Prof. Ulf von Lilienfeld-Toal, head of the Department of Finance together with Francois Koulischer, Assistant Professor within the Department of Finance and Anastasia Girishina, from the Swedish House of Finance have established a working paper. They calculate the incidence of housing tax subsidies – or, in other words, who gains from the housing tax subsidies.
Providing affordable housing has long been a key concern of governments, a concern that was reinforced with discussions of an « affordability crisis » in Luxembourg and in many other regions of the world. In part as a response to this crisis, governments have allocated substantial resources to housing tax subsidies, such as reductions in transaction taxes or mortgage interest deductibility. Luxembourg in particular is one of the countries with the largest amount of resources allocated to housing tax subsidies.
They argue that the incidence of tax subsidies to make housing affordable depends on four parameters: the elasticity of supply and demand, and the distribution of housing ownership and consumption. They estimate these parameters with administrative data on real estate transactions and survey data on household balance sheets in Luxembourg. Using kinks in the taxes on transactions and on new constructions, they find that the top 10% of households by real estate wealth capture between 17% and 26% of the surplus from housing tax subsidies.
Their conclusions echo those of Diamond et al. (2019b) stating that affordability measures can have substantial unintended redistributive consequences.
To read the full working paper, download it directly online.