Market equilibrium is when the suppliers and the customers can sell or buy the goods as they deem appropriate. There is no net disappointed to the buyer and the seller. It is assumed that in a perfectly competitive market this form of equilibrium is reached. In this case when the government decides to levy taxes, there would be increase in the cost of financing the housing and impacting the buyer decision. It would be an organic process for the number of homeownership in the state to reduce (Bryant, 2012.). Whenever a tax is levied, there is a downward shift in the demand curve. Similarly, when it is applied to the seller the supply curve is found to shift upward. Whenever taxes are levied the money paid by the buyer increases and the money for the seller decreases. In this paradigm the burden of taxes falls on the people involved in the transactions 。
However, impacting the supply and demand curve would cause the dead weight to increase. This would cause the dead weight loss to increase, finally leading to reduced demand or supply of the product. In the long term, there would be implication for the government in terms of capital flow. The governmental tax must not increase the deadweight loss as this would eventually cause the market to enter into a negative spiralling of impacts. These would lead the government to experience surge in income in the interim. Long term sustenance however will not be the same.
It is reasonable to assume that in the case of equilibrium conditions, there would be credit constraints, and the price to rent ratio would lead to a more relative price in the favour of owning the property. Assuming the income tax code is progressive in nature, there could be an increase in homeownership as it eliminates the mortgage interest deduction that stems from consumption. Hence there could be a progressive growth towards home ownership as a result of this trend.