Impact of property tax on housing price: An analysis for real estate development and sustainable renewal

The housing price is an equilibrium result of the demand and supply of houses, according to the neoclassic economic theory. In order to restrain the overheated real estate market, China introduced a property tax in two cities in 2011, Chongqing and Shanghai. The tax was targeted at second houses and high-end houses. This paper illustrates how property tax influences housing prices by affecting people’s willingness to buy houses. The difference-in-difference (DiD) method was applied, and a two-phase panel micro model was constructed, with housing prices as the explained variable and family total assets, net income, and house size as explanatory variables. The results indicate that the property tax in Shanghai and Chongqing has no significant inhibitory effect on housing prices due to the narrow tax base, low tax rates, and an excessively large tax-exempt area. In the post-COVID19 era, despite the decline in housing prices, the income of the working class in many economies has also decreased. On the contrary, investors are given more opportunities to invest in speculative properties. The failure of the property tax pilot in China discussed in this paper, can serve as a warning for policymakers in other cities in China and around the world to consider the strengths of their policies and the response of the targeted groups. The results can also help to suppress negative trends and ensure a healthy real estate market development for post-COVID19 housing sustainable renewal.