The Effectiveness of the 2008-2010 Housing Tax Credit
University of Washington - Department of Finance and Business Economics
Kellogg School of Management - Department of Finance
May 23, 2011
Fiscal stimulus has been suggested as a tool to prevent excessive price declines by creating incentives to increase current demand. In 2008 and 2009 the U.S. Congress passed several housing tax credits to encourage activity in the residential real estate market. This paper examines the impact of the different housing tax credits on the demand for housing during the Great Recession. Using city level data we implement a differences - in - differences - in - differences methodology to isolate the impact of the tax credits on the price and quantity of housing transactions. We find that quantity was not perceptibly affected and that prices rose only temporarily. The results show no statistically significant difference in quantity sold during the credits from the periods before and after the credits. However, prices in affected housing markets rose $6,116 more than unaffected markets during the program. This price differential more than reverses, falling $6,470 after the expiration of the final tax credit program (which gave $6,500-8,000 to a broad class of homebuyers). The speed of these price movements is quick. The price rises during the first major tax credit, peaks during the subsequent and broadest credit, then drops back to pre-legislation levels within two months of the credit expiration.
Number of Pages in PDF File: 55
Keywords: Housing, Tax Credit, Stimulus, Residential Real Estate
JEL Classification: E62, E65, H22, R31, G18
Date posted: July 10, 2011 ; Last revised: September 17, 2011
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