NSW government set to get record property tax windfall as first homebuyer activity goes into free fall

A massive tax windfall from booming property prices is set to deliver a record boost to state government coffers at the expense of vulnerable househunters.

Heavy taxes on booming house prices are set to deliver a record boost to state government coffers while squeezing first homebuyers further out of the housing market.

Analysis of Revenue NSW data showed the state government was on track to collect a record amount in transfer duties this year and nearly $3.5 billion more than budget calculations estimated last year.

It comes as rising real estate transaction levels and skyrocketing prices generated the biggest surge in duties revenue ever recorded over the first three months of a financial year.

More than $1 billion in duties was collected in both July and August, and just shy of $1 billion in September. This was nearly double the revenue collected over the same period the prior financial year.

If the rate of transfer continues, the NSW government will collect a record $12 billion in duties over the financial year, modelling showed.

NSW Premier Dominic Perrottet has indicated property tax reform is being considered. Picture: Bianca De Marchi

The original revenue estimate projected in budget papers from 2020/21 was $8.6 billion, which was later revised to about $11 billion.

Housing experts said government’s windfall may come at the expense of first homebuyer activity, with taxes like stamp duty proving a major barrier for entry into the market.

My Housing Market economist Andrew Wilson said much of Sydney’s housing was now only affordable for those with a “trade in” property they could sell to finance the upfront costs of their next home.

Stamp duty was a major contributor to those costs, adding $57,000 to the average house purchase and $33,000 to the average unit purchase.

Many first homebuyers could only afford to pay stamp duty by using smaller deposits and taking out mortgages with a higher loan to value ratio, Mr Wilson said.

Stamp duty charges on a median priced house are about $57,000. Picture: NCA NewsWire

ABS figures showed lending to NSW first homebuyers hit a 10-year high in March, largely due to federal incentives such as the HomeBuilder scheme, which expired earlier in the year.

But it’s been in free fall ever since, dropping 21 per cent over the five months to September.

Mr Wilson said first homebuyer lending was set to drop even further over the coming months as prices continued to rise.

Banks were also tightening their lending policies in line with a recent directive from the Australian Prudential Regulation Authority.

Stamp duty is charged as a percentage of the purchase price and the payments have been increasing in line with rises in house prices.

Duties on the median house transaction increased $16,000 over the past year, in line with the median ballooning from $1.01 million to the current $1.311 million.

Buyer demand has been considerable this year. Picture: Julian Andrews

Exemptions on the tax are available, but only for first-time buyers spending less than $650,000 if it’s an established home, and $800,000 for new builds.

Discounts that reduce on higher values are provided up to $800,000 for established homes and $1 million for new homes.

More than half of Sydney’s housing, including units, townhouses and houses, is priced above $1 million, according to CoreLogic data.

Tax expert and long-time advocate of stamp reform Joanne Seve said duty rates were too high and governments were overly reliant on the tax for revenue.

“It’s an addiction and like all addictions it’s causing damage,” she said, pointing out that the typical buyer was charged a rate of about 1.75 per cent in the 1980s compared to about 4.5 per cent now.

“That’s a lot of percentage,” Ms Seve said.

The bulk of Sydney housing is priced over $1m. Picture: Jonathan Ng

The tax in its current form discouraged many homeowners from selling as it meant they would have to pay pricey duties on their next home.

This is turn was draining the supply of available housing and sustaining a property shortage that was contributing to affordability problems, Ms Seve said.

“If stamp duty was lower more people would be able to sell and there would be more properties available,” she said.

A report by Moodys released earlier this week showed Sydney house affordability was worse than at any time in the last decade.

The NSW government was approached for comment.