Tax Preferences and Housing Affordability: Explorations using a Life-Cycle Model

Michael Keane and Xiangling Liu

No 33809, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a dynamic life-cycle model of demand for owner-occupied housing, investment property and liquid assets. Households face transaction costs, downpayment requirements, liquidity constraints, and tax preferences for owner-occupied housing. The model replicates key facts about home ownership, liquid assets, debt and consumption. It predicts taxing imputed rent would raise enough revenue to fund a 9.15% income tax rate cut, and increase ex ante welfare of all agents. Eliminating the mortgage interest deduction (MID) also gives a Pareto improvement. Replacing MID with a refundable 24.6% mortgage interest credit would increase the ownership rate by 5.9%. Gains are concentrated among low to middle income households and young households, as housing becomes more affordable for them.

JEL-codes: G11 G51 H20 H31 R21 (search for similar items in EconPapers)
Date: 2025-05
Note: AG PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33809.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Tax preferences and housing affordability: Exploration using a life-cycle model (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33809

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33809
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().