Capping tax breaks for housing could help to slow house prices and ensure wealth is more evenly spread between generations, according to the report from the Organisation for Economic Co-operation and Development (OECD).
“Housing tax reforms can have a sizeable impact on house prices, with potentially significant distributional effects as well as wider financial and economic repercussions,” the report said.
The report said young people were being locked out of the housing market, which was being dominated by wealthy, older people.
To help fix the considerable rise in house prices, the report suggested governments should “ensure the highest-value gains are taxed”.
“[This would] strengthen progressivity and reduce some of the upward pressure on house prices, while continuing to exempt capital gains on the main residence for the majority of households,” the report said.
“Gradually removing or capping mortgage-interest relief for owner-occupied housing would also have positive impacts on progressivity, tax revenues and house price affordability.”
In addition, the report suggested tax incentives for energy-efficient housing or renovations should be targeted to lower-income households.
“This could contribute to greater emissions reductions and enhance the equity of tax-incentive schemes,” it said.
The report also said “caution should be exercised” when handing out tax incentives to encourage people to buy a home.
“In most cases, encouraging the supply of housing and promoting the more efficient use of existing housing stock - through both tax and non-tax measures - is likely to have a greater impact on housing affordability,” it said.