New paper, August 2013
This paper presents some simple calculations of the effect on housing prices of temporary changes in the one-year mortgage rate and permanent changes in short and long mortgage rates, the capital-income tax, the effective property and wealth tax, the capital-gains tax, the expected growth rate of the value of housing services, and the CPI inflation rate. A new element in the calculation is to take the capital-gains tax on housing into account. The semi-elasticity of housing prices with respect to temporary changes in the one-year mortgage rates is quite small. This semi-elasticity is less sensitive to the assumptions about the parameters. The semi-elasticities of permanent changes in mortgage rates, taxes and the tax-deductibility of mortgage rates are substantial. These semi-elasticities are more sensitive to the assumptions about the parameters.