IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3963.html
   My bibliography  Save this paper

Taxation and Housing: Old Questions, New Answers

Author

Listed:
  • James M. Poterba

Abstract

This paper sketches how the tax reforms of the 1980s affected the incentives and distortions associated with tax policy toward housing markets. There are three principal conclusions. (1) Reductions in marginal tax rates, particularly for high-income households, reduced the tax-induced distortion in the user cost of owner-occupied housing. This lowered the deadweight losses associated with the favorable tax treatment of homeownership. (2) The increase in the standard deduction in the Tax Reform Act of 1986 (TRA86) removed several million middle-income homeowners who previously itemized from the ranks of itemizers. For these households TRA86 raised the marginal cost of owner-occupied housing. These changes also exacerbated the regressive nature of the mortgage interest subsidy. In 1988, more than half of the tax losses associated with mortgage interest deductions accrued to the 8% of taxpayers with the highest economic incomes. (3) TRA86 reduced incentives for rental housing investment, contributing to the decline in new multifamily housing starts from 500,000 per year in 1985 to less than 150,000 in 1991. In the long-run these policies will lead to higher rents.

Suggested Citation

  • James M. Poterba, 1992. "Taxation and Housing: Old Questions, New Answers," NBER Working Papers 3963, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3963
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3963.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    2. 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.
    3. James R. Follain & Patric H. Hendershott & David C. Ling, 1987. "Understanding the Real Estate Provisions of Tax Reform: Motivation and Impact," NBER Working Papers 2289, National Bureau of Economic Research, Inc.
    4. 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;National Tax Journal, vol. 44(2), pages 147-168, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3963. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.