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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. 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.
    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. 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.
    4. C. Luke Watson & Oren Ziv, 2021. "Is the Rent Too High? Land Ownership and Monopoly Power," CESifo Working Paper Series 8864, CESifo.
    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. 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.
    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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