How about this as a way to cool off and consolidate "overpriced" residential property markets:
It would be even more of a political liability than CGT, but an imputed interest tax would help even the field between financial investment and investment in real estate. Because of tax on investment income there is a bias in our system towards buying as expensive an owner-occupied home as possible. Owner occupied homes are untaxed as to both capital gain AND the annual benefit of occupying rent-free. You are at a tax disadvantage if you want to rent whilst investing your capital in productive assets, whose returns or interest are taxable at your marginal rate of income tax. In addition if you invest your money in a financial arrangement that has capital appreciation. the capital profit is taxed unlike capital profit on your home. You then have to pay your rent out of tax-paid income. On the other hand, the benefit derived from your investment in your own home is untaxed.

If there were a tax on the interest foregone on the equity in your own home, that would help overcome the in-built bias from the tax system towards home ownership. It would have a greater imposition on those people who own their own expensive homes without a mortgage and the least effect on first home buyers buying a modest home with a small amount of equity in their home.The imputed interest rate would be similar to a 5-year bank deposit rate.

This imputed interest scheme could be introduced gradually along with reductions in other taxes...along the lines of the introduction of GST. However this will never happen. The inbuilt tax bias to as-expensive-as-possible home ownership will no doubt continue.

*Owners equity could be calculated either historically (what you actually paid less any outstanding mortgage priincipal) or by more subjective council-type revaluations.

*Rates are a broader based tax levied on all property (not just owner occupied property) and they are charges for the use of council services not an investment tax on the equity in the property. As a proportion of the property value they vary throughout the country. Similarly the fixed or uniform charge component varies.