Working Paper: CEPR ID: DP17520
Authors: Lu Han; Liwa Rachel Ngai; Kevin D. Sheedy
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.
Keywords: rental market; buy-to-rent; investors; homeownership rate; transaction taxes
JEL Codes: D83; E22; R21; R28; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of the LTT (Y20) | Increase in the ratio of leases to sales (G32) |
| Introduction of the LTT (Y20) | Decline in purchases made by owner-occupiers (R21) |
| Introduction of the LTT (Y20) | Increase in purchases made by buy-to-rent investors (R21) |
| Introduction of the LTT (Y20) | Reduction in homeowner mobility hazard rate (R21) |
| Introduction of the LTT (Y20) | Increase in time on the market for sellers (R31) |
| Introduction of the LTT (Y20) | Decline in homeownership rate (R21) |
| Introduction of the LTT (Y20) | Deadweight loss from the LTT (H21) |
| Deadweight loss from the LTT (H21) | Decision-making process regarding ownership versus renting (R21) |