Tax Incentives and Housing Decisions: Investigating Effects of the Tax Cut and Jobs Act

40 Pages Posted: 23 Feb 2021

See all articles by Erik Hembre

Erik Hembre

University of Illinois at Chicago - Department of Economics

Raissa Dantas

University of Illinois at Chicago

Date Written: February 18, 2021

Abstract

The Tax Cut and Jobs Act (TCJA) altered the tax code, greatly reducing
itemization rates. Utilizing American Community Survey data combined
with the NBER TAXSIM program, we calculate the TCJA caused the
average homeownership subsidy to decline by 56% from $2,677 in 2017 to
$1,171 in 2018. Comparing similar households that vary in subsidy shock
exposure due to state tax rates and house price levels, we nd that each
percentage point decrease in the TCJA homeownership subsidy lowers
homeownership rates by 0.54 percentage points and mortgage utilization by
0.76 percentage points. Using Freddie Mac mortgage origination data, we
additionally nd that lenders absorbed 5% to 7% of the subsidy incidence
through decreasing mortgage interest rates.

Keywords: Homeownership, mortgage interest deduction, housing finance.

JEL Classification: H2, R38, R31

Suggested Citation

Hembre, Erik and Dantas, Raissa, Tax Incentives and Housing Decisions: Investigating Effects of the Tax Cut and Jobs Act (February 18, 2021). Available at SSRN: https://ssrn.com/abstract=3779520 or http://dx.doi.org/10.2139/ssrn.3779520

Erik Hembre (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States

HOME PAGE: http://www.ssc.wisc.edu/~hembre/

Raissa Dantas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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