Research

Does a landlord's property tax bill affect a new tenant's rent? According to standard economic theory, it should not—the law of one price implies that identical rental units in the same market should be priced identically, despite heterogeneity in property tax costs. This paper provides new evidence that a landlord's property tax bill does affect rent for new tenants, violating the law of one price. I investigate the effect of heterogeneous property tax shocks on rents using a unique, quasi-experimental setting in California. California's Proposition 13 creates large discrepancies in property tax liability among otherwise similar rental units, and these discrepancies are exacerbated quasi-randomly around a sale. Using a novel, comprehensive dataset on new tenant rents from the City of Berkeley, I find strong evidence that landlords faced with quasi-random, building-level property tax shocks pass through $0.50-$0.89 per $1 of the property tax shock to renters. The results are robust to the inclusion of landlord size, renovations around a sale, and a property's purchase price. I propose and empirically motivate an explanatory model of heterogeneity in landlord sophistication that can rationalize the observed positive relationship between rent and property taxes.

This paper investigates the behavioral response to an increase in taxation of inherited property in California. We document parent-child property transfers for two populous counties in California, San Francisco and Los Angeles County. We identify a large intertemporal elasticity of property transfers, finding a 13-18 month acceleration in property transfers leading up to the tax increase. We disaggregate responses by Census tract income and find that the top income decile in each county is the most responsive group. These estimates are much larger than what is typically found in the inheritance tax literature, and challenge the "control of wealth" theory of bequest planning. The magnitude of the short-run behavioral response cautions against transition windows for tax policy changes, as they can 1) delay expected government revenue sources and 2) exacerbate inequality in taxation if high-income households are more responsive than other groups. 

Rent is one of the most important components of the cost of living, and understanding how rents are set is crucial for analyzing inflation dynamics and tracking long-term shifts in the economy. However, studying rental pricing is difficult because there is little systematic collection of contract rents over substantial time periods in non-selected samples. We use a comprehensive, administrative dataset of rental prices in Berkeley, CA to document new facts about rental price setting behavior. First, we show strong evidence of heuristic rent pricing, with the majority of rents bunching at multiples of 25, 50, and 100. Second, we document nominal rent rigidity for new tenants, with nearly half of landlords choosing to keep rent the same when the unit turns over within two years. Third, landlords respond to the business cycle by providing more rent cuts in recessions. Fourth, the frequency and magnitude of both price increases and decreases are related to the business cycle, unlike for retail goods. Fifth, we show that there is predictable seasonal demand for rental housing, with significant effects on the magnitude and variance of price changes. Finally, we document strong patterns of heterogeneity in rent-setting practices between large, corporate landlords and mom-and-pop landlords.