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Property Taxes and Housing Allocation Under Financial Constraints

Author

Listed:
  • Joshua Coven
  • Sebastian Golder
  • Arpit Gupta
  • Abdoulaye Ndiaye

Abstract

Low property taxes amplify lock-in among elderly homeowners, limiting housing access for young families. Raising them reallocates housing toward the young through two channels: capitalization into lower prices reduces required downpayments for financially constrained buyers, a form of embedded leverage, while higher tax obligations raise holding costs for older owners. In our overlapping generations model, raising California’s property taxes to Texas levels increases young homeownership while decreasing elderly homeownership. Removing step-up basis also lowers elderly homeownership, suggesting their tenure is sustained by bequest tax advantages. The tax treatment of housing shapes housing allocation across generations.

Suggested Citation

  • Joshua Coven & Sebastian Golder & Arpit Gupta & Abdoulaye Ndiaye, 2026. "Property Taxes and Housing Allocation Under Financial Constraints," NBER Working Papers 35587, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35587
    Note: AG PE
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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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