Stamp duty NSW: Tax reform of no help to most homebuyers

First timers are the big winners of NSW’s stamp duty reforms but for most buyers it won’t make getting into a new home any easier.

OPINION

Stamp duty changes are a big win for first timers, but a missed opportunity for meaningful reform and the economy.

From next year, first-home buyers will be able to choose whether to pay upfront stamp duty or opt-in to pay an ongoing annual land tax.

This will help many first-time buyers get into their first home sooner.

PropTrack analysis shows paying stamp duty adds more than a year-and-a-half of extra savings time to buy even a reasonably affordable home in Sydney.

That’s about to change.

We know the deposit is the biggest hurdle to home ownership for many first-time buyers and stamp duty on top of that is a significant additional burden.

From next year, first-home buyers will be able to choose whether to pay upfront stamp duty or opt-in to pay an ongoing annual land tax. Picture: Justin Lloyd.

Opting-in to the land tax will not only allow first timers to get on the ladder sooner, it will also work out considerably cheaper for most.

Unless you plan on staying in a home for well over a decade, the proposed annual land tax of $400 plus 0.3 per cent of unimproved land value will add up to significantly less than stamp duty. This is especially true for those buying homes worth more than $800,000, which are not eligible for discounts under the existing first-home buyer concession.

To put it into perspective, if you are a first-home buyer purchasing at the top of the new eligible bracket ($1.5 million) you could skip a stamp duty bill of more than $67,000 in favour of an annual payment of something like $3,000-$4,000.

Land tax will certainly be the popular option.

But while first timers will welcome this change, it is a missed opportunity for more meaningful long-term reform.

Stamp duty is an inefficient and burdensome tax because it makes it very expensive to move house. This means many people stay too long in homes that don’t fit their needs.

Put differently, these changes help get first timers in sooner, but do nothing to encourage downsizing and free up the existing housing stock.

Phasing out stamp duty would bring big benefits for the housing market, for housing affordability, and for the economy more broadly.

Yesterday’s announced change won’t bring those benefits for two reasons.

First, it’s only available to a small share of buyers. Remember, first-home buyers are a small cohort, accounting for roughly one-fifth of all home purchases in NSW. That means most of the market will be unaffected by the changes.

PropTrack economist Angus Moore says stamp duty changes are a big win for first time buyers but a missed opportunity for meaningful reform and the economy.

Second, properties can also opt back out of the annual payment when they are resold – and if resold to a non-first homebuyer, would have to opt out. That means there is no path that embeds this measure into a longer-term reform of stamp duty.

There’s upside for those looking to sell, as this change will help push up prices for homes under $1.5 million, given some first-home buyers in this segment will have more to spend.

But the impact probably won’t be that large, given not all bidders are first-time bidders.

Angus Moore is an economist at PropTrack.

REA Group’s PropTrack is a leading provider of property data services.