Scrapping the current system of mortgage tax relief would improve the way the Dutch housing market functions and stop distorting spending power, two powerful government think-tanks said on Monday.

The macro-economic planning agency CPB and the environmental assessment agency PBL say in a joint report that mortgage tax relief acts as a subsidy for home owners. Without it, the organisations say, home owners would have to opt for a home that better suits their individual circumstances.

Without the tax break, house prices will fall and home owners will have lower debts. In the short term however, they point out, this might mean more people are in negative equity – their mortgage is higher than the value of their home.

The Netherlands’ generous system of tax relief on mortgages has been under fire for years from international as well as national think-tanks and has been reduced slightly in scope.

Since January 2013, tax relief has been limited to repayment mortgages only, although existing mortgages were not affected.

In addition, the interest on mortgage loans is only deductible for a maximum 30 years and the amount of tax relief is being slowly reduced.