4 months Ago
Tax Incentives Drive Housing Inequality
The OECD reported that substantial tax exemptions, including the based system of taxation, deductions of mortgage interests, low taxation of hypothetical rental income, the absence of a capital gains tax, and the state guarantees have made owning real estate very attractive. High loan-to-value mortgages also help to make owning a home an enticing investment, raising prices and increasing the chasm between the haves and have-nots in homes.
In its report, the OECD advised the Netherlands to first decrease mortgage interest relief for the highest incomes. The group cited Denmark as a model, where the deductions vary based on the valuation of the property. The effect would be to decrease borrowing power within households, and that would help tamp down overbidding on some housing.
Subsidised Ownership and Rising Prices
The Netherlands, the report said, provides the most subsidies to homeowners of any European country, which helps explain the preference for owning. Chile, in contrast, comes second, with its homeowners deriving under one half of the benefits of their Dutch counterparts.
The OECD also had harsh words for other measures, such as lower transfer taxes and the National Mortgage Guarantee (NHG), which artificially boost demand and encourage sellers to ask for more money. These protections, which are meant to help buyers, end up driving up prices.
When promoting changes, the OECD suggested such a transition should be slow, considering the complicated and highly regulated Dutch housing market. It cautioned that any quick change could produce winners and losers, emphasising the need for careful planning, clear communication and well-timed implementation.
The group stressed the importance of continuing to deal with the housing shortage. In the long run, attention to the housing supply is needed to address affordability challenges and relieve some of the pressure on the market.
