There is room for improvement when it comes to taxing property, especially given the central role of housing in humans' ability to live dignified lives, according to the report and accompanying brochure published by the 38-member Organization for Economic Cooperation and Development.
Member countries experienced unprecedented growth in home prices in the last three decades, a trend the COVID-19 pandemic accelerated, making housing market access increasingly difficult for younger generations, whose homeownership rates have declined, according to the brochure summarizing the 143-page report.
"In the face of unprecedented housing market challenges, it is more important than ever to ensure that housing taxes are both fair and efficient," Pascal Saint-Amans, director of the OECD Center for Tax Policy and Administration, said in the brochure.
The report's assessment shows that while housing taxes already play an important role in OECD countries, "there is significant scope to enhance their efficiency, equity and revenue potential," according to the brochure. Saint-Amans said the report provides a number of policy options to help countries implement reform.
Owner-occupied housing represents on average 60% of middle-class wealth, accounting for an ever-larger share of total household expenditure in recent years, the brochure said.
Most OECD countries fully exempt capital gains on main residences from taxation, which "provides vastly greater benefits to the wealthiest households and further distorts the allocation of savings in favor of owner-occupied housing," the report said.
Capping the capital gains tax exemption on sales of main residences would ensure the highest-value gains are taxed, according to the OECD. Such a move, it said, would strengthen progressivity and reduce some upward pressure on house prices while still exempting capital gains on the main residence for the majority of households.
The OECD also recommended strengthening the role of recurrent taxes on immovable property. In particular, those should be levied on regularly updated property values, while lowering housing transaction taxes to "increase efficiency in the housing market and improve vertical and horizontal equity."
The report also suggested policymakers consider gradually removing or capping tax relief on owner-occupied housing mortgage interest, saying it would have positive effects on progressivity, tax revenues and housing affordability.
In terms of environmental effects, the residential housing sector contributes 17% of energy-related CO2 emissions and generates other significant environmental impacts on land use, biodiversity, transport and water consumption, according to the brochure.
The report said housing also affects individuals' well-being on a daily basis, since "home is the center of family life and increasingly of professional life'' — especially given the widespread adoption of teleworking during the pandemic.
The OECD did not immediately respond to a request for comment.
--Editing by Roy LeBlanc.
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