Home ownership tax benefits should be phased out, says Dutch Central Bank

Tax benefits for homeowners must be phased out to tackle inequality in the housing market. This can be done by making homeowners pay wealth tax. Due to the current low-interest rates, now is a good time to start, said Dutch central bank DNB in an analysis of the housing market.

According to DNB, the tax differences between renting and buying are currently massive. For example, tenants pay wealth tax, while buyers can build up virtually tax-free capital in their own home, also receiving mortgage interest deduction. According to the regulator, the distinction not only leads to an "underdeveloped commercial rental segment" but also drives price increases for owner-occupied homes. In addition, high debts make homeowners financially vulnerable.

The central bank is calling on the new Cabinet to end the tax exemption for owner-occupied homes. According to DNB, moving the owner-occupied home from Box 1 to Box 3 can be done without "insurmountable" income effects if the extra income is returned to homeowners in some other way.

Furthermore, DNB argues for the abolition of the gift exemption for owner-occupied homes. You can currently donate over 100,000 euros tax-free for the purchase or renovation of a home and pay off the mortgage. An important aim for this scheme was to reduce the underwater mortgages, in which the debt exceeds the value of the house, but practice shows that the system hardly contributed to this.

According to DNB, recent measures such as the starter loan and the abolition of transfer tax for first-time buyers also had the opposite effect. The schemes did increase homebuyers' spending scope, but this caused house prices and debts to rise further.

DNB also emphasizes that the central government must take more control when building homes. Careful consideration should be given to which houses should be built where. The construction of homes for the elderly is also essential to get the flow going. The government could also grant discounts on land prices to realize sufficient housing in the free rental sector.