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An Englishman's home is his tax shelter, as the old gag = used to=20 go. Today it is only half-true: the tax advantages of = home-ownership=20 have been much reduced since the end of the 1980s. In the = future,=20 they may diminish even further.

The obstacles to new taxes on housing are formidable, not = least=20 the existing imperfect and increasingly unpopular version, = the=20 council tax. The arguments in favour, however, are = compelling and=20 exciting interest within the government. As the Office of = the Deputy=20 Prime Minister's balance of funding review looks at reform = of local=20 government finance, there is a sense that the issue is up = for grabs=20 in a way it has not been for many years.

"I think things are moving rather fast," says Iain = McLean, of=20 Nuffield College, Oxford, a supporter of a property value = tax. "The=20 balance of funding people say they are open to suggestions = and they=20 really mean it. They are stuck and they know they are = stuck."

There is general agreement that the views of the Treasury = will be=20 decisive and so far it has kept its thoughts to itself. But = it=20 dropped a heavy hint in one of the papers accompanying the = euro=20 assessment last year, when it described investment in = housing as=20 "relatively lightly taxed compared to other investments."=20 Under-taxation, we can assume, is a condition that the = Treasury=20 feels compelled to put right.

The tax breaks for housing are not generous compared with = those=20 for private pensions or an individual savings account. But = while the=20 tax breaks for pensions are intended to reward behaviour the = government wants to encourage, tax breaks for housing merely = redistribute wealth towards home owners, by pushing up house = prices.

Indeed, a tax on house values could serve a useful = purpose as an=20 economic regulator. When prices rose, so would people's tax = bills,=20 leaving them less money to spend and offsetting the stimulus = to=20 consumption from rising wealth.

A property value tax could also solve public finance = problems for=20 Gordon Brown, the chancellor, at a stroke.

Gavin Cameron, of Oxford University, suggests a tax on = housing=20 could be set at a level equivalent to the old domestic = rates: about=20 1 per cent of the property's value a year. With the value of = residential property now at about =A33,000bn, that could = mean an=20 annual take of =A330bn next year: enough to replace the = =A320bn from=20 council tax and ensure Mr Brown meets his fiscal rules.

In awell-ordered world run by economists, such a tax = would surely=20 already exist. In Denmark, it does.

In Britain, however, it is not quite that easy. One = problem is=20 administration: houses would have to be valued regularly, = perhaps=20 annually, rather than being assigned to bands as for council = tax.=20 But the new land and property gazeteer, providing a national = property database, should make record-keeping easier.

There is also a tension between the different objectives = required=20 of a property tax. Levying it nationally would weaken local=20 accountability but levying it locally could undermine its = economic=20 rationale.

The most serious drawbacks are likely to be political. = The=20 problem of pensioners living in large houses with low = incomes could=20 be surmounted by letting people defer their accumulated = liabilities=20 until they die or their houses are sold: an idea to be = proposed in a=20 speech today on the council tax by Stephen Byers, the former = trade=20 and industry secretary.

But the burden of a property value tax would still fall = hardest=20 on the least well-off. The latest rumours have suggested = government=20 interest in a hybrid system: a property tax plus a local = income tax=20 or other new local taxes. The least disruptive move would = simply be=20 to make council tax more like a property value tax, by = adding more=20 bands.

The history of reform of local taxation suggests that = more=20 fundamental reform will have to wait, at least until after = the=20 election. But one day, the Treasury's ambition to require=20 home-owners to pay more is likely to be=20 realised.