The Effects of Tax Reform on Real Estate: Some Empirical Results

The effects of the 1976 and 1986 Tax Reform Acts (TRA) on the risks and returns of real estate investment trusts (REIT) and other real estate firms are examined. The basic data consist of weekly stock returns, surrounding both tax acts, for samples of REITs and non-REIT real estate firms. The relati...

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Bibliographic Details
Published in:Land economics 1990-11, Vol.66 (4), p.409-424
Main Authors: Sanger, Gary C., Sirmans, C. F., Turnbull, Geoffrey K.
Format: Article
Language:English
Subjects:
Analysis
Assets
Economic models
Effects
Estate taxes
Income taxes
Investments
Land economics
Real estate
Real estate companies
Real estate economics
Real estate investment trusts
Real estate taxes
Real property tax
Reforms
Regression analysis
REITs
Studies
Systematic risk
Tax cuts
Tax reform
Tax Reform Act 1976-US
Tax Reform Act 1986-US
Tax shelters
Taxation
Taxes
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Summary:The effects of the 1976 and 1986 Tax Reform Acts (TRA) on the risks and returns of real estate investment trusts (REIT) and other real estate firms are examined. The basic data consist of weekly stock returns, surrounding both tax acts, for samples of REITs and non-REIT real estate firms. The relative changes in the values of real estate assets and firms' values are consistent with the predictions of a cash flow model for both tax acts. Overall, the results indicate that the market assessed the changes in the taxation of real estate assets by the 1976 TRA to be beneficial to both REITs and other real estate firms. For the 1986 TRA, the results indicate that the market assessed the changes to be detrimental to the owners of real estate assets. The systematic risk of REITs decreased significantly over the time period surrounding the passage of each act. In contrast, the systematic risks of non-REIT real estate firms increased significantly over the same time period.
ISSN:0023-7639
1543-8325
DOI:10.2307/3146623