And massive house price hikes in recent decades were partly driven by restrictions on the supply of new housing, its report said.
The Paris-based group suggested replacing stamp duty with an ongoing land tax based on market values, which could also offset cuts in taxes on income. A revenue neutral shift in the tax system would encourage growth and stability, it argued.
And the UK could free up the supply of housing “by reassessing land-use policies, to make better use of vacant land with little environmental value,” including in the green belt, OECD economists said.
House prices increased by more than 90 per cent between 1980 and 2008, the report said. Financial liberalisation increased the availability of home ownership to young professionals and people on low incomes, and added around 30 per cent to house prices, the OECD estimated.
While deregulation amplified price volatility, the report also blamed “policies favouring homeownership over rental markets” which reduced labour mobility. Policies in the US exacerbated the number of houses falling into negative equity, the OECD economists said.
The report criticised the level of regulation over the social housing sector, and proposed housing allowances as an alternative to the construction of more social housing.
Social housing “can concentrate low-income households into neighbourhoods with negative consequences for access to education and labour market outcomes,” it said.