The Economics of Tenure Choice: 1955-79

39 Pages Posted: 7 Jul 2004 Last revised: 28 Jun 2010

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

Date Written: September 1980

Abstract

The aggregate homeownership rate in the United States has continued to rise throughout the 1970s despite rising inflation and the rapid growth of young and primary individual households with relatively low homeownership rates. This appears to be a result of a decline in the cost of homeownership relative to renting. The post 1965 decline in the real after-tax interest rate has acted to reduce the costs of both types of housing. However, inflation, and legislation induced increases in taxation of rental housing have largely offset the decline in the net real financing rate. Depreciation is based on historic cost and nominal capital gains are taxed. Moreover, this taxation was increased in 1969 and 1976 with the introduction and expansion of the minimum tax, the increased recapture of accelerated depreciation, and the amortization, rather than expensing, of construction period interest and property taxes. The decline in the cost of owner-occupied housing relative to rental housing is estimated to have sharply increased homeownership. In the absence of this decline 4.5 to 5 million fewer households would have been homeowners at the end of 1978. That is, the homeownership rate would have been 60 percent, rather than 65 percent.

Suggested Citation

Hendershott, Patric H. and Shilling, James D., The Economics of Tenure Choice: 1955-79 (September 1980). NBER Working Paper No. w0543. Available at SSRN: https://ssrn.com/abstract=264377

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James D. Shilling

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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