This paper explores the sprawl and attendant environmental consequences of the US federal Tax Reform Act of 1986 (TRA86). By reducing depreciation allowances and limiting the ability of real
estate investors to use tax losses, TRA86 made owner occupied housing relatively more attractive than rental housing. Between 1985 and 1987, the fraction of building permits issued to multifamily units fell by
11%, and this fraction remained low, even through the boom market of the 2000s. The multifamily decline around 1985 cannot be explained by the fact that some markets saw large real price declines, suggesting a causal role for TRA86. A conservative estimate is that energy use and miles traveled to work for the over 35 million homes built in the US since 1985 is 2% greater than it would have been had the tax
environment around 1985 remained in place.