Property tax, market structure and housing price

Abstract

This paper develops a partial equilibrium model of housing flow market and investigates the relationship of property tax and housing price in the two typical scenarios of perfect monopoly and perfect competition. The model documents that the imposition and elevation of property tax will cause the housing price decline in whatever cases of market structure. The greater the degree of monopoly is, the higher the housing price will be, and the greater impact of property tax on housing price will become. Using the housing market data of 33 large and medium cities in China from 1996 through 2007, I find that 1% increase of property tax will give rise to 0.02% decline of housing price. The influence of market structure upon housing price, however, is greater than that of property tax. 1% increase of Lerner index will generate 0.13% augment of housing price. The interplay of property tax and market structure will lead to the housing price increase. 1% increase of the product of property tax and market structure will generate 0.01% increase of housing price. Accordingly, the property tax can not curb the inflated housing price effectively in China, albeit the imposition of property tax will depress the housing price. More importantly, the policy makers are supposed to pay great attention on market structure to mitigate the monopoly in the housing markets.