Living in small homes, close to each other, provides large environmental benefits. Limit tax breaks for large homes.
By: Edgar Hertwich
Tags: Material Efficiency, Equity, Greenhouse Gas Emissions, Affordable Housing, Tax Breaks

Translated from Norwegian.

First published in Dagens Næringsliv, 23.12.2020

At a time when even in wealthy Norway many are struggling with housing costs in the big cities, a new law proposed by the ‘Minister of Housing’ Nikolai Astrup gives housing associations and municipalities the opportunity to limit the number of people living in a flat. Our research shows that limiting the growth in floor space mitigates greenhouse gas emissions and collective housing is a good way to achieve space efficiency. A tax reform can resolve the conflict between access to adequate housing for the financially disadvantaged and reduced growth in total living space.

I realize that the spread of dormitory-style housing in big cities creates tensions between different demographic groups that make buildings and neighborhoods less attractive for the well-to-do. I also would not have lived in Møllenberg in Trondheim, a district that is increasingly dominated by party-happy students. Slumlords cram too many into a flat, which is especially a problem in buildings without adequate infrastructure such as hot water and bicycle parking. I understand that homeowners and housing associations want the opportunity to prevent overcrowding.

The proposed bill will make the housing market even more difficult for young people and those with modest means. They have already experienced the largest increase in housing costs. Inspired by the Christmas gospel, one can ask what the government does to increase the supply of affordable housing instead of creating barriers against dormitories and housing collectives?

Production of building materials causes ten percent of global greenhouse gas emissions. Therefore, a new report by the International Resource Panel investigates options to reduce material demand through material efficiency. We find that significant emission reductions are possible, especially through reduced demand for floor space. Using multifamily housing rather than detached single-family homes, and housing cooperatives instead of one-bedroom apartments, contribute to limit growth in the floor area. The potential emission savings are much larger than those that can be achieved through lighter constructions, reduced construction waste, and increased recycling and reuse of building materials; all measures that are most likely to be part of the Norway’s forthcoming strategy for a circular economy.

There is a large variation in floor space per capita between different developed countries from 35 square meters in the UK to 70 square meters in the USA. Similar variations exist within countries. The report identifies taxes, fees and spatial planning as the most important policy instruments that affect demand for floor space. In Norway, even though we have the highest floor space per capita in Europe, some still share cramped flats.

How can we offer affordable shelter to the young and those of modest means while limiting the demand from those who are already more than adequately housed? It may seem like a contradiction. We must look at the tax laws ! Tax breaks on property ownership are not limited by size, which provides an incentive for wealthy to buy ever larger homes and second homes, which pushes up prices, making it difficult for first time buyers to get into the housing market.

The government should therefore differentiate the tax benefits of owning a home so that they provide incentives for increased space efficiency, eliminate benefits for vacation homes, and at the same time counteract price pressure. There is no reason to give an interest deduction for a mortgage, regardless of the size of the loan or the home. It is also not necessary to reduce the tax value in a mansion by as many percent as in a studio apartment. In monetary terms, the value of these tax benefits is much greater for those who do not need help to acquire adequate housing than those who can barely afford the first home purchase.

If the tax benefits are limited in size, it will help ease the pressure on the housing market and reduce demand for ever larger housing units. It will undermine the business of slumlords without forcing people out of the housing market.

Reference: IRP (2020). Resource Efficiency and Climate Change: Material Efficiency Strategies for a Low-Carbon Future . Hertwich, E., Lifset, R., Pauliuk, S., Heeren, N. A report of the International Resource Panel. United Nations Environment Program , Nairobi, Kenya.