On June 7, a delegation from the IMF presented their preliminary assessments of the Norwegian economy for 2018. Again this year they devoted much attention to the housing market, household debt and financial stability. Debt is the biggest risk factor in the Norwegian economy, and in the short term, the IMF supports the mortgage loan regulations, and even recommends geographically limited rules if necessary. In the long run, the IMF believes that something must be done about the tax incentives for housing.

The housing taxation has been sharpened in recent years. From 2010 and the introduction of the tax assessment system, the taxation of housing and property in Norway has increased due to more precise calculations and increased house values. In addition, the collection of the stamp tax and the use of municipal property tax has increased significantly.

In line with rising house prices, the state's income from the stamp tax has grown to almost NOK 9 billion in 2017, while the municipal property tax has exploded. In 2017, approximately NOK 7 billion was collected in property tax from housing and holiday homes.

Improvment of the tax facility

For 2018, the valuation discount on housing and leisure housing in the wealth tax is estimated by the Ministry of Finance to amount to almost NOK 22 billion. The absence of capital gains tax on primary housing after one year of residence amounts to nearly NOK 28 billion. In total, almost 50 billion. In addition comes the interest deduction.

Unlike Sweden and Denmark, Norway chose the ownership line in the housing market, and it has been a political goal for almost a hundred years for Norwegians to own their home. This has served us well. Nearly all Norwegians own their own homes during their lifetime, and 8 out of 10 Norwegians own their own homes at all times. The positive effects of this cannot be underestimated: Countries with a high proportion of homeowners have a higher average wealth than countries with a low proportion of homeowners, and being a homeowner has a positive effect on savings, participation in working life and productivity.

The problem with today's housing tax is the facility. That a large proportion of the total housing tax is made up of stamp tax and municipal property taxes is unfortunate. In addition, large wealth discounts are given to expensive homes and holiday homes, due to less precise valuation values for such homes and random tax assessment of leisure properties.

The Scheel Committee, which provided the basis for the tax settlement in the Parliament in 2016, recommended removing both the stamp tax and the municipal property tax and improving the system of tax calculation. The rationale was that the stampt tax impedes work mobility since it in fact is a taxation of relocation, and that it is unfortunate that housing and property are taxed at random and in many different ways.

In addition comes the negative distributional effects. The stamp tax is skewed and affects especially young people between 20 and 40 years, who are the ones who change homes most often. Therefore, this group pays dispropotional  share of the total taxation of housing. The property tax in turn varies widely from municipality to municipality and does not take into account debt and income.

Simple solution

The solution to the housing tax debate is simpler than expected, where the considerations of financial stability and the ownership line in the Norwegian housing model have been seen as incompatible. But with a close revenue-neutral tax exchange between stamp tax and property taxes and full valuation of primary housing in the wealth tax, it is possible to reconcile these two considerations. This will make housing taxation more equitable and sustainable, while lowering the threshold to become a homeowner.

If the stamp tax is removed, it will be cheaper to buy housing, and because of the wealth tax threshold, average Norwegian households will be screened.

It is possible to design housing taxation in a way that takes financial stability into account through more equitable alignment of property taxation and the ownership line in the Norwegian housing model.