Tax Incentives and Housing Decisions: Effects of the Tax Cut and Jobs Act

Abstract

The Tax Cut and Jobs Act (TCJA) altered the tax code, greatly reducing itemization rates. Utilizing American Community Survey data combined with the NBER TAXSIM program, we calculate the TCJA caused the average homeownership subsidy to decline by 56% from $2,677 in 2017 to $1,171 in 2018. Comparing similar households that vary in subsidy shock exposure due to state tax rates and house price levels, we nd that each percentage point decrease in the TCJA homeownership subsidy lowers homeownership rates by 0.54 percentage points and mortgage utilization by 0.76 percentage points. Using Freddie Mac mortgage origination data, we additionally nd that lenders absorbed 5% to 7% of the subsidy incidence through decreasing mortgage interest rates.