Tobin Tax Policy, Housing Speculation, and Property Market Dynamics

Hong Kong introduced a Tobin property tax—the Special Stamp Duty (SSD)—in 2010, which substantially increased the selling costs of short-term residential property holders. This study examines the effectiveness of this Tobin tax in curbing speculation and cooling down the housing market. We find that the SSD effectively curtails flippers who hold homes for less than two years and reduces their market presence from 23.2% in 2009% to 2.4% in 2011 and 0.9% in 2013. However, one year after implementing the tax, housing prices grow by 12.64% and 15.76% in the primary and secondary markets, respectively, indicating a lack of a market cooling effect. Flippers strategically defer sales to circumvent the SSD charges, resulting in the sharp bunching of urgent sales immediately after the lock-in period ends. Further, the SSD effectively increases selling costs and prolongs potential sellers’ holding periods, thereby significantly reducing liquidity and driving up prices in the secondary market. The unintended externality is that the unmet housing demand from the secondary market triggers a buying frenzy in the primary market, which increases the prices in the primary market as well. Our findings have policy implications for the viability of Tobin taxes for regulating real estate markets.

This paper was accepted by Agostino Capponi, finance.

Funding: S. Agarwal was supported by the National Natural Science Foundation of China [Grant 72495154].

Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00370.