The Impact of the Tax Cuts and Jobs Act on Local Home Values

44 Pages Posted: 15 May 2018

See all articles by Hal Martin

Hal Martin

Federal Reserve Bank of Cleveland

Date Written: May 11, 2018

Abstract

This paper simulates changes to neighborhood home prices resulting from reforms to tax preferences in the recently passed Tax Cuts and Jobs Act (TCJA). The simulation uses federal tax data summarized at a fine geography to impute homeowner rents at the zip code level across six income classes. Employing a user cost framework, I model rents as a function of prices under the old tax law and under the TCJA. While the average price impact of the TCJA is found to be -5.7 percent, local effects range from 0 to -23 percent across zip codes. Variation across income class is also large. Simulations by income class suggest that the most severe declines in price occur for upper middle-income households ($100,000 - $200,000). The paper also simulates partial versions of the TCJA that omit different features of the law that affect housing preference. I find that the higher standard deductions in the new law are the largest driver of price declines.

Keywords: mortgage interest deduction, housing subsidy, income tax

JEL Classification: H24, H31, R21

Suggested Citation

Martin, Hal, The Impact of the Tax Cuts and Jobs Act on Local Home Values (May 11, 2018). FRB of Cleveland Working Paper No. 18-06, Available at SSRN: https://ssrn.com/abstract=3179067 or http://dx.doi.org/10.2139/ssrn.3179067

Hal Martin (Contact Author)

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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