Why Political Uncertainty May Paralyze the Housing Market

Henrik Lando and Michael Teit Nielsen
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Michael Teit Nielsen: Institute of Economics, University of Copenhagen

No 90-09, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Agents trade in the housing market either now, where there is uncertainty concerning the future tax rule for house-owners, or later, when this uncertainty has been resolved. We show that when changes in the tax rule are expected to have a not too heavy impact on the future price of houses, there can be no trades in the housing market now. Both sellers and buyers have an incentive to stay flexible anda adjust the choice of housing to the actual tax rule. Furthermore, when house prices adjust partially to the new tax rule, postponing entry into the housing market will be less risky.

Pages: 22 pages
Date: 1990-05
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9009

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