If the main point of having a more expensive house than usual is akin to the purpose met by other lavish lifestyle expenditure, would treating rentable assets as taxable not just incentivise people to show their status through expensive consumption instead? (expensive food, holidays abroad etc). Or, wouldn’t the incentive be to make houses expensive to run and maintain (i.e spend more on large windows, less on insulation), – so the net rent is below the threshold?

Not really an answer. I want to understand philosophically why it is that the way I choose to spend my money once already earned and taxed, should trigger another tax obligation if I spend it one way but not another. Everything anyone buys provides some marketable benefit otherwise the exchange would not occur – but that benefit is not ‘unearned’ – it has just been paid for, with tax paid earnings. It is not a loophole. If the benefit I select happens to be long lasting, why is that worth discouraging though tax policy?

Yes stupid property price inflation is a problem, and yes this does represent an unearned benefit, above and beyond the benefit overtly purchased at the time of purchase, and yes by all means this benefit represents a tax loophole, but only if and when the house is actually ever sold at a profit. The original accommodation benefit sold with the house is unchanged; the lump sum purchase price of the house is by definition at least equivalent to the ongoing rent it would otherwise generate for the seller, otherwise the exchange would not have occurred.

Is there intrinsically anything worse about spending your money prepaying the equivalent of a lifetime’s rent in a lump sum rather than lots of overseas trips, or down at the casino?. If the idea is to redirect spending into productive investment , fine, but that raises questions of its own (do good local business propositions actually even struggle to raise investment now? , how do you prevent equally stupid share price inflation on established companies with no need for new investment? etc) and meanwhile the overseas trips and casino probably don’t add much to the economy here either, and at least the house is something that can be resold at a pinch if times get hard for the family.

I guess they too have (hopefully!) unused income generating potential

Children provide much value to people’s lives, shall we tax them too?

Ask a question about policy #1: Why treat housing differently from any other lifestyle asset?