Stamp Duty Rises Faster Than Prices

Posted on 17/01/2018  
Stamp Duty Rises Faster Than Prices

By Terry Ryder, founder,

Politicians who genuinely care about housing affordability should stop blaming easy targets like investors or foreign buyers, and take responsibility for their part in the problem.

The taxes and other charges lumped on the housing industry by politicians at all levels of government are a major part of the affordability issue.

A new report from the Housing Industry Association demonstrates how stamp duty alone is a big part of the problem for those trying to get into the housing market.

The HIA claims that stamp duty bills have increased almost three times faster than house prices since the 1980s – largely because of bracket creep, it says - and this trend will continue unless stamp duty is reformed.

It makes this claim in latest edition of the Stamp Duty Watch report which the HIA says demonstrates state governments’ increasing reliance on housing taxes.

“In Victoria, the typical stamp duty bill increased from 1.9% to 5.2% of the median dwelling price between 1982 and 2017 – equivalent to a surge of 4,000% in the cash value of stamp duty,” says HIA senior economist Shane Garrett.

“NSW homebuyers fared little better with the stamp duty burden rising from 1.6% to 3.8% over the same period.”

Garrett says increases in home prices cause stamp duty bills to accelerate because stamp duty rate brackets are rarely updated. Like bracket creep with income tax, this is the problem caused by “stamp duty creep”.

The HIA says that stamp duty rates have not been reformed in NSW since the average house price was $70,000 – back in 1985.

“State governments are compounding the housing affordability crisis,” he says. “Total stamp duty revenues have almost doubled over the past four years: from $11.7 billion in 2012 to $20.6 billion in 2016 – most of which is likely to have come from residential building.

“By draining the pockets of homebuyers to the tune of over $20 billion each year, stamp duty is a central pillar of the affordability crisis.

“State governments are now more reliant on stamp duty revenues than at any time for a decade. This trend will continue unless state governments recalibrate their taxes on housing.”

The problem is that stamp duty is just one of the cost burdens lumped by government on the housing industry. There is also land tax, capital gains tax, the GST, application fees, infrastructure charges and other imposts which add in the cost of the buying and selling – and, in particular, to the costs of creating new dwellings.

Other research suggests that 35-40% of the cost of creating a new house-and-land package in Australia comprises imposts from the three levels of government.

Professor Hal Pawson from UNSW's City Futures Research Centre told the Sydney Morning Herald this week that stamp duty was a problematic tax for several reasons, including being a drag on the economy and restricting labour mobility - but it couldn't be abolished overnight.

Pawson says a broad-based land tax would be a more efficient and fairer method of revenue-raising from home-owners.

"Firstly, it encourages more productive use of property and the land. If you're paying a land tax that will be set according to the size of your home or the amount of land your home is on," he says.

He says it would also encourage baby boomers to downsize as well as encouraging developers to develop and release land quicker instead of holding on to enormous amounts in land banks, waiting for property values to rise.

"It would discourage speculation and in fact would help moderate property prices."

The ACT Government is part way into a process of phasing out stamp duty over time.

There’s still a long way to go with that but, according to one report, the ACT’s stamp duty taxes are now the second lowest in the nation as a proportion of the median house price.

With a typical house purchase in the ACT you pay around $18,000 in stamp duty, while in Victoria you pay $32,000, despite the fact that the median house prices are almost identical.

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