NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxing and Subsidizing Housing Investment: The Rise and Fall of Housing's Favored Status

Patric H. Hendershott, Michael White

NBER Working Paper No. 7928
Issued in October 2000
NBER Program(s):   PE

This paper surveys and interprets a wide body of literature on the taxation and subsidization of investment in owner-occupied and rental housing. Where available, the study considers experiences outside of the United States. Issues addressed include what nonneutral taxation is, how taxation/subsidization has varied relative to this standard over the last thirty years, the impact of subsidies on house prices, housing consumption and tenure, and rationales for preferring one tenure choice over another. We find a broad increase in housing's favored status during the 1970s, a reversal during the 1980s, and a further decline in this status during the 1990s. There are two broad components to these shifts. First, there is an endogenous component caused by variations in the inflation rate. Because housing is the tax-favored asset, the higher are nominal returns, the greater is the tax advantage. This is reinforced by tax bracket creep; again, being the tax-favored asset, the higher are tax rates, the greater is the tax advantage. Second, there is an exogenous component, largely reflected in the cutting of tax rates even below what they were in 1970 and the weakening of the mortgage interest deduction in many countries. We attribute this component to the aging of the baby-boomers, which first provided a constituency for more generous treatment of owner-occupied housing, but now is working in the opposite direction.

download in pdf format
   (196 K)

email paper

This paper is available as PDF (196 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Glaeser and Shapiro w9284 The Benefits of the Home Mortgage Interest Deduction
Berkovec and Fullerton w2826 The General Equilibrium Effects of Inflation on Housing Consumption and Investment
Poterba w3963 Taxation and Housing: Old Questions, New Answers
Hendershott and Pryce w11489 The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest
Sinai and Gyourko w10322 The (Un)changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us