Effects of Real Estate Transfer Taxes: Evidence from a Natural Experiment

We study the effect of the transfer tax on housing transactions and household mobility in Finland using housing transaction data and micro data on the entire population in 2005–2015. In March 2013, the transfer tax rate was increased for housing co-operatives and the tax base was broadened to include housing co-operative loans, but the tax treatment of directly owned single-family houses remained unchanged The reform allows a differences-in-differences design to be used.

We find that the tax reform was anticipated in the housing market. Some transactions that would have taken place after the reform were brought forward to late 2012 and early 2013 so as to avoid the tax increase. The anticipation effects were especially pronounced for new construction and for resales with relatively large housing co-operative loans. We also find that the tax increase on co-ops had a negative effect on the transaction volume of housing units in co-ops in the longer run, and may have influenced transactions of single-family houses.

Furthermore, the transfer tax reduces mobility, both within and across labor market areas. Our results suggest that the tax creates sizable welfare losses due to increased mismatch of housing units and households and workers and jobs.