Center for Policy Research
Property Tax Web Series
"To Own or to Rent? The Effects of Transaction Taxes on Housing Markets"
Lu Han, L. Rachel Ngai, and Kevin D. Sheedy
September 2022
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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.
This paper was presented by Lu Han (University of Wisconsin-Madison) on September 9, 2022 as part of the 2022-2023 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. Stephen Ross (University of Connecticut) was the discussant for this presentation. Ross comments on Han's "To Own or to Rent? The Effects of Transaction Taxes on Housing Markets."
This Syracuse-Chicago Webinar Series on Property Tax Administration and Design aims to gather insight and scholarship through domestic and international comparative studies with common threads to help reform and improve property tax administration and design in the U.S. and other countries facing similar problems.
For questions about the webinars, please contact Zia Jackson. For questions about this paper, please contact the author or authors.