Taxing house prices

Most of us are worrying about our finances at the moment as the impact of the recession lingers on and future cuts loom large. But let's spare a thought for those families who lost their homes last year through repossession: 46,000 homes were repossessed – a staggering 14 year high. We need to find a better way of managing the housing market so that downturns are not so painful for low-income homeowners (who face a less secure safety net than renters). Losing your home has long-term damaging impacts and we're now all well aware that the value of our homes can go down as well as up. But how do you stop house prices increasing?

Well, one obvious way of trying to stop prices rising too much is to take a look at taxes. But before you groan at the thought of yet more taxes let’s have a think about Council Tax. We're all already paying it, right? There’s a need to reduce our public spending deficit, right? And yet our Council Tax system has only 8 bands and stops at £320,001. On top of that, the basis of this tax (the valuation of our homes) was last done in 1991 - a period in which we have seen house prices more than triple! This means that when house prices were booming we were being taxed on a lot less than the real value of the houses we were living in.

Of course it's only natural to worry about what this means for you (and me!), especially if you’re already struggling with bills. At the moment though Council Tax stops at £320k and this means that the system actually taxes those in lower value homes more than those living in 'top' value houses. So, if council tax bills reflected the actual cost of our homes, the system could be 'fairer' for those in lower value homes. We might also be able to put a brake on unsustainable house price increases. This is more than just a 'mansion tax': it's a fairer way of looking at what everyone pays. Of course we would need to think about how to make the transition gradually, so that low income home owners weren’t expected to pay a big bill straightaway. But it’s got to be worth exploring because a look at international housing tax systems shows how some places with this type of ‘property tax’ have had more stable housing markets than us – and that's got to be good news whether you’ve already bought a home or are still trying to get on the ladder!