The Australian government is considering a radical overhaul of its property tax system, including the potential scrapping of popular tax breaks such as negative gearing and the capital gains tax discount. This move, if enacted, would represent a seismic shift in the country's housing market and has sent ripples through global financial circles. For those of us in the City of London, it begs a pressing question: could the British housing market model be next under the microscope?

Let's cut through the noise. Negative gearing allows property investors to deduct losses from their taxable income, effectively subsidizing rental property ownership. The capital gains tax discount reduces tax on profits from property held for more than 12 months. These policies have been the bedrock of Australia's housing market, fuelling a two-decade-long property boom. But critics argue they have inflated prices, widened wealth inequality, and locked out first-time buyers.

The parallels with Britain are striking. Our own property market has been propped up by a cocktail of tax reliefs, from the mortgage interest deduction to the 18-month capital gains tax exemption for primary residences. The net result? House prices that have soared relative to incomes, particularly in London and the South East. The Bank of England's monetary policy, with its low interest rates and quantitative easing, has only added fuel to the fire.

Now, Australia's flirtation with tax reform is a shot across the bow for British policymakers. The Labour Party has already floated the idea of ending the capital gains tax exemption for second homes and tightening the 60% capital gains tax rate for high earners. But a full-blown review of property tax breaks remains politically toxic. The reason is simple: homeowners are a powerful voting bloc, and any change risks a backlash that could topple governments.

Yet the economic case for reform is growing. House prices in the UK now stand at over nine times average earnings, up from around four times in the 1990s. This has led to an intergenerational divide, with younger Britons increasingly locked out of homeownership. Meanwhile, the buy-to-let sector has boomed, with landlords now comprising a fifth of mortgage borrowers. The tax advantages have turned housing into a speculative asset rather than a place to live.

From a fiscal perspective, the cost of these tax breaks is considerable. HMRC estimates that the main residence exemption alone cost the Treasury £39.5 billion in forgone tax revenue in 2019-20. That's money that could have been spent on public services or used to reduce the deficit. In an era of stagnant productivity and rising debt levels, can Britain afford to keep such generous subsidies?

Central bank policy adds another layer of complexity. The Bank of England's tightening cycle has pushed mortgage rates higher, but property prices have remained stubbornly elevated. The transmission mechanism is broken. Instead of cooling the market, higher rates are squeezing renters and first-time buyers, while well-heeled investors with cash or low leverage continue to pile in. It's a classic case of market failure, and the only way to correct it is to address the underlying tax distortions.

There is, of course, the risk of unintended consequences. Australia's property market is already showing signs of strain, with prices in Sydney and Melbourne falling sharply from pandemic peaks. Scrapping negative gearing could accelerate the downturn, creating a vicious cycle of declining wealth, falling consumer confidence, and slower economic growth. But as any economist will tell you, long-term stability requires short-term pain. The question is whether politicians have the backbone to bear it.

In Britain, the episode should serve as a catalyst for debate. The current model is unsustainable. It has created a housing market that benefits the few at the expense of the many, and it distorts capital allocation away from more productive uses. If Australia can contemplate such bold reform, surely the UK can too. After all, the only thing riskier than change is the status quo.