Beware of the tax man...even if it is for your own good!

IN AMERICA policymakers are too busy coping with the aftermath of the last housing bubble to worry about preventing the next one. But elsewhere in the world, things are different. In China’s cities, house prices rose by 11.7% in the year, according to official estimates, and by much more, according to unofficial ones. That is one reason why the central bank raised reserve requirements (the share of deposits banks must keep in their vaults) on May 2nd for the third time this year. In Canada, the Canadian Real Estate Association calculates that homes were worth 17.6% more than a year earlier, taking them well above their pre-crisis peak. And down under home values only seem to go up, rising by 20% in Australia’s eight state capitals in the first three months of 2010, compared with a year earlier.

To fix housing bubbles, the bank of England suggests, policymakers should consider a tax on real estate that varies over the cycle, rising in property booms and falling in busts. These suggestions echoe an idea proposed a year earlier by Olivier Jeanne of Johns Hopkins University.