Exploring the impact of renovation subsidies on housing markets - evidence from the Swedish property market

PurposeThe primary aim of this research is to examine the effects of the Renovation, Conversion, and Extension (ROT) tax deduction for renovations on the scope and quality of renovations and its subsequent impact on house prices across various Swedish municipalities.Design/methodology/approachThis study utilises a two-way fixed effect instrument variable (IV) spatial Manski approach, analysing balanced panel data from 2004 to 2020 at the municipal level (290 municipalities) in Sweden. The methodology is designed to assess the impact of the ROT subsidy on the housing market.FindingsThe study reveals that the ROT subsidy has significantly influenced house prices, with noticeable variations between municipalities. These differences are attributed to the varying amounts of tax reductions for renovations and the extent to which property owners utilise these subsidies.Research limitations/implicationsThe research is limited to the context of Sweden and may not be generalisable to other countries with different housing and subsidy policies. The findings are crucial for understanding the specific impacts of government subsidies on the housing market within this context.Practical implicationsFor policymakers and stakeholders in the housing market, this study highlights the tangible effects of renovation subsidies on property values. It provides insights into how such financial incentives can shape the housing market dynamics.Social implicationsThe research underscores the role of government policies in potentially influencing equitable access to housing. It suggests that subsidies like ROT can have broader social implications, including the distribution of housing benefits among different income groups and regions.Originality/valueThis study contributes original insights into the field of applied real estate economics by quantitatively analysing the impact of a specific government subsidy on the housing market. It offers a unique perspective on how fiscal policies can affect property values and renovation activities at the municipal level in Sweden.