From Stocks to Bricks: The Housing Market Effects of Dividend Tax Hikes

Abstract

This paper examines how dividend taxes affects real estate markets. In theory, higher dividend taxes can affect household portfolio allocation by prompting a shift from equity investments toward real estate assets. We exploit both variation in federal U.S. dividend tax schedules and cross-county and cross-income-group exposure to the 2013 U.S. dividend tax hike. Using both aggregate county and county–income-group level mortgage data over the period 2005--2020, we find that higher marginal dividend tax rates are associated with greater mortgage demand and with higher house price growth, with in particular in supply-constrained housing markets. The event-study difference-in-differences design around the 2013 reform confirms these patterns: affected counties with more high-income households show a significant increase in mortgage demand and in house prices. We also find evidence of increased rents, indicating spillovers into broader housing affordability. These results highlight an important consequence of capital income taxation: policies aimed at taxing equity returns can propagate into local housing markets, amplifying demand and exacerbating affordability pressures, especially in areas with limited housing supply.

Keywords: Dividend Tax, Real Estate Investment, Housing Markets, Tax Policy

JEL Classification: E21, G11, G51, R21, R31