House price inflation in the UK and elsewhere has created the impression of increased real wealth for the "haves", whist making the prospect of owning a home increasingly un-realistic for the "have nots" - a whole future generation stranded by increasing inequality
This un-earned wealth is not currently subject to taxation, as income is, nor any other form of appropriation by the state; but if it were to be, what figure might we suggest could be available, for the consequent reduction in income or sales taxes (eg: VAT), or the national debt?
AFFORDABILITY: The increase in housing cost is not a significant factor contributing to the social divide. In today's financial markets in developed economies, all verifiable employed person may purchase a home on mortgage, i.e. 20, 30, .. years loan amortize into a monthly payment as if the person is paying a monthly rent. despite the increase in price of homes, the government generally maintains financial insurance system to make sure that there are affordable housing for qualified buyers.
Link here for affordable housing supply in the UK:
https://www.gov.uk/government/statistics/affordable-housing-supply-in-england-2013-to-2014
While there may be extreme cases where the price increase is exceedingly high, these properties are not considered affordable even under normal circumstance, i.e. they are available only to the rich. However, the market at large always maintain a good stock of affordable housing. Unless the size of the market relative to the demand is so skewed that the housing cost becomes unaffordable, i.e. Hong Kong with high population density and limited space.
TAXATION: It would not be correct to say that an increase of appraised value of a home should be treated as a real gains; therefore, taxable as capital gain or ordinary income. The "apparent" increase is not a realized gain; therefore, it is not taxable.
However, the state usually re-assessed the value of the home periodically and re-assessed the taxable base for the property. For example, if 5 years ago, the home is was valued at 500,000 pounds and is not worth 700,000 pounds, if there is a reassessment, the owner will be assess on 700,000 pound value---if there is no reassessment, use 500,000 as the base for property tax.
UNEARNED WEALTH is not a realized wealth; therefore, not taxable as ordinary income or capital gain. if the property is sold, then then state can tax. In the UK, the liability is 18% - 28% for value in excess of exemption amount.
How could the state tax unearned wealth in real estate? reassess the property value annually. Freehold estate in the UK is STAMP DUTY LAND TAX from 2% - 12%. If re-assessing the property every year or every five years, the state could collect more tax revenue from unrealized wealth. VAT or sales tax will not work, because there is no sales transaction.
http://www.which.co.uk/money/tax/guides/capital-gains-tax-explained/capital-gains-tax-allowances-and-rates/
https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
https://www.gov.uk/government/statistics/affordable-housing-supply-in-england-2013-to-2014
Hi Robin. I think the first element, which is a calculation of net housing wealth, can be derived from the BHPS. The basic form is value of house minus outstanding mortgage. I have seen it (net housing wealth) used in aggregate time series work (particularly on self-employment) too so it may be able to be derived from ONS data too. The obvious advantage of the individual (BHPS) approach is that you could then track people in income (wealth) deciles from a start point (which is 1991). The second bit would require a time-series trend of house prices (maybe split into quartiles) and income. The ratio between the income of the lowest decile of income and the lowest decile of house prices would get you somewhere close to where you want to be. Alternatively, you could look at housing status (owner, renter etc) by income decile on the assumption that the poorest would have to rent as they couldn't raise a mortgage. Or a simple calculation of 3.5 times household income (or 2.5 times single income) which used to be the mortgage lenders decision rule. Then this gives you the maximum mortgage which you can compare against house prices. Hope this gives you some food for thought? Cheers, Marc