Low interest rates offer the opportunity to reform the fiscal treatment of owner-occupied housing

Home ownership is subsidized by the Dutch tax system compared with other assets. Due to falling interest rates in recent decades, older home owners, who have (largely) repaid their mortgage loan, have benefited relatively more from the favourable tax treatment of owner-occupied housing compared with younger home owners, because for the latter the mortgage interest deductibility is relatively more important than the taxation of home equity (via the taxation of imputed rent). The subsidy on owner-occupied housing results in welfare losses because it stimulates excessive housing consumption, distorts financing decisions, and puts pressure on the housing market and spatial planning. In addition, the subsidy—in combination with mandatory pension savings—leads to excessive saving by many households and unnecessary restrictions on consumption in earlier phases of the lifecycle. For these reasons, the subsidy on owner-occupied housing should be eliminated under a uniform tax treatment of all capital income, where the tax treatment of owner-occupied housing is neutral relative to other assets.