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![handle is hein.taxfoundation/srfjxz0001 and id is 1 raw text is: FOUNDATION
May 1996,
Number 59
The Flat rn And Housing Values
As tax reform develops, millions of
homeowners will be concerned about the
effect the new tax system will have on housing
values. For many taxpayers, the equity built up
in their home represents a large share of their
total net worth. If tax reform appeared likely
to reduce home values significantly, as some
have suggested would occur, it would create
a significant political obstacle to enacting tax
reform. On the other hand, if it can be shown
that tax reform would cause housing prices to
ligure 1
Comparison of Housing Values Under Current lax S),stem
and a Pure lat Tax Sj'slem
$500
$500,000 $465
$450,000 1 uent $400
$400,000
$350,000
$300 $279
$300,000
$250,000
$200 $200
$200,000
$150,000 $111
$100,000
$50,000
$0
Housing Prices ($000)
Sotirce Tax FoIndation.
rise, this would obviously improve the pros-
pects for tax reform.
The flat tax designed by Professors Hall
and Rabushka of the Hoover Institute and in-
troduced as legislation in the U.S. Congress
by Representative Richard Armey (R-TX) and
Senator Richard Shelby (R-AL) includes a
number of changes that would clearly affect
the value of the nation's housing stock. These
changes include a change in tax rates and the
elimination of. the capital gains tax, the home
mortgage and property tax deductions, the
tax on interest income, and the gift and estate
tax. Each of these changes would affect hous-
ing prices, some offering the hope of greater
appreciation, others clearly threatening to
reduce housing values. 'l'his report summa-
rizes work done at the Tax Foundation f The
Flat Tax and Housing Prices, by J. ). Foster,
Tax Foundation Background Paper 15] to
net out the various tax changes' effects.
Housing Values Under a Pure
Flat Tax
A change in housing prices following en-
actment of a flat tax would reflect a number
of factors including how closely the enacted
flat tax adheres to a pure flat tax. lable 1
and Figure / present the estimated dollar
change in housing prices under a flat tax for
houses currently worth from $100,000 to
$500,000.
As the results presented in lable I indi-
cate, the expected percentage change varies
significantly for different priced houses. For
homes valued around $100,000, a flat tax is
likely to cause a significant increase in value,
which is due entirely to an expected decline
in mortgage interest rates.
Other changes in taxation from adopting
a flat tax would likely not affect prospective
IyJ.D. Iosler, Ph.D.
Executive 1)irector and
(hef Economist
Tax Foundation](ViewImageLocal?handle=hein.taxfoundation/srfjxz0001&div=1&collection=&method=preview&ext=.png&size=3)