European Commission Warns UK About Housing Bubble

Britain needs to reform its council tax system, build more houses and make changes to the Help to Buy scheme to stop the property boom getting out of control, the European commission has warned.

The EU’s executive body urged the government to reform the “regressive” council tax system as taxes are relatively higher on low-value homes than high-value ones.

The commission also called on the coalition to bring more people into paying tax to help with deficit reduction measures which have so far been “heavily skewed” towards spending cuts.

It warned in its 2014 economic policy proposals for the UK that demand for housing was outstripping supply and that action was needed to increase the stock.

“The authorities should continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures, including adjusting the Help to Buy 2 (loan guarantee) scheme,” the commission said.

“Reforms to the taxation of land and property should be considered to alleviate distortions in the housing market. At the moment, increasing property values are not translated into higher property taxes as the property value roll has not been updated since 1991 and taxes on higher-value property are lower than on lower-value property in relative terms.”

The commission said the UK should “remove distortions in property taxation by regularly updating the valuation of property and reduce the regressivity of the band and rates within the council tax system” and “continue efforts to increase the supply of housing”.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza