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

Benjamin H. Harris

Published: June 05, 2013
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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 president’s 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.