To own or to rent? The effects of transaction taxes on housing markets

Han, Lu, Ngai, L. Rachel ORCID: 0009-0005-1605-856X and Sheedy, Kevin D. ORCID: 0000-0002-0247-6323 (2025) To own or to rent? The effects of transaction taxes on housing markets. Review of Economic Studies. ISSN 0034-6527 (In Press)

Text (Han_Ngai_Sheedy) - Accepted Version Pending embargo until 1 January 2100. Available under License Creative Commons Attribution. Download (1MB)

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, a lower sales-to-leases ratio, and a lower price-to-rent ratio. This paper explains these facts by developing a search model with entry of investors and households, households choosing to own or rent in the presence of credit frictions, and homeowners deciding when to move homes. A higher transaction tax reduces homeowners’ mobility and increases demand for rental properties, explains the empirical facts and reduces the homeownership rate. The deadweight loss is large at 111% of tax revenue, with more than half of this due to distorting decisions to own or rent.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
Date Deposited:	25 Feb 2025 11:12
Last Modified:	25 Feb 2025 11:33
URI:	http://eprints.lse.ac.uk/id/eprint/127406

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