The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home‐Mortgage Interest Rate ReguIation*

Abstract

Judy Yates (1981) notes the regressive redistributive impact of home‐mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner‐occupation. Home‐mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded tha..