning and increased decentralization?," Working Papers 99-22, Federal Reserve Bank of Philadelphia.
    3. Edward L. Glaeser & Matthew E. Kahn, 2001. "Decentralized Employment and the Transformation of the American City," Harvard Institute of Economic Research Working Papers 1912, Harvard - Institute of Economic Research.

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    Keywords

    Housing ; Taxation;

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