Fundamental Tax Reform and Residential Housing

The impact of consumption-based, fundamental Federal tax reform on the housing market has been a controversial and difficult topic. We employ a dynamic, numerical simulation model of the aggregate housing market to augment our understanding of the key forces at work in the short-run and over longer periods. This approach suggests that integrating the short-run and long-term impacts of tax reform leads to the possibility that there will be relatively modest impacts on the nominal values of existing housing. The results indicate that an important topic for future research is the elasticity of housing supply in the short run and long run.