Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms

James M. Poterba

NBER Working Paper No. 3270 (Also Reprint No. r1611)
Issued in February 1990
NBER Program(s):Public Economics

The tax changes of the 1980s altered the incentives for housing consumption. Marginal tax rate reductions in both the Economic Recovery Tax Act (1981) and the Tax Reform Act (1986) reduced the attraction of homeownership, particularly at high income levels. The Tax Reform Act, by lowering depreciation allowances and implementing anti-tax shelter provisions, also reduced the net tax subsidy to rental housing. In the long run these changes will raise real rents and reduce the fraction of national income that is allocated to housing. Preliminary evidence shows a pronounced decline in rental housing construction since the 1986 tax bill, as well as a decline in the real price of owner-occupied homes which may be partly attributable to the tax change.

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Document Object Identifier (DOI): 10.3386/w3270

Published: Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.