Danish Housing Risks Fanned by Tax Plan, Central Bank Chief Says

The Danish central bank says government plans to protect homeowners from higher property taxes risk fanning a potential bubble.

Prime Minister Lars Løkke Rasmussen told parliament this week his government will introduce legislation designed to safeguard family incomes by preventing homeowners from paying more taxes when property valuations rise. No homeowners would face tax increases while many would pay less under the proposal, Rasmussen said.

In an address on Wednesday to the Association of Danish Mortgage Banks in Copenhagen, Governor Lars Rohde called the government’s initiative "unfortunate" and criticized the pro-cyclical nature of the proposal. It is “absolutely crucial” that housing taxes maintain their stabilizing role in the economy by limiting swings in house prices, Rohde said.

The governor has issued repeated warnings about Denmark’s housing market, in which prices have risen almost 18 percent in the past three years amid negative interest rates. Apartment prices are now above levels reached just before Denmark’s most recent property bubble burst, in 2008.

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