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Property Taxes and Housing Allocation Under Financial Constraints

Institute Working Paper 93 | Published July 16, 2024

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Authors

Joshua Coven New York University
Sebastian Golder University of Hamburg
Arpit Gupta New York University
Abdoulaye Ndiaye NYU Stern School of Business
Property Taxes and Housing Allocation Under Financial Constraints

Abstract

Property taxes impact the housing distribution across generations. Low property taxes lead to concentrated ownership among elderly empty-nesters, limiting housing for financially constrained young families. Conversely, high property taxes act as a “forced mortgage,” reducing upfront downpayments and enabling greater homeownership among younger households. We show in an overlapping generations model that raising property taxes in low-tax California to match those in higher-tax Texas increases homeownership in California by 4.6% and among younger households by 7.4% in steady state. Asset taxes can reallocate housing to higher-valuation households in the presence of financial constraints, providing an independent rationale for property taxes.