This nice video clip from Bloomberg takes place in Portugal- but it’s a common story which is replicated again and again. An area of town, a city, a region develops a draw for new residents. As the population grows, housing becomes more scarce which pushes prices of dwellings upwards.
The motivation to relocate to the area can vary. In this case it is easy to measure as the tax incentives were given to a specific and trackable group- foreign arrivals. The tax revenue thus is also easy to measure. The negative implications of higher prices for local new -comers to the housing market is being held up as the disadvantageous outcome. But why now? After nearly two decades?
What is not measured is the additional equity all the present owners have in their properties. Early in the process, sellers undoubtedly appreciated the extra appreciation upon the sale of their homes. As time goes on, the group of buyers needing homes and facing higher prices, grew to exceed the number of willing sellers reaping rewards from the inflated house gains. What was a positive is now outweighed as a negative.
The nesting equity in homes is of less concern to those who are not in a position to sell. Their use value of the property as lodging is on their minds more than its market price. Yet younger people coming into their household forming years find themselves at a disadvantage. Still- it seems like this is a mismanagement of housing stock problem rather than a tax policy problem.
Home Economics 