Taxation of Housing: Killing Several Birds with One Stone

Abstract

High and sustained housing‐price growth has been observed in many countries over recent decades. In Norway, real housing prices increased by 200 percent between 1990 and 2015, and many households have high debts. In addition, maintaining the welfare state as the population ages likely involves higher taxes in the coming years. Norway taxes housing leniently. Increased taxation of housing is a way of killing several birds with one stone: generating tax revenue, moderating housing prices, and increasing efficiency. In this paper, I use a microsimulation model to determine the effects on revenue and distribution of a hypothetical tax change where housing is taxed as other capital assets. I take into account the effect of taxation on housing demand, using a simple user‐cost model. This housing tax would increase personal tax revenue by 11 percent and make the tax system more progressive. Housing prices would fall by 20 percent.