Tax Reform, Transaction Costs, and Metropolitan Housing in the United States

Research Report

Tax Reform, Transaction Costs, and Metropolitan Housing in the United States

June 5, 2013

Abstract

This study analyzes the effect of tax reforms on housing prices in selected cities. Using a model that incorporates transaction costs, the study finds (1) the presidents proposed limit on itemized deductions would have a minimal impact on housing prices; (2) eliminating itemized deductions altogether would cause housing prices to fall markedly; (3) limiting the mortgage interest deduction while providing a flat closing credit can boost housing prices; and (4) the higher 2013 tax rates are unlikely to substantially boost housing prices. Together, these findings suggest that plausible tax reforms will have only a modest impact on housing prices.

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