Irish property taxes are among the lowest in the developed world, with this likely to remain the case even after the local property tax is fully applied, according to a new analysis from London-based think tank Policy Exchange.

The study into the impact of taxation on housing supply and demand finds that property taxes in the Republic amounted to 1.5 per cent of GDP in the 2011- 2012 period. The comparable figure for the UK was 4.1 per cent – the highest in the OECD.

In the US, property taxes equated to 3 per cent of output, while in Germany, it was 0.9 per cent. The OECD average for the period was 1.8 per cent, which is roughly around the level the ESRI expects to apply in Ireland when the local property tax comes into full application next year.

Policy Exchange, an influential think-tank with strong conservative leanings, argues that the best way to deal with issues such as volatility in house prices and high rents, is to change the planning system rather than the taxation system.

Its study – Taxing Issues? Reducing Housing Demand or Increasing Housing Supply – pushes for policymakers to commit to building 1.5 million new homes by 2020, including the construction of at least one "garden city”. Such "attractively designed” cities will "act as beacons for development”, according to the research.

Tax, the researchers argue, is not among the most crucial factors in housing affordability or price volatility.

The study is underlined by the premise that home ownership is desirable; it argues that a reversal in UK home ownership levels from 70 per cent in 2002 to 64 per cent in 2011 is "not acceptable”.

Property taxes as defined by the study include taxes on occupancy such as the LPT, taxes on transfers such as stamp duty, capital gains taxes and taxes on the increase of land value due to planning permission. It notes that while all the countries it considered apply property taxes, their methods of doing so differ widely.

The study says that property taxes in the LPT vein, which create the single-biggest tax bill a consumer will receive in the year, tend to be hugely unpopular, despite being relatively low.

"Property taxes have a particularly negative effect on the ‘asset rich, cash poor’,” the study finds.

It also concludes that a belief that proportional tax on property will eliminate housing volatility and stabilise economies is "unsubstantiated”.

In France, where property taxes equated to 3.7 per cent of GDP, the system includes annual property taxes and a 5 per cent transfer tax relating to changes in title. In Canada, where the comparable proportion was 3.5 per cent, property taxes are administered by local and provincial authorities and thus carry significant regional variations. There are no capital gains taxes on primary residences but non-residents pay 50 per cent as a withholding tax.

Austria, where property taxes amounted to just 0.5 per cent of GDP, applies a uniform property tax ranging from 0.05 per cent to 0.2 per cent as well as a local property tax surcharge.

This article first appeared in irishtimes.com.