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Growing Transaction Costs Worsen Housing Affordability Crisis

Soaring agent fees and stamp duties are preventing an increasing number of homeowners from being able to move, according to new research. The cost of buying a home has risen five times the pace of income over the past two decades, resulting in a dramatic increase in average holding periods for dwellings.

Transaction costs for the average Sydney home have increased to more than $100,000 from $20,000 since 2000, according to Jarden chief economist Carlos Cacho. This dramatic surge has pushed the cost of buying a home to around 80 per cent of disposable income, compared with 28 per cent two decades ago.

Melbourne and Brisbane experienced similar changes, reaching $80,000, and $50,000, respectively. Agent fees and stamp duty were identified as the primary culprits for the increase. The average homebuyer in NSW paid $49,300 in stamp duty in 2022, a huge 50 per cent increase on 2019 levels. This further compounds the poor affordability, as it takes people longer to save a deposit and upgrade their current residence.

Demographics have also had an influence on the decline of housing turnover, as the share of prime-age upgraders aged 30 to 50 has dropped, while the share of over-65 long-term holders has increased. These trends are expected to worsen, as Jarden predicts annual housing turnover in 2030 to fall to just 4.5 per cent of the dwelling stock.

The increasing cost of buying property will put upward pressure on property prices, as fewer houses are available for sale at any given time. This has caused an outcry from economists for state and territory governments to shift from stamp duty to land tax to encourage more people to move.

If this happened in NSW, the transaction costs for an average Sydney house would reduce from $104,000 to about $50,000, as an annual land tax of $4000 would be implemented. Whilst this move would prove beneficial for some, the introduction of a land tax that leaves out existing arrangements may not drive the hoped for increase in turnover.

This is because older owners may avoid downsizing due to the new tax as they generally have fixed incomes in retirement. In order to help alleviate the burden of soaring agent fees and stamp duties, governments will need to take action to encourage more people to move and reduce the major barrier to entering the housing market. Regulating agents to charge fixed-price fees and replacing stamp duty with land tax could help to lower costs and provide some breathing space for potential homebuyers.


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