Housing expenditure – overlooked and undertaxed

This is a follow up to an earlier post, Since housing is economically a luxury good, why not tax it more?, where the argument was based on a longitudinal study.  For this I am endebted to @RichGreenhill for pointing me to an ONS spreadsheet showing expenditure by income decile, which can be downloaded here.

Click here for my version which includes a quick & dirty function I wrote to calculate something along the lines of a gini coefficient for each expenditure line.   If anyone is interested, I’ll explain further, but the code is not protected, so anyone can find out how the calculation is done.

I’ve also added an autofilter range and some additional columns to allow flexible filtering of lines, and a chart with a macro running when activated to show just those lines filtered in the autofilter range.  Some rows are aggregates of other rows, which can be seen with the larger markers in the chart.

Here’s an example, in which ‘Other expenditure items‘ shows as an aggregate, with its components, such as ‘Holiday spending‘ appearing to its left.


The idea behind this is to see how special taxes, as in so called ‘sin taxes’, on different expenditure items would hit the rich versus the poor, and looking at this, it’s items at the top where such taxation would be progressive, and these on the right where it would – in the case of actual such taxes does – raise significant amounts of money.   Naturally enough, ‘Income tax, payments less refunds‘, which is given by the ONS in a supplementary group, after ‘Total expenditure’ shows up where items on which significant amounts of tax could be raised progressively; I think everyone knows that income tax is the most effective form of progressive taxation.

With reference to the longitudinal data shown in the previous post,

it is striking that housing doesn’t show up as so much the dominant ‘luxury good’, in the economic sense.  However, I think that will be because expenditure on house purchases, unlike ‘Maintenance and repair of dwelling‘, ‘Actual rentals for housing‘ and ‘Housing: mortgage interest payments, council tax etc.’ are not included in the ONS spreadsheet.

Some tentative conclusions:

  • I suspect that we, and here including ONS statisticians, are so used to seeing buying somewhere to live as an investment rather than a normal choice about future consumer benefit to be obtained, that it just drops off the radar when thinking about consumer expenditure.
  • I think the case for higher taxation of home ownership, on the basis that it will be progressive and raise useful revenue, stands.
  • Other things being equal, increasing the level of taxation of home ownership will reduce prices, and for a transitional period reduce the supply, as the current speculative (investment) element of demand for housing is reduced.  See here for a more general discussion of the transitional issues involved with ‘Unwinding the housing crisis‘.

Categorised as Economics

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