Taxes, Inflation, Speculation and the Cost of Homeownership*

Douglas B. Diamond

Real Estate Economics, 1980, vol. 8, issue 3, 281-298

Abstract: This article formulates a measure of the cost of homeownership which accounts for (1) the tax subsidy to homeowning, (2) the element of expected inflation in mortgage interest rates and (3) speculation about appreciation in real house prices. Each component of the total cost of homeowning is estimated annually across the decade of the 1970s. Total real costs are found to have trended down during the period, primarily because of a decline in the real interest rate and increases both in the real tax subsidy and in expectations of real appreciation.

Date: 1980
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