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Urban Studies
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Tax Deductions, Tax Credits and the Homeownership Rate of Young Urban Adults in the United States

Steven C. Bourassa

School of Urban and Public Affairs, University of Louisville, 426 W. Bloom Street, Louisville, Kentucky 40208, USA, steven.bourassa{at}louisville.edu, BEM Management School, 680 cours de la Libération, 33400 Talence, France

Ming Yin

Southern California Association of Governments, 818 W. Seventh Street, 11th Floor, Los Angeles, California 90017, USA, yin.ming{at}gmail.com

The US President's Advisory Panel on Federal Tax Reform has recommended changes to income tax concessions for homeowners. Consistent with the opinions of many economists, the tax reform panel concluded that the existing tax concessions are not particularly effective. The housing and mortgage industry have opposed the reforms, in part due to a fear that the reforms will reduce the homeownership rate. In this paper, 1998 American Housing Survey data are used to estimate a tenure choice equation and to simulate hypothetical changes in tax concessions. Focusing on young households who are likely to be on the margin between renting and owning, it is concluded that the mortgage interest and property tax deductions reduce the homeownership rate for these households due to effects on house prices. The tax credit proposed by the Advisory Panel would be likely to have a similar effect.

Urban Studies, Vol. 45, No. 5-6, 1141-1161 (2008)
DOI: 10.1177/0042098008089981
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