Tax Subsidies and Housing Affordability

Abstract

We argue that the incidence of tax subsidies to make housing affordable depends on four parameters: the elasticity of supply and demand, and the distribution of housing ownership and consumption. We estimate these parameters with administrative data on real estate transactions and survey data on household balance sheets in Luxembourg. Using kinks in the taxes on transactions and on new constructions, we find that the top 10% of households by real estate wealth capture between 17% and 26% of the surplus from housing tax subsidies.

Keywords: Real Estate, Taxes, Housing Subsidies, Housing Affordability

JEL Classification: G51, H71, R21, R31