Property Tax Web Series

Abstract

We study the dual role of real-estate investors – households who own multiple housing units – in ownership and rental housing markets. Exploiting a series of capital-gains tax changes and rich administrative data from Israel, we first show that sales by real-estate investors increased by 50% after they were unexpectedly exempt from paying capital-gains taxes. Investors predominantly sold housing units that they had been renting out, and these units were sold to first-time homeowners. Next, we exploit pre-policy local variation in the housing stock owned by investors and examine how sales induced by the tax changes affected house prices and rents. We find that a one percentage-point increase in investors’ sales out of stock leads house prices to decrease by 14% and rents on new leases to increase by 10%. These effects are larger for smaller and older units, in which investors own a larger share of the stock of housing units, and for rents in new leases. The results suggest that policies that encourage investors to sell can achieve their stated objective of reducing house prices, but also run the risk of restricting the supply of rental housing and resulting in higher rents.

This paper was presented by Yael Elster (University of Haifa) on December 2, 2022 as part of the 2022-2023 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. Lei Shao (Central University of Finance and Economics, China) was the discussant for this presentation. Shao comments on Elster's "Real-Estate Investors, House Prices and Rents: Evidence from Capital-Gains Tax Changes."