The housing ladder, taxation, and borrowing constraints
Jan Kakes () and
MEB Series (discontinued) from Netherlands Central Bank, Monetary and Economic Policy Department
Using a multi-tier model of the housing market, we show that both starters and movers benefit from mortgage interest deduction for higher income groups. However, such tax favouring also tends to facilitate house price explosions, especially when interest rates and downpayment ratios are low. More in general, the efficiency of implicit tax subsidies to homeowners depends critically on the price responsiveness of new construction, which is found to differ strongly from country to country. Irrespective of supply conditions, running down mortgage interest deduction is likely to detract from the profits of lending institutions.
Keywords: House prices; Housing market; Mortgage lending; Taxation (search for similar items in EconPapers)
JEL-codes: G12 G21 H20 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-mfd, nep-pbe and nep-ure
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Working Paper: The Housing Ladder, Taxation, and Borrowing constraints (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:mebser:2002-9
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