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

Lu Han, L. Rachel Ngai and Kevin Sheedy

No 17520, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 who decide to own or rent. The transaction tax increases the demand for rental properties, which reduces the homeownership rate and homeowners’ mobility. The deadweight loss from the tax is large at 79% of revenue, with 40% of this due to the decision to own or to 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)
Date: 2022-07
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Working Paper: To Own or to Rent? The Effects of Transaction Taxes on Housing Markets (2023)
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