The obvious economic, although not political, solution to the overinvestment in owner-occupied housing in the 1970s would be to tax owner-occupied hous ing more heavily, thereby raising its user cost relative to that of industrial capital.

This article examines the capital gains tax inequities of owner-occupied housing caused by below-market financing techniques. Several recent studies have shown that the capitalized financing premium associated with below-market financing arrangements tends to show that the homeowner purchased a...