The Impact of Vacancy Taxes on Housing Prices: A Synthetic Control Study

Importance: Cities in North America are beginning to wield vacancy taxes (aproperty tax imposed on unoccupied homes) as a tool to reduce rapidly growing homeprices. However, these taxes are being implemented with little to no empirical evidencebacking their effectiveness.Objective: To determine whether Washington, D.C.’s 2003-imposed vacancy taximpacted home prices.Design: A panel data set for the years 1978-2013 was compiled for this analy-sis. Data was collected on 13 different variables related to the housing market for31 metropolitan statistical areas, including Washington, D.C. The synthetic controlmethod was applied to create a counterfactual Washington, D.C. using the availablevariables and donor cities. House price comparisons were then made over time to deter-mine what Washington, D.C.’s average house prices would have been absent their 2003vacancy tax, as measured by the synthetic control unit. Robustness checks, placebotests, and time series analyses were subsequently used to validate and investigate theprimary results.Results: Contrary to expectations, there is a gap following the 2003 treatment thatsuggests Washington, D.C.’s tax may have increased house prices rather than decreasedor limited them. An interrupted time series analysis also shows a statistically significantbreak in the house price trajectory starting in approximately 2005. However, a placeboin space test casts doubt on any significant results as Washington, D.C.’s outcomes areunremarkable when applying the potential treatment to other U.S. cities.Conclusions and Relevance: There is no evidence that the 2003 tax reducedhouse prices. Local governments in North America should be cautious about imple-menting vacancy taxes if the primary or sole purpose is to reduce or restrict houseprices.