Why Not Tax It? The Effects of Property Taxes on House Prices and Homeownership
European Economic Review, 2026
Abstract
Publication
Previous version
Owner-occupied housing is exempt from property taxes in many countries. How does this exemption affect house prices, homeownership, and welfare? And if owner-occupied housing were taxed, should the tax be progressive? To address these questions, I develop a life-cycle model of homeownership with heterogeneous agents in which property taxation affects both the cost of owning and renting through the taxation of real-estate firms. I calibrate the model to match key features of a housing market with an owner-occupied exemption and a regressive effective property tax schedule. I study revenue-neutral reforms that remove the exemption and vary tax progressivity. Eliminating the exemption increases property tax revenues by over 1.2 percentage points of GDP but reduces homeownership substantially. However, moving to a flat or progressive property tax offsets part of this decline while still generating sizable revenue gains. These reforms improve long-run welfare for new generations, particularly for lower-income households, but reduce the welfare of households alive at the time of the reform, highlighting underlying political tensions.
Marital Decline: The Role of House Prices and Parental Coresidence
Abstract
Working paper
Over the past 40 years in the U.S., marriage rates have declined significantly while parental coresidence among young adults has increased sharply, especially among the non-college educated. At the same time, rising house prices have outpaced income growth, decreasing housing affordability. This paper analyzes how these rising prices influence coresidence and marriage decisions. I first present a stylized model illustrating the dual impact of higher house prices: they encourage marriage due to economies of scale but also lead to more individuals living with parents, decreasing participation in the marriage market. Then, I develop a quantitative life-cycle model of household formation (marriage and divorce) and housing choices (coresidence, renting, and buying). The model economy is calibrated to the 2019 U.S. economy. I use the model for two exercises. First, I quantify the role of house prices on the marital decline between 1980 and 2019. I find that house prices explain around 50% of the decline in marriage within the model. Furthermore, the model can account for the larger drop in marriage among the non-college educated. Second, I evaluate the effect of housing policies and find that a 10% rental subsidy financed by higher taxes can increase marriage rates among young adults by 5 percentage points, primarily by reducing parental coresidence.
Priced Out of Parenthood: Housing Costs, Household Formation, and Fertility in Spain
w/
Nezih Guner and
Virginia Sánchez-Marcos
Abstract
Working paper
This paper studies whether housing costs affect fertility by delaying household formation. We focus on Spain, a country with very low fertility, late departure from the parental home, and large spatial variation in housing costs. We first show that Spain's fertility decline has coincided with worsening economic and residential circumstances for young adults: real incomes have weakened, independent living has declined, homeownership has fallen sharply, and independent young adults are increasingly unlikely to live as couples. We then estimate the effect of local house prices using a municipality-year panel and a shift-share instrument based on predetermined housing-supply constraints. A ten percent increase in local house prices lowers the crude birth rate by 5.5 percent and the crude marriage rate by 6.5 percent; it also shifts transactions toward dwellings that are about 1.8 percent smaller. Finally, we study a 2018 homeownership subsidy for young buyers in municipalities with fewer than 5,000 inhabitants. Using the population cutoff in an event-study design, we find that eligibility raises births by about five percent and reduces parental coresidence by about two percentage points, with no evidence of price capitalization or young in-migration. The results suggest that housing affordability is an important constraint on family formation in low-fertility settings.
Opioids and Post-COVID Labor Force Participation - Submitted
w/
Jeremy Greenwood ,
Nezih Guner, and
Karen A. Kopecky
Abstract
Working paper
At the onset of the COVID-19 pandemic, the labor force participation of the working-age US population dropped by about three percentage points. The recovery was slow, and three years after the start of the pandemic, the labor force participation was still below its pre-pandemic level. The pace of recovery of the labor supply varied widely across US states. To understand this variation, the role of the opioid crisis, which was unfolding in the US before the COVID-19 pandemic, is studied. Labor supply recovery in the aftermath of COVID-19 was slower in states with greater pre-COVID exposure to the opioid crisis, measured by pre-COVID age-adjusted opioid overdose death rates. An event-study analysis shows that a one-standard-deviation increase in pre-COVID age-adjusted death rate is associated with a one percentage point drop in labor force participation after COVID-19. The effect of prior opioid exposure had a more significant impact on individuals without a college degree. The slow recovery in states with more opioid exposure was characterized by an increase in individuals who are not in the labor force due to disability.
Fewer Couples, Fewer Births: Decomposing the Fertility - Submitted
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Viola Garstenauer
Abstract
Working paper
We study the contribution of changing partnership patterns to recent fertility change. Using data for several European Union countries and the United States, we analyze fertility developments between 2005 and 2020. Applying a Kitagawa decomposition, we separate fertility changes into a composition component, i.e., shifts in partnership exposure, and a rate component, i.e.,changes in fertility within partnership statuses. We find that declines in marriage and cohabitation reduced total fertility rates in every country studied, including those where overall fertility increased. These results suggest that fertility trends cannot be understood solely as changes in childbearing behavior within unions, but also reflect a contraction in exposure to childbearing. Hence, the results highlight the importance of understanding union formation dynamics for explaining contemporary fertility change.
