Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms
James M. Poterba
The tax changes of the 1980s altered the incentives for
housing consumption. Marginal tax rate reductions in both the
Economic Recovery Tax Act (1981) and the Tax Reform Act (1986)
reduced the attraction of homeownership, particularly at high
income levels. The Tax Reform Act, by lowering depreciation
allowances and implementing anti-tax shelter provisions, also
reduced the net tax subsidy to rental housing. In the long run
these changes will raise real rents and reduce the fraction of
national income that is allocated to housing. Preliminary
evidence shows a pronounced decline in rental housing construction
since the 1986 tax bill, as well as a decline in the real
price of owner-occupied homes which may be partly attributable to
the tax change.
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