Property Taxes and Housing Allocation Under Financial Constraints

Joshua Coven, Sebastian Golder, Arpit Gupta and Abdoulaye Ndiaye

No 19230, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Low property taxes amplify lock-in among elderly homeowners, limiting housing access for young families. Raising them reallocates housing toward the young through two channels: capitalization into lower prices reduces required downpayments for financially constrained buyers, a form of embedded leverage, while higher tax obligations raise holding costs for older owners. In our overlapping generations model, raising California’s property taxes to Texas levels increases young homeownership while decreasing elderly homeownership. Removing step-up basis also lowers elderly homeownership, suggesting their tenure is sustained by bequest tax advantages. The tax treatment of housing shapes housing allocation across generations.

Keywords: housing affordability; Housing inequality; Property taxes (search for similar items in EconPapers)
JEL-codes: H24 H71 J11 R21 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-hre, nep-pbe and nep-uep
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Working Paper: Property Taxes and Housing Allocation Under Financial Constraints (2026)
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