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To Own or to Rent? The Effects of Transaction Taxes on Housing Markets

Lu Han (), L. Rachel Ngai and Kevin D. Sheedy ()
Additional contact information
Lu Han: University of Wisconsin-Madison
Kevin D. Sheedy: London School of Economics (LSE)

No 2317, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Using sales and leasing data, this paper finds three novel effects of a higher property transaction tax: higher buy-to-rent transactions alongside lower buy-to-own transactions, despite both being taxed; lower sales-to-leases and price-to-rent ratios; and longer time-on-the-market. This paper explains these facts by developing a search model with entry of investors and households choosing to own or rent in the presence of credit frictions. A higher transaction tax reduces homeowners’ mobility and increases demand for rental properties, which reduces the homeownership rate. The deadweight loss is large at 113% of tax revenue, with more than half of this due to distorting decisions to own or rent.

Keywords: rental market; buy-to-rent investors; homeownership rate; transaction taxes (search for similar items in EconPapers)
JEL-codes: D83 E22 R21 R28 R31 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2023-06
New Economics Papers: this item is included in nep-pub and nep-ure
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Working Paper: To Own or to Rent? The Effects of Transaction Taxes on Housing Markets (2022) Downloads
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