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Urban and Regional Economics Seminars

To Own or to Rent? The Effects of Transaction Taxes on Housing Markets

Lu Han (Wisconsin School of Business), joint with Rachel Ngai (LSE) and Kevin Sheedy (LSE)


Friday 26 March 2021 13:00 - 14:30

ONLINE

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About this event

Using transaction records on housing sales and leases, we estimate the effect of Toronto’s imposition of a land transfer tax in 2008. We find two novel effects of an increase in land transfer tax: (1) a rise in buy-to-let transactions but a fall in owner-occupiers transactions despite the tax applied to both, (2) a fall in the price-to-rent ratio. We develop a housing search model with both ownership and rental markets to show that land transfer tax can generate lock-in effects both within the ownership market and across the two markets. It accounts for the two new facts by predicting a reduction in mobility within the ownership market, an increase in demand in the rental market, generating a fall in homeownership rate. The implied deadweight loss as a percentage of revenue raised is large at 45%, with half due to within ownership market and remaining half due to across the two markets.

This series is part of the CEP's Urban and spatial programme.