The Effectiveness of the 2008-2010 Housing Tax Credit

55 Pages Posted: 10 Jul 2011 Last revised: 17 Sep 2011

Jonathan Brogaard

University of Washington - Department of Finance and Business Economics

Kevin Roshak

University of Houston - Department of Finance

Date Written: May 23, 2011

Abstract

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.

Keywords: Housing, Tax Credit, Stimulus, Residential Real Estate

JEL Classification: E62, E65, H22, R31, G18

Suggested Citation

Brogaard, Jonathan and Roshak, Kevin, The Effectiveness of the 2008-2010 Housing Tax Credit (May 23, 2011). Available at SSRN: https://ssrn.com/abstract=1882599 or http://dx.doi.org/10.2139/ssrn.1882599

Jonathan Brogaard (Contact Author)

University of Washington - Department of Finance and Business Economics ( email )

Box 353226
Seattle, WA 98195
United States

Kevin Roshak

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

Paper statistics

Downloads
272
Rank
91,301
Abstract Views
2,447