Job Market Paper
The Impact of the Tax Cuts and Jobs Act on Housing Markets: Evidence From New Jersey
The US tax code contains provisions that significantly reduce homeownership costs. These benefits were reduced under the Tax Cuts and Jobs Act of 2017, raising the real cost of property taxes and mortgages for a subset of taxpayers. This paper examines how individual homebuyers and residential housing markets responded to these changes. Using a unique constructed dataset of home loan records matched to deeds, this paper shows that homebuyers responded by purchasing smaller homes with lower property tax burdens, with the level of response indicating that the price elasticity of housing demand is approximately unit elastic. Homebuyers also reduced their mortgage sizes by the equivalent of their response to a two-percentage point rise in interest rates. Additionally, home prices in high-property tax areas fell by an amount consistent with homebuyers believing that the increase in after-tax housing costs would be permanent.
Other Working Papers
Behavioral Biases in Home Purchases
Potential homebuyers face a number of recurring costs, including property taxes. This paper investigates whether homebuyers display a particular type of cognitive bias called left digit bias when it comes to future property tax payments. Using a regression discontinuity method, this paper shows that, after flexibly controlling for the relationship between property taxes and home prices, homes with property tax obligations that are just under a thousand-dollar threshold sell for 0.5% more than homes with property tax obligations that are just over a thousand-dollar threshold. For the median home in the sample, this type of cognitive error results in an over-payment of $2,370. The estimated left digit bias is larger in areas with low rental rates, suggesting that owner-occupiers are more susceptible to this cognitive error than professional landlords.