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‘Axe the tax’: Real estate experts on why you can’t afford a house

·4-min read
Could removing this tax fix housing affordability? (Source: Getty)
Could removing this tax fix housing affordability? (Source: Getty)

Real estate agents and property economists have renewed calls to remove the “inefficient” and “silly” tax of stamp duty, which they say is an obstacle to housing affordability and discourages people from selling their homes.

Australians all across the country, bar the ACT, are paying “substantially” more stamp duty than they would have 20 years ago, which is holding back the ability to upsize or downsize and hamstrings the economy, according to a new report on stamp duty reform by the National Housing Finance and Investment Corporation (NHFIC).

The tax acts as a disincentive to moving homes, the report found: someone who bought an average-priced house in Sydney four times in the last 20 years would have paid more than 10 times the amount of stamp duty than a household that only bought one house.

The tax also comes at a significant cost. Victorians pay the most in stamp duty at 4.5 per cent, which adds a further $45,000 on top of the price of a median property. In 2002, this sum would have been $12,000.

Even residents in the ACT, who pay the least stamp duty across Australia, would have to fork up around $13,460 in stamp duty on a $500,000 home.

Ray White chief economist Nerida Conisbee noted that fixing housing affordability was “really complicated”.

“But inefficient taxes such as stamp duty certainly doesn't help,” she told Yahoo Finance.

“It adds an additional cost to transacting so that means extra costs for buyers but also makes it less attractive for people to sell their homes.”

SYDNEY, AUSTRALIA - MAY 08: Auctioneer Jesse Davidson counts down a bid during an auction of a residential property in the suburb of Strathfield on May 08, 2021 in Sydney, Australia. Property prices continue to rise across Australia with house prices up almost 27 percent compared to five years ago. Record low interest rates have also seen a surge in home loan applications in the last year. (Photo by Lisa Maree Williams/Getty Images)
Property prices are up almost 27 percent compared to five years ago. (Photo by Lisa Maree Williams/Getty Images)

Overall, it reduces housing stock. Not only does it prevent older people from downsizing, it stops would-be buyers moving for employment and even makes it cheaper for owners to renovate rather than move, she said.

The Real Estate Institute of Australia said the report showed it was time to “axe the tax” and called on the Federal Government to take responsibility.

“Politicians cannot on one hand gripe about housing affordability, and then on the other say we need this income from home buyers and owners to fund public sector operations,” said REIA president Adrian Kelly.

“REIA renews our call on the Council of Federal Financial Relations to take on board this issue seriously and nationally rather than just shift this responsibility off to States and Territories,” he added.

Not an easy fix

NHFIC’s report encourages a “broad-based land tax” that could lower the cost of switching homes and encourage commercial land to be rezoned for residential use.

But this isn’t a “panacea”, and still focuses on taxing Australian households to fund state government coffers, Kelly said.

Metropole Property Group CEO Michael Yardney acknowledged that removing stamp duty would make housing more affordable, but warned that this would be mired in “political problems”.

“Our state and territory governments rely heavily on these taxes, especially in the current economic climate. I can’t see any government giving away these floods of money without introducing another tax which would at least equal if not exceed the revenue produced by stamp duty,” he told Yahoo Finance.

The NSW Government is currently looking at replacing stamp duty and land tax with an “annual property tax”.

“But this would hurt their revenue in the short-term moving from a system of upfront payments to a long-term payment system,” Yardney said.

“And those who paid stamp duty would rightly complain that they had been unfairly treated if people purchasing today could enter the market cheaper.”

Removing stamp duty could push UP property prices

AMP Capital chief economist Shane Oliver described stamp duty as a “silly tax” that distorts people’s decision-making and should be replaced.

But if it were to be replaced with a land tax that raised the same amount of revenue, there would be no change to house prices or affordability.

In fact, affordability could get worse, he warned.

“In reality, the removal of a massive upfront tax impost if stamp duty (say $35,000) is removed will put more money into the hands of buyers and initially push up prices, actually worsening affordability,” Oliver told Yahoo Finance.

“Over time as it's clear that the land tax (say $2,000 a year) has to be paid forever, prices would settle back to where they otherwise would have been. But that will take time and the initial impact will be higher prices and worse affordability.”

NHFIC’s report also acknowledged that house prices may rise in the short-term as the removal of stamp duty is absorbed into house prices.

“However, if lenders fully capitalise the cost of the replacement land tax into loan serviceability criteria, the price impact from removing duty may be negligible,” it said.

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