Marginal Suppliers, Taxation, and Rental Housing: Evidence from Microdata

Gavin A. Wood and Richard K. Watson

Journal of Housing Research, 2001, vol. 12, issue 1, 91-114

Abstract: Typically, when the effects of tax reform are measured, it is assumed that marginal suppliers belong to the highest income tax bracket. This assumption is critical because in competitive housing markets, tax shelter benefits from investments in rental housing will be passed on in the form of lower market rents that reflect the investor’s tax bracket. We address that issue using a survey of landlords who leased 1,907 rental properties in Australia in 1993. User cost of capital estimates are obtained for each of those properties, and the marginal suppliers’ income tax brackets are identified.We find that most marginal landlords have marginal income tax rates lower than that in the highest income tax bracket. Tax reforms will then have a nonuniform impact in the rental housing market. This proposition is explored in two microsimulations. The first measures the change in suppliers’ user costs if passive losses are not deductible from other sources of income. The second measures the effects of introducing a low-income housing tax credit.

Date: 2001
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DOI: 10.1080/2167034X.2001.12461340

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