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Property Taxes and Housing Allocation under Financial Constraints

Author

Listed:
  • Joshua Coven
  • Sebastian Golder
  • Arpit Gupta
  • Abdoulaye Ndiaye

Abstract

Property taxes impact the housing distribution across generations. Low property taxes lead to concentrated ownership among elderly empty-nesters, limiting housing for financially constrained young families. Conversely, high property taxes act as a “forced mortgage,” reducing upfront downpayments and enabling greater homeownership among younger households. We show in an overlapping generations model that raising property taxes in low-tax California to match those in higher-tax Texas increases homeownership in California by 4.6% and among younger households by 7.4% in steady state. Asset taxes can reallocate housing to higher-valuation households in the presence of financial constraints, providing an independent rationale for property taxes.

Suggested Citation

  • Joshua Coven & Sebastian Golder & Arpit Gupta & Abdoulaye Ndiaye, 2024. "Property Taxes and Housing Allocation under Financial Constraints," CESifo Working Paper Series 11203, CESifo.
    • Handle: RePEc:ces:ceswps:_11203
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    References listed on IDEAS

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    1. Kamila Sommer & Paul Sullivan, 2018. "Implications of US Tax Policy for House Prices, Rents, and Homeownership," American Economic Review, American Economic Association, vol. 108(2), pages 241-274, February.
    2. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    3. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    4. Matthew Rognlie, 2015. "Deciphering the Fall and Rise in the Net Capital Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 1-69.
    5. Matthew Rognlie, 2015. "Deciphering the Fall and Rise in the Net Capital Share: Accumulation or Scarcity?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 1-69.
    6. C. Luke Watson & Oren Ziv, 2021. "Is the Rent Too High? Land Ownership and Monopoly Power," CESifo Working Paper Series 8864, CESifo.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    property taxes; housing affordability; housing inequality;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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