The EC develops a toolkit for assessing housing market imbalances

The Commission recently published its quarterly report on the area. This regular report features economic and financial research by European Commission staff. The most recent edition is of particular interest to the property sector for two reasons. The first reason is that it presents an analytical toolkit for assessing housing market imbalances. The second is that it looks at the economic implications of various forms of housing taxation.

The analytical toolkit for assessing housing market imbalances is based on a filtering approach. This allows pronounced boom and bust phases in the housing market to be distinguished from milder cyclical movements. Euro area Member States are grouped into different categories of housing market overvaluation. This, together with alternative valuation methods for house prices such as affordability, establishes a comprehensive and multi-layered approach to understanding house price dynamics.

Property tax revenue is generally small in relation to national output. It is reported that there is potential scope for shifting tax burdens away from labour and corporate income taxation and onto residential property holdings. It is also observed that the tax-deductibility of mortgage interest payments may also increase the risk of housing booms.

These references to a shift towards property taxation reflect other statements already made in the European Semester process including the Annual Growth Survey 2013. The main responsibility for tax reforms remains with the Member States. However the emphasis which is being placed on these issues reflects greater fiscal coordination at an EU level. The references in the quarterly report also underline the interest which the EU is now taking in the housing markets in different countries. CEPI has long pointed out the importance of such markets to the European economy as a whole, and hopes that any decisions taken with regard to the property market take account of and reflect the concerns of all those active in it including property professionals.

The full report is available for download at 
For information about property taxes in the EU Member States, click