The Real Estate Tax Policy and the Housing Market Stabilization - Focused on the Property Possession Tax and the Transaction Tax -

This paper investigates the effect of real estate tax policy on the stabilization of housing prices. The real estate taxes are imposed at the stages of the acquisition, possession, and disposition of real estate, and are used for the government revenue. And the government implements the policy of raising or lowering tax rates at each of the above stages for real estate cycle control. Raising the property possession rate is expected to have the effects of housing price stabilization by lowering the expected rate of return and restraining demand for housing, and the effects of shifting tax burden onto market price. Raising the transaction tax acts as an incentive for reducing housing supply and raising housing price due to delayed housing transaction. The taxation is probable to have different effects according to tax rate levels. This study analyzes the impact of property possession taxes and transaction taxes on housing prices, using unbalanced panel data from 1980 to 2015 in 35 OECD countries. Regression results show that raising the property possession tax rate in countries with low property possession rates leads to stabilization of housing prices, while raising it in countries with already high property possession rate is associated with higher housing price perhaps due to more active transfer of tax burdens to tenants. We also find that lowering transaction tax rate leads to stabilization of housing prices in countries with highly tax rates, such as Korea.