In its UK Economic Survey, it said a well-functioning housing market was key to the UK’s economic prosperity and well-being, and rigid housing supply and rising demand has fuelled house prices to the detriment of affordability and the economy.
The OECD said that housing policy reform should focus on growing the supply of housing through making access to land to build on easier and providing incentives for local communities to allow development.
In addition, the OECD believes a more efficient housing-related tax system would help to contain volatile demand for housing and property price swings, and said council tax and Stamp Duty must be replaced by one property tax.
Its specific recommendations suggest that planning regulations should be made more flexible and Green Belt designations should be reviewed in order to make more land available for building.
The OECD said: “The response of housing supply to demand in the UK has been one of the lowest among OECD countries over the last 20 years. Hence, making the land use planning system more flexible, more predictable and more responsive to market signals, without compromising its social and environmental objectives, is essential.”
It added that replacing Green Belts, aimed at preventing urban sprawl, with land-use restrictions that better reflect environmental designations would help preserve the environment while freeing up land.
Another essential part would be setting the right incentives to encourage local communities to create their own developments. The OECD said it remains to be seen whether the government’s New Homes Bonus will be enough to stimulate enough supply to match demand.
The OECD report said: “The evolution of housing completions should be monitored very closely and the level of incentives revised if needed. After the recent removal of the regional level of planning, ensuring the continuity of strategic planning of infrastructure and public services is also crucial.”
As for taxation, it said council tax was “regressive and based on outdated valuations” while Stamp Duty restricts people’s ability to move by increasing costs.
As a result, the OECD recommended that, ideally, both should be replaced by a property tax based on current market values or a land tax, although a first step should at least be basing council tax on regularly updated property valuations
The OECD said any property tax should be linked to market values, as this would dampen fluctuating house prices, which would result in higher taxes and slow demand.
In addition, the report said that a new tax must take into account that council tax provides local authorities with a steady income stream that is independent of central government.
