The Effects of the Flat Tax Reform Proposal an the U.S. Housing Market

Abstract

This paper analyzes the effects of the Armey-Shelby tax reform proposal among the flat tax proposals on new owner-occupied housing market in USA on the basis of partial equilibrium. The effects in the short- and long-run are examined based on the Kenneth T. Rosen's regression result focusing on the effects of the user costs on home ownership. The Armey-Shelby plan would cause housing price in the short run to decrease with unchanged quantity because of nondeductibility of mortgage interest and property tax payments in the short-run. But the plan would cause housing market in the long run to be more activated, that is, increase in housing quantity and decrease in housing price, through lower interest rate caused by untaxed savings and investments that mean tax neutrality against savings and investments.