Real Estate Taxation
Paper Session
Monday, Jan. 5, 2026 8:00 AM - 10:00 AM (EST)
- Chair: Hanming Fang, University of Pennsylvania
Property Tax Pass-Through to Renters: A Quasi-Experimental Approach
Abstract
Does a landlord's property tax bill affect a new tenant's rent? According to standard economic theory, it should not—the law of one price implies that identical rental units in the same market should be priced identically, despite heterogeneity in property tax costs. This paper provides new evidence that a landlord's property tax bill does affect rent for new tenants, violating the law of one price. I investigate the effect of heterogeneous property tax shocks on rents using a unique, quasi-experimental setting in California. California's Proposition 13 creates large discrepancies in property tax liability among otherwise similar rental units, and these discrepancies are exacerbated quasi-randomly around a sale. Using a novel, comprehensive dataset on new tenant rents from the City of Berkeley, I find strong evidence that landlords faced with quasi-random, building-level property tax shocks pass through $0.50-$0.89 per $1 of the property tax shock to renters. The results are robust to the inclusion of landlord size, renovations around a sale, and a property's purchase price. I propose and empirically motivate an explanatory model of heterogeneity in landlord sophistication that can rationalize the observed positive relationship between rent and property taxes.Property Taxation and the Intergenerational Transfer of Housing Wealth during the Lifecycle
Abstract
We study intergenerational transfers of real estate wealth using new data from the housing markets of San Diego. We show that estate planning tools such as gifts and trusts play a large role in facilitating transactions in these markets. Almost half of the transactions that we observe in our sample are driven by gifts and transfers to trusts. The remaining transfers are arms-length transactions and bequests. The estate planning transfers are shaped by the system of property taxation that is in place in California. Proposition 13 created an acquisition value tax system that led to large under-assessment in property values. As a consequence, effective tax rates are much lower than statutory tax rates. Proposition 58 implied that these tax advantages could be passed from parents to children. To study the impact of these tax policies we develop and estimate a dynamic discrete choice model. Our estimated model suggests that these tax policies have caused serious inefficiencies in the housing markets by creating a lock-in effect. Our model simulations indicate that arms-length transactions could increase by up to 5 percentage points if Propositions 13 and 58 were reversed and replaced by a revenue-neutral market value property tax system.Who Really Pays: The Short-term Incidence of the Property Tax in Philadelphia
Abstract
Tax incidence for property tax refers to who ultimately bears the burden of the property tax. This paper revisits the incidence of property tax by studying a historically large tax increase of over 30% from 2022 to 2023 induced by a comprehensive reassessment after a prolonged interval in Philadelphia. Theoretical analysis suggests renters would bear only a marginal share of the tax in the short run, but tax could be passed on to renters in submarkets with more elastic housing supply or where landlords acquire substantial market power. Using several unique property-level rent datasets and a difference-in-difference framework for identification, our empirical analysis suggests there has been no sign of tax-induced rent increase at the market level, for large-scale, professionally managed apartments, or for MLS-listed rental properties about two years after the policy shock. Results thus suggest landlords have to bear the burden of increased property taxes, at least in the short term. This paper enriches the tax incidence literature by focusing on the short-term impact of property taxes and shed light on the heterogeneity of the behavior of different landlords, shedding light on optimal design of the property tax.Discussant(s)
Dario Tortarolo
,
World Bank
Oren Ziv
,
Michigan State University
Yang Tang
,
Nanyang Technological University
Ben Sprung-Keyser
,
University of Pennsylvania
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location