Property Tax, Supply and Demand Elasticity and Housing Price

Abstract

This paper develops a flow-stock model of housing market to investigate the impacts of property tax, supply and demand elasticity upon housing price. The model indicates that the imposition and escalation of the property tax will cause housing price fall in the event that the elasticity of supply is greater than that of demand and vice versa. Using the housing market data of 33 large and medium cities in China from 1996 through 2007, I find that the impact of property tax on the housing prices is negative and trivial. Hence, property tax will not effectively curb the inflated house prices. Second, the property tax affects the housing price less than the demand, but greater than the supply. Third, the economic growth rate exerts a great impact on housing prices. Lastly, the geographic location insignificantly affects housing price variations.