Giving Households Credit: How Changes in the Tax Code Could Promote Homeownership
Posted: 20 Sep 1996
Date Written: Undated
Recent Administration proposals intend to increase the homeownership rate by roughly 2.5 percent to 67.5 percent by the year 2000. The possible use of the federal tax code is virtually ignored in these proposals. Using a user cost framework incorporated into a tenure choice equation and both macro- and micro-level analyses, we demonstrate that the revenue-neutral replacement of the current deductibility of home mortgage interest and property taxes with a tax credit of the appropriate level alone can increase aggregate homeownership rates by approximately 3 percent. Moreover, these increases (and accompanying increases in home values) are even higher in lower-income neighborhoods, suggesting that such a policy could address the supplementary community development purpose of neighborhood stabilization.
JEL Classification: R21, R38, H23
Suggested Citation: Suggested Citation