• 26/02/2024

How stamp duty is keeping houses off the market

Michael Bleby| Australian Financial Review| 1 October 2021


Rising stamp duty costs have contributed to a drag on the amount of housing stock coming to the market over the past 13 years, new research shows.

Stamp duty, a lucrative revenue source for states, is not the only reason for worse housing market liquidity, but is a factor behind the fall in the share of established properties for sale from as high as 4.5 per cent in 2008 to just 2.2 per cent this year.

The transaction-based impost has long been regarded as an inefficient tax that impedes labour mobility – it makes it more expensive for people to sell their home to move for work or other reasons – and ties state revenue to the fluctuating fortunes of the housing market.

But the new figures, commissioned by the Real Estate Institute of Australia from SQM Research, detail for the first time the deterioration in housing market liquidity and correlates that with the surging cost of stamp duty to push the argument for reform.

“The long-term decline in listings fundamentally represents a shortage of real estate which is contributing factor to the surge in prices,” SQM Research managing director Louis Christopher said.

“When transaction costs of transferring properties disproportionately rise compared to dwelling prices and incomes … then that must be a massive disincentive for property owners to move house.”

Stamp duty is just one of a number of taxes that distort prices and make housing – a basic need – increasingly unaffordable in Australia. But the research shows stamp duties, levied as a percentage value of the sale price, have increased as median property prices have risen and pushed more homes into higher-bracket stamp duty bands – a change Mr Christopher dubbed “duty bracket creep”.

Like prices themselves, the impost has also risen as a proportion of earnings – from 25.1 per cent in 2012 to 34.3 per cent this year – and as high as 48.9 per cent of earnings for houses in Melbourne and 46.3 per cent on houses in Sydney, the SQM figures show.

“We need to see reform across a number of fronts,” Mr Christopher told AFR Weekend.

“We are advocates of the view of replacing stamp duty with a land tax. We think that would improve liquidity and it would encourage those who potentially, especially later in life, to reconsider staying in a very large home when that large home is not really optimal for their needs.”

There are variations between housing types and between states. Units are generally more liquid than houses, as they are priced lower and were more likely to be bought and sold by investors, rather than owners occupiers, the research shows.

Liquidity was worse in cities with the highest price rises since 2008, such as Sydney, Melbourne and Hobart. In Perth, housing market liquidity for units improved over the decade to March and only worsened slightly for houses, reflecting improved affordability in the state as prices fell.

The figures also make clear stamp duty is not the only factor affecting liquidity. In the ACT, which in 2012 began a 20-year process of phasing out the impost and replacing it with a broader-based land tax, liquidity also worsened over the nine years to August.

“The stamp duty burden in ACT has reduced. But this is the issue – the reforms did not go far enough,” Mr Christopher said.

“We think if you eliminate stamp duty you would see a change in the marketplace.”

But even states that have proposed changes, as NSW has done, struggle. Last year NSW’s stamp duty take surged to a record $9.7 billion, and it predicts land transfer duty this year to overtake payroll tax and become, at 31.6 per cent of the total, the biggest source of taxation revenue.

Victoria, the second-largest state, went the opposite way in its latest budget, increasing the stamp duty levied on homes over $2 million.

Deep-seated reform was likely to take time and in the meantime states should tackle bracket creep within the stamp duty universe, Mr Christopher said.

“If we can’t move to a land tax-based system, we should consider changing rates across various median price brackets, in a similar way to the way in which the federal government has adjusted PAYG tax rates as income levels have risen,” he said.

A NSW Treasury spokesman said the government was working on a final model for its planned reforms.

“The NSW Government will provide an update on the policy in due course,” he said.

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