I N RECENT YEARS many rich-world politicians have at last woken up to the blight of expensive housing. Theresa May, Britain’s prime minister, describes pricey houses as “the biggest domestic policy challenge of our generation”. Justin Trudeau, Canada’s prime minister, has promised a “robust, comprehensive, life-changing” impact on the housing market. Australia’s new prime minister has fretted that youngsters are putting off parenthood while they save up for homes. Recognition is growing that rapid house-price inflation has caused intergenerational inequity, destabilised finance and constrained economic growth.

If only the rhetoric was matched by action. Dysfunctional government policies, which have coincided with lower real interest rates, have pushed prices up (see article). The fundamental mistake is excessive regulation of house-building in and around successful cities. But a second senseless distortion makes things worse: taxes on property transactions.

Such levies, or stamp duties as they are often called, are common. Many European countries have them, including France, Germany and Sweden, where house prices have grown particularly rapidly in recent years. All but 12 American states levy charges, typically around 1%, when property changes hands. Some countries are much more aggressive. In Australia the top rate of stamp duty reaches 7%; in Britain the figure is 12% for the most expensive properties. Even an average terraced house in London attracts tax of over £15,000 ($19,000) every time its ownership changes, a year’s earnings at the minimum wage.

First-time buyers are often partially exempt from stamp duties. Yet that barely limits the damage. The problem is that a wedge between what buyers pay and what sellers receive slows the pace at which properties change hands. By one estimate for cheaper houses, a 1% increase in stamp duty reduces annual churn in property ownership by 3.5%. When fewer moves mean fewer job switches, the labour market becomes less efficient. Productivity growth may slow. Thankfully, transaction taxes tend to bite hardest only for expensive homes. But gumming up the top of the housing market has knock-on effects. Those who would occupy mansions stay in cheaper homes instead.

The taxes also discourage downsizing, a particularly unwelcome effect in ageing societies. More than two-fifths of British housing equity is owned by over-65s, many of whom are sitting on large, empty nests. More than a third of Britain’s owner-occupied houses have two or more spare bedrooms. People are entitled to hold on to their houses if they wish. But the tax system should not encourage them to do so—especially when high prices have left many families wanting more space.

There is an obvious replacement for transaction taxes: higher annual levies on property values or, ideally, on land values. Such taxes target wealth, and can be just as progressive as stamp duty, but they do not distort markets much. In a transition from one system to the other, the obvious losers would be those who do not intend to move in future: settled property owners, many of whom have enjoyed windfall gains as house prices have soared. True, some would be poorer old people, who could not afford an annual levy to stay in their homes. But the taxes could be deferred until their houses are sold upon their deaths.

This suggestion may sound like a long shot. That a tax as boneheaded as stamp duty can persist reveals the apparent emptiness of politicians’ commitment to fix housing markets. Yet change is not impossible. The region containing Canberra, Australia’s capital, has begun a 20-year process to phase out stamp duty and replace it with a residential land-value tax. Countries that still tax property transactions, especially those that do so swingeingly, cannot claim to be serious about reversing decades of housing-policy errors until they follow suit.