Investment in Housing in the United States: A Portfolio Approach: The Possible Effects of Changes in Tax Policy

Author/Editor:

Krister Andersson

Publication Date:

October 1, 1990

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

It is well known that the preferential tax treatment of housing induces an inefficient allocation of saving and investment. This paper analyzes, in a portfolio framework, how eliminating the deductibility of mortgage interest payments for federal income tax purposes might affect investment in housing. Expected rate of return and risk is estimated for three assets, bonds, housing, and stocks. The possibility that assets are imperfect substitutes is explicitly recognized in one section of the paper. The model suggests that the share of housing is likely to decrease by 4 to 9 percentage points if mortgage interest payments are not deductible. This may call for careful phasing of the change in policy.

Series:

Working Paper No. 1990/099

Subject:

External debt Financial institutions Housing Income tax systems Interest payments Mortgages National accounts Stocks Taxes

Notes:

This paper analyzes how the elimination of the decuctibility of mortgage interest payments for federal income tax purposes might affect investment in housing.

English

Publication Date:

October 1, 1990

ISBN/ISSN:

9781451948806/1018-5941

Stock No:

WPIEA0991990

Pages:

38

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