TAX AND FINANCIAL POLICIES FOR THE HOUSING MARKET OF THE 1980s

Abstract

ABSTRACTThe imbalance in the age structure of the U.S. population has created conditions for heavy demand and consequently pressures for rising relative prices in the market for owner‐occupied single family housing in the 1980s and 1990s. Working in reverse, the unbalanced demographics may well lead to the falling relative price of housing around 2010, the period in which the baby boom generation will be retiring and may wish to liquidate its housing investment. Changes in housing policies during the 1980s could help offset the anticipated costs associated with the swings in demand pressures in the housing market over the next forty years. Current favorable tax and financial policies toward homeownership encourage both the overconsumption of housing and the overinvestment in housing as a retirement asset. Tax and financial policies could be changed to neutralize the attractiveness of owner‐occupied single family units relative to alternative types of housing units. To avoid overbuilding for the future, policies could encourage the efficient use of existing housing resources through intergenerational turnover, upgrading of units and neighborhood improvement, and condominium‐style conversion of multiunit structures from rental to owner‐occupancy. Finally, tax and financial policies toward investment could encourage the baby boom generation to diversify its retirement assets outside of housing.