Government Intervention in the Housing Market: Who Wins, Who Loses?
University of Chicago - Department of Economics; Reserve Bank of New Zealand
New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
We study the effects of government interventions in the U.S. housing market on prices, quantities, allocations, and welfare in a general equilibrium model with heterogeneous agents. We consider (i) the introduction of temporary home purchase tax credits and (ii) a removal of the asymmetric tax treatment of owner-occupied and rental housing. Home buyer tax credits temporarily raise house prices and transaction volumes, but have negative effects on welfare. Removing the asymmetric tax treatment of owner-occupied and rental housing generates welfare gains for a majority of agents in a comparison of stationary equilibria. Importantly, welfare impacts are more varied, though still positive, along the transition between steady states.
Number of Pages in PDF File: 47
Keywords: Housing Market, Mortgage Interest Deductibility, Imputed Rents, Home Purchase Tax Credits, Policy Evaluation, Transition between Steady States
JEL Classification: C6, E21, E6, H21, R21
Date posted: April 2, 2010 ; Last revised: October 3, 2014
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