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The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto

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Listed:
  • Ben Dachis
  • Gilles Duranton
  • Matthew A. Turner

Abstract

Taxes levied on the sale or purchase of real estate are pervasive but little studied. By exploiting a natural experiment arising from Toronto’s imposition of a Land Transfer Tax (LTT) in early 2008, we estimate the impact of real estate transfer taxes on the market for single family homes. Our data show that Toronto’s 1.1% tax caused a 15% decline in the number of sales and a decline in housing prices about equal to the tax. Relative to an equivalent property tax, the associated welfare loss is substantial, about $ 1 for every $ 8 in tax revenue. The magnitude of this welfare loss is comparable to those associated with better known interventions in the housing market. Unlike many possible tax reforms, eliminating existing LTTs in favour of revenue equivalent property taxes appears straightforward.

Suggested Citation

  • Ben Dachis & Gilles Duranton & Matthew A. Turner, 2011. "The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto," Working Papers tecipa-423, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-423
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    1. Edward L. Glaeser & Erzo F. P. Luttmer, 2003. "The Misallocation of Housing Under Rent Control," American Economic Review, American Economic Association, vol. 93(4), pages 1027-1046, September.
    2. Jos Van Ommeren & Michiel Van Leuvensteijn, 2005. "New Evidence of the Effect of Transaction Costs on Residential Mobility," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 681-702, November.
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    More about this item

    Keywords

    Land transfer tax; property tax; land regulation;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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