View more on these topics

Higher property taxes could prevent housing bubble, says OECD

Higher property taxation could prevent a future housing bubble, an Organisation for Economic Co-operation and Development report claims.

In Choosing a Broad Base – Low Rate Approach to Taxation the OECD sets out the best areas for governments to raise taxes as part of their fiscal consolidation.

It argues that property taxation is more efficient, more stable and harder to evade than other taxes and can be more progressive.

The report states: “Owner-occupied housing has a favourable tax treatment relative to other forms of investment in many OECD countries through reduced tax rates or exemption for imputed rental income, mortgage interest payment deductibility and exemptions from capital gains tax.”

It says this preferential treatment has caused market distortion leading to capital flowing out of other sectors and into housing.

It also adds that many OECD countries use outdated valuation methods and a proper valuation system is crucial to effective property taxation.

It says: “The market value of real property is not following a stable trend over time, as the recent housing bubble and corresponding collapse in prices have demonstrated in many countries. This creates an additional difficulty in using the market value of real property as a taxable base.”

But the property industry reacted with fury to the prospect of higher taxes.

David Newnes, estate agency managing director at LSL Property Services, says another tax on residential property could leave the UK with no boom and only bust.

He says: “Far from protecting the UK from ‘boom and bust’, squeezing more tax from home ownership and residential property generally would weaken consumer demand, reduce homeowner equity and force thousands more people into the already white-hot rental sector. “

Paul Hunt, managing director of mortgage software provider Phoebus says a recurrent tax on property sounds dangerously like a council tax, which already at punishing levels. 

He says: “We already have a massive housing deficit and need an incentive not to build more property like a hole in the head. So before we introduce another property tax, we might think about an unoccupied property tax – rather than the current reduction in council tax offered on such unoccupied properties. 

“House prices are high due to demand which in turn is high due to lack of availability. If we agree that people need a home, then dealing with the supply should be the priority.  I think the coalition would be daft to pursue this idea further.”

Nicholas Leeming, commercial director of Zoopla.co.uk, says: “In a normal market where mortgages are freely available, house prices are driven mainly by interest rates in the short term, and by our chronic shortage of supply in the long term. 

“If you want to limit boom and bust in Britain’s property market, planning law should be relaxed to allow the construction of more decent-sized family homes.”

Recommended

Profits hit £257,000 at Mortgage Brain but turnover falls

Mortgage Brain made a £257,000 profit in the year to March 2010, its annual accounts reveal. The mortgage sourcing and technology provider increased its profits by £45,000 compared with the same time last year. It saw a 7% fall in turnover to £5.9m, but reduced administrative expenses by 8% to £5.5m. The net asset position […]

JEFF.jpg

Miss the boat with blinkered approach

Now that my nose is no longer pushed tightly up against the market as a lender I can see things much more clearly and objectively. I can see that there are opportunities in the market. I can also see that obvious issues like funding and capital restraints, dual pricing and underwriting issues are acting as […]

Comments
  • Post a comment
  • Karl Fitzgerald 19th December 2010 at 11:31 pm

    Part of the problem is that we identify it as a financial bubble when in reality it was the pursuit of easy profits in the LAND game that led to so much borrowing in the first place.

    If we were serious about genuine capitalism, we would deter speculative activity via the tax system.

    Instead of calling them property taxes, they should rightly be called Land Taxes. A property tax penalises builders for improving a location. This gives the land speculator a motivation to destroy livable but perhaps under-developed houses and to leave the sites empty. Families pay upwards of 30% or more in council rates than the Bahamas based land speculator.

    It should be a flat land tax as location determines different land values. Thus the wealthy pay more for cordoning off the more valuable land.

    Then builders can be builders rather than flippers too.

  • Glen McKeown 10th December 2010 at 3:13 pm

    Isn’t it funny how many people now know how to stop financial bubbles, and no-one knew how 3 years ago!
    It must be the education system.