Taxes and House Prices
Dennis R. Capozza
University of Michigan, Stephen M. Ross School of Business
Richard K. Green
University of Southern California - Lusk Center for Real Estate
Patric H. Hendershott
University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)
The Charles A. Dice Center Working Paper Series 97-16
This research assesses the impact of income and property taxes on house prices using a decadal panel data set for 63 metropolitan areas from 1970 to 1990. Our evidence is consistent with full capitalization of marginal income tax rates into house prices. Full capitalization suggests that income tax changes have limited effects on the allocation of real capital among structure types, implying that past changes in the tax advantages have had little impact on home ownership and housing investment, in contrast to the conclusions of much of the existing literature. When we apply the results to some proposed tax changes, we compute substantial house price declines and wide geographic variation.
JEL Classification: H22, R38
Date posted: December 23, 1997
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