alt Hacker NewsClassic loophole. We tell ourselves this is to protect the little people who own homes, but the actual little people don’t have homes at all and rent. Meanwhile, anyone with money will get the picture invest all of it in real estate, once again enriching homeowner as well impoverishing the rest of us.
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In a way I agree with you that this will cause market distortion in the form of greater demand for real estate over eg. equities. But there are plenty of such tax distortions; for example many countries have favourable tax treatment for domestic dividends.
Regardless, I assume the logic behind this exception is that while you can easily sell a portion of your holdings of publicly traded stocks to cover your annual tax burden, you can't sell a portion of a house. You could of course finance, but that's going to disproportionately benefit lenders.
Home ownership is and would continue be taxed in box 1, so that’s not even superficially the reason for carving out real estate.
Box 3 on real estate only come in play for home 2+, and rental properties.
Only 29% of people in the Netherlands rent and that number is decreasing.
It's true that it's a carve out, and current young generations are having huge problems getting homes in a lot of the world.
But in the Netherlands, the overall home ownership rate is still about 70 percent (https://ec.europa.eu/eurostat/databrowser/view/ilc_lvho02__c... might need to drill down a little).
In the US it's 65 percent.
Carve outs for home owners are some of the most understandable political strategies across the developed world.