Inflation, Risk, Taxes, and the Demand for Owner-Occupied Housing

The Factors Which Caused the Decline in the Amount of the Newly One Family Houses Sold in US

“…Homeownership usually necessitates borrowing, making the interest rate a key factor in the demand for housing. Aspergis (2003) stated that interest rates were the most important factor influencing housing demand, outweighing both inflation and unemployment as an explanatory variable which reinforced a conclusion suggested by Goodwin (1986), among others. Feldstein and Summers (1978) noted that the tax deductibility of mortgage interest plays a role in increasing the real interest rate, with cost depreciation lowering it.…”

“…Their work also suggested that a reverse causality could result, with relaxed borrowing constraints increasing housing demand and therefore prices. Goodwin (1986) noted that inflation -distorted home prices may actually increase demand by acting as inflation hedges, with homeowners using increased home equity to compensate for rising prices in other areas.…”

“…By increasing the price of housing, inflation can be assumed to reduce the demand for housing in inflationary times. Yet if used as an inflation hedge, housing demand may actually increase with inflation (Goodwin, 1986). The tax deductible nature of nominal rates of mortgage interest can actually lower the real cost of capital and therefore stimulates demand and homeownership (Rosen and Rosen, 1980), especially given the fact that capital gains are not taxable for first-time home sales.…”

The Tax Treatment of Housing: Economic Issues and Reform Measures

“…Economists have tended to treat housing as an investment asset in analysing tax expenditures (Rosen, 1979 ;de Leeuw and Ozanne, 1981 ;Goodwin, 1986) . There are two main reasons for this classification of housing.…”

High inflation and returns on residential real estate: evidence from Turkey

“…The decline in the relative cost of home ownership will increase the demand for owner occupation, as a result, house prices will increase. Several researchers, for example, Summers (1981), Poterba (1984), Goodwin (1986) and Manchester (1987), have explained the boom in house prices in the US during the 1970s this way.…”