We estimate how tax subsidies to owner-occupied housing are distributed spatially across the United States and find striking skewness. At the state level, the mean tax benefit per owned unit in 1990 ranged from $917 in South Dakota to $10,718 in Hawaii. The dispersion is slightly greater when benefit flows are measured at the metropolitan area level. Even assuming the subsidies are funded in an income progressivity-neutral manner, a relatively few metro areas, primarily in California and the New York-Boston corridor, are shown to gain considerably while the vast majority of areas have relatively small gains or losses. With 65 percent of U.S. households owning their own homes at a given point in time and a higher percentage owning a house at some point during their lifetimes, the tax treatment of owner-occupied housing is one aspect of the tax code that affects many people. Owner-occupied housing is subsidized by the tax code because implicit rental income is untaxed while mortgage interest and property taxes are deductible.

In this paper, we document where the tax benefits from this subsidy flow spatially, both within and across states and within and across metropolitan areas. Despite the considerable attention paid to the tax treatment of owner-occupied housing, little is known about the geographical distribution of this subsidy.1 Since housing markets are inextricably tied to a physical location, knowing the extent to which the tax subsidy varies across the country is important to determining the potential geographical impact of changing the tax treatment of owner-occupied housing. In places where the tax subsidy is large, it may have a greater effect on house prices, homeownership rates, urban form, and even mobility.2 Similarly, the impact of a reduction or removal of the subsidy to owner-occupied housing on local housing markets will vary across the country.