Estimating the demand and supply price-elasticity of housing floor space using a quasi-experiment VAT cut

Guillaume Chapelle and Alain Trannoy ()
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Alain Trannoy: CY Cergy Paris Université, THEMA

No 2026-11, Thema Working Papers from THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS

Abstract: Using French cadastral and transaction data, we study the effects of a VAT cut from 20% to 5.5% on new residential construction in and around about 600 deprived neighborhoods. The reduced rate raised the housing stock by 2% in floorspace terms, equivalent to roughly two years of residential investment over a decade, and generated a gain in total surplus of about €13.6 billion. We estimate the price elasticity of floor-space demand at −0.24, with a 60% pass-through to buyers; landowners and developers each capture roughly half of the remainder. We also confirm that housing supply in France is price-inelastic (elasticity of 0.35).

Keywords: VAT; Housing; price-elasticities (search for similar items in EconPapers)
JEL-codes: D61 H22 R31 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-hre and nep-uep
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2026-11

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