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It is also completely tangential to my point, which is that you cannot both have a high fraction of owner-occupiers and responsible real estate taxation, because that is unstable against tax-cut populists: The tax-cut populist gets to enjoy the bubble, the responsible party that comes after it gets to clean up the mess. That only works if either (a) the voters understand that the pain they suffer during the cleanup is actually caused by the irresponsible tax-cutters, not the responsible adults who raise real estate taxes. Or (b) the fraction of owner-occupiers (and their dependents) is sufficiently small that you can fuck them over with relative electoral impunity.
I would not bet a lot of money on (a), let alone an election campaign.
Of course, you could get creative and automatically index mortgage principals to some real estate index. That would prevent homeowners from going underwater when the market tanks (and reduce their ability to play the leverage game). But then you'll have your banks running equity risk, and I am not completely sanguine about the implications of that for financial stability.
Friends come and go. Enemies accumulate.
So I wouldn't see controlled equity risk as a problem, because any scheme that controls risk is also going to lower volatility. It becomes hugely less likely that the entire economy will implode because of a bubble, and the real risk of going underwater becomes much lower for everyone.
As for the political argument - you can't immediately fix a democratic deficit by moving money around. You need to have decent representation first - as in policy influence at every level, and not just token show-voting every few years - and then you can start on the rest.
Unfortunately with the current system, even if there's an outbreak of something approaching bottom-up democracy, it's soon co-opted into the usual economic tyranny, making power redistribution politically impossible.
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk
You also get a huge incentive for the financial sector to encourage bubbles (albeit a smaller one for homeowners to participate in them).
As for the political argument - you can't immediately fix a democratic deficit by moving money around.
But my point is that high property taxes requires that property holders are not a politically effective constituency.
In other words, they either have to be a small constituency, or they have to be labouring under a democratic deficit that prevents a large constituency from materially affecting policy.
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