Tax Incentives and Housing Decisions: Effects of the Tax Cut and Jobs Act

41 Pages Posted: 23 Feb 2021 Last revised: 9 Oct 2021

See all articles by Erik Hembre

Erik Hembre

University of Illinois at Chicago - Department of Economics

Raissa Dantas

University of Illinois at Chicago

Date Written: October 8, 2021

Abstract

The Tax Cut and Jobs Act (TCJA) altered the US tax code, greatly reducing itemization rates and effective homeownership subsidies. Using American Community Survey data combined with the NBER TAXSIM program, we estimate the TCJA caused the average effective homeownership subsidy value to decline 62%, from $2,154 to $801. Variation in state taxes and house price levels creates variation in exposure to the TCJA effective homeownership subsidy shock. Utilizing this variation, we find that each percentage point decline in the effective homeownership subsidy lowered homeownership rates by 0.56 percentage points and mortgages by 0.69 percentage points.

Keywords: Homeownership, mortgage interest deduction, housing finance

JEL Classification: H2, R38, R31

Suggested Citation

Hembre, Erik and Dantas, Raissa, Tax Incentives and Housing Decisions: Effects of the Tax Cut and Jobs Act (October 8, 2021). Available at SSRN: https://ssrn.com/abstract=3779520 or http://dx.doi.org/10.2139/ssrn.3779520

Erik Hembre (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States

HOME PAGE: http://www.ssc.wisc.edu/~hembre/

Raissa Dantas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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