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Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms

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  • James M. Poterba

Abstract

The tax changes of the 1980s altered the incentives for housing consumption. Marginal tax rate reductions in both the Economic Recovery Tax Act (1981) and the Tax Reform Act (1986) reduced the attraction of homeownership, particularly at high income levels. The Tax Reform Act, by lowering depreciation allowances and implementing anti-tax shelter provisions, also reduced the net tax subsidy to rental housing. In the long run these changes will raise real rents and reduce the fraction of national income that is allocated to housing. Preliminary evidence shows a pronounced decline in rental housing construction since the 1986 tax bill, as well as a decline in the real price of owner-occupied homes which may be partly attributable to the tax change.

Suggested Citation

  • James M. Poterba, 1990. "Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms," NBER Working Papers 3270, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3270
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    References listed on IDEAS

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    1. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, vol. 79(2), pages 325-330, May.
    2. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Joel B. Slemrod, 1983. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 427-458 National Bureau of Economic Research, Inc.
    4. Goulder, Lawrence H. & Summers, Lawrence H., 1989. "Tax policy, asset prices, and growth : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 38(3), pages 265-296, April.
    5. Berkovec, James & Fullerton, Don, 1989. "The General Equilibrium Effects of Inflation on Housing Consumption and Investment," American Economic Review, American Economic Association, vol. 79(2), pages 277-282, May.
    6. Titman, Sheridan D, 1982. " The Effects of Anticipated Inflation on Housing Market Equilibrium," Journal of Finance, American Finance Association, vol. 37(3), pages 827-842, June.
    7. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics,in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022 Elsevier.
    8. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
    9. 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.
    10. Patric H. Hendershott & David C. Ling, 1984. "Trading and the Tax Shelter Value of Depreciable Real Estate," NBER Working Papers 1267, National Bureau of Economic Research, Inc.
    11. Randolph, William C., 1988. "Estimation of housing depreciation: Short-term quality change and long-term vintage effects," Journal of Urban Economics, Elsevier, vol. 23(2), pages 162-178, March.
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    Cited by:

    1. David C. Ling, 1992. "Real Estate Values, Federal Income Taxation, and the Importance of Local Market Conditions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 125-139.
    2. Joe Peek & James A. Wilcox, 1991. "The Measurement and Determinants of Single-Family House Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 353-382.
    3. Romero-Jordán, Desiderio & del Río, Pablo & Peñasco, Cristina, 2016. "An analysis of the welfare and distributive implications of factors influencing household electricity consumption," Energy Policy, Elsevier, vol. 88(C), pages 361-370.

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