The housing ladder, taxation, and borrowing constraints
September 2003
Research Paper
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Using a multi-tier model of the housing market, we show that both starters and movers benefit from mortgage interest deduction for higher income groups. However, such tax favouring also tends to facilitate house price explosions, especially when interest rates and downpayment ratios are low. More in general, the efficiency of implicit tax subsidies to homeowners depends critically on the price responsiveness of new construction, which is found to differ strongly from country to country. Irrespective of supply conditions, running down mortgage interest deduction is likely to detract from the profits of lending institutions.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- G21 : Banks; Other Depository Institutions; Mortgages
- G12 : Asset Pricing
- H20 : Taxation, Subsidies, and Revenue: General
- R31 : Housing Supply and Markets
Automatically Extracted Terms
- price
- house
- housing
- mortgage
- interest
- income
- mover
- starter
- mortgage interest payments
- market
- tax deductibility
- house prices
- country
- supply
- model
- deductibility
- construction
- owner-occupied housing
- interest rates
- effect
