The proposed structural reform of the housing market FEDEA: An evaluation

This paper discusses the document "Making the Housing Market Work: A Proposal for Structural Reform", sponsored by the Fundacion de Estudios de Economia Aplicada (FEDEA). The four proposals for reform therein are evaluated. These are: (i) fostering the rental housing market; (ii) suppressing the subsidies to owner-occupied housing embedded in the personal income tax; (iii) eliminating owner-occupied public housing and reorientating it to rental housing; and (iv) suppressing or drastically reducing the tax levied on purchases of pre-existing housing units, using the property tax to offset any loss of tax revenues. Some non-desired effects of these measures are highlighted and some alternatives that would achieve the same objectives with fewer side effects are considered. In particular, it is argued that (ii) unnecessarily restricts the set of instruments available to the policy maker. In fact, an appropriate redesign of tax subsidies could achieve better results. Concerning (iv), it is suggested that its effects might not be those expected, and may even be the opposite.