The Magnitude of the Effects of the Property Tax on Operating and Investment Decisions in the Rental Housing Industry,

This paper has extended a model of investment and operating decisions in the rental housing market in order to estimate the magnitude of the impact of the property tax on capital investment, current services input, and housing input. It has been shown that the elasticities of factor inputs, and housing output are independent of the market structure given the assumptions of a Cobb-Douglas production function and a constant elasticity of demand for housing. In the competitive case with an infinite elasticity of demand for housing, the property tax can have a sizeable impact on the output of housing. In the more realistic case, however, where the price elasticity is approximately -1.0, the equilibrium price of housing will increase, and the decrease in the output of housing is not nearly so severe. It is recognized, however, that policy statements about the size of the impact are necessarily value judgments unless measures of the impacts of alternative tax policies are made. It is clear from this analysis that though the property tax may be a contributor to a reduction in housing output it is not a major one. A lowering of the property tax is not likely to radically alter the size of condition of the existing housing stock, except in the special cases of overassessed slums and political fragmentation. Author