Regulation or Revenue? The Role of Selective Taxes in Housing Policy

ABSTRACT Housing affordability challenges have led governments to adopt selective taxes to curb speculative demand and raise revenue. We study two such taxes in New South Wales, Australia, targeting foreign residential property buyers: the foreign purchaser duty (FPD), a one‐time transaction tax, and the foreign land duty surcharge (FLDS), an annual land tax. Using a variety of empirical approaches, we show that doubling the FPD rate reduced foreign purchases but cut FPD revenue by nearly 150%. In contrast, a higher FLDS rate boosted revenues without affecting ownership or sales. Policy makers thus should specify policy objectives and select tax instruments accordingly.