- Low interest rates continue to fuel the market, leaving first home buyers behind
- CEO of the Grattan Institute argues for stamp duty reform, despite the political difficulty
- Industry bodies and property groups have consistently called for stamp duty reform
Historically low interest rates and government stimulus have ensured the property market will continue running hot for some time – at least until macroprudential policies are imposed by regulatory bodies to restrain it.
But for now, although the housing boom is great for those who already own a house, prospective first home buyers will find it more and more difficult to get their foot in the door of the market.
As reported on The Property Tribune, a survey conducted by Savvy found that 91.6% of Australians believe current property prices are becoming unaffordable.
Furthermore, 32.9% said they were “very worried” about the current housing market in terms of being out of reach for the average Australian. 39.3% said they were “worried”, meaning the total portion of worries was 72.2% – almost three-quarters.
This was the topic of Danielle Wood’s Economic Outlook for Australia speech delivered at The Tax Institute’s Financial Services Conference today.
The CEO of the public policy non-partisan think tank, the Grattan Institute cited data from 2016 which showed that, “homeownership rates fell for all young people – but not that much for high-income young people, they dropped a little bit. They fell like a stone for low-income young people. Homeownership rates fell from just over 60% to just over 20%. That is a phenomenal change.”
“That’s really quite a significant social change I would argue and it will have long-term consequences. A lot of our income support, particularly for retirement, is based on the idea that most people will own their own home. I think it’s likely that in the future that will no longer be the case as current generations get to that age.”
She explained that politically difficult decisions like abolishing stamp duty might be needed in order to halt the growing wealth gap resulting from Australia’s galloping property market.
“Land tax, stamp duty swap, obviously motivated by economic considerations, but also, if you reduce stamp duty, you make the deposit hurdle lower, and that’s the biggest hurdle for young people getting into the market, so it gets a tick on that front,” Ms Wood explained.
“We’ve also advocated for changes around Capital Gains Tax and negative gearing.”
Stamp duty has been discussed extensively on The Property Tribune, with various property and industry bodies actively supporting property tax reform.
The Victorian Chamber of Commerce and Industry (VCCI) in its latest budget submission called on the Government to replace stamp duty with a broad-based land tax, arguing the reform will attract investment to Victoria while making local businesses more competitive on both a domestic and international level.
Gary Dempsey Developments founder and builder, Gary Dempsey, also joined the WA Property Council calls for reforming stamp duty. He argued the proposal put forth by REINSW allowing property buyers to opt-in for an annual property tax as opposed to traditional stamp duty will be “far more equitable for everyone and is also an opt-in opt-out system that removes what can be a massive hurdle in terms of homeownership and also allows for more development activity to occur to keep our economy moving.”
REIWA’s President, Damian Collins has also argued for stamp duty reform, explaining it is “adding a considerable amount of money to the savings required to qualify for a home loan, as well as thousands of extra dollars over the life of the loan. This additional cost is too big of a burden for many buyers, pushing their dream of homeownership out of reach.”
Economists dislike stamp duty because it distorts the market by discouraging movement and driving down productivity.
“Unfortunately, a lot of things that are politically easy … have negative impacts and don’t really do much to solve the problem. The things that probably make sense and will have a big impact are politically hard,” said Ms Woods.
This is because, as with most economic reform, produces winners and losers.
Winners will be those who move around a lot, larger landholders, and firms that rely on property transactions.
Losers will be those who don’t move much and some property investors. Another group that could be hurt by a land tax are asset-rich, income-poor households, notably home-owning pensioners.
In conclusion, prospective property buyers will be happy to hear that stamp duty is at the forefront of policy reform in Australia, with major industry bodies ensuring the Government does not neglect the opportunity for reform.