Effects of the Property Tax on Operating and Investment Decisions of Rental Property Owners.

Joseph S. DeSalvo

Expert InsightsPublished 1970

Models the effects of property taxes on the investment and operating decisions, particularly those concerning upgrading, of rental property owners. The landlord is assumed to maximize profits. When inputs to the model are variable (the "long run"), property tax increases result in less capital investment and, in a competitive housing market, decreased use of variable factors. Thus if "upgrading" means increased capital investment, then tax decreases initiate it in the long run. However, if "upgrading" means increased housing services, then, in a competitive market, tax decreases will cause upgrading; but in a monopolistic market, there is no unambiguous result. Finally, when the capital investment is fixed (the "short run"), changes in property tax rates do not cause upgrading. All results hold for assessment rate changes. That rate may be adjusted to allow for tax exemptions and abatements. 10 pp.

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DeSalvo, Joseph S., Effects of the Property Tax on Operating and Investment Decisions of Rental Property Owners. Santa Monica, CA: RAND Corporation, 1970. https://www.rand.org/pubs/papers/P4437.html.
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