Homebuyers paying half their salary in stamp duty

Sydney homebuyers are being forced to hand over half their salary to the taxman, with the follow on effects hitting the market hard.

Homebuyers in Sydney today pay 5.4 times as much stamp duty as homebuyers in the early 1980s. Picture: Brett Hartwig

Homebuyers in Sydney today pay 5.4 times as much stamp duty as homebuyers in the early 1980s, new research undertaken jointly by e61 Institute and PropTrack found.

A Sydney buyer today, looking at a median-priced home, will need to pay nearly $45,000 in stamp duty – equivalent to half a year’s worth of take-home salary.

That same buyer in the early 1980s needed to pay a little over $1,500 in stamp duty – equivalent to just one month’s salary at the time. So why has stamp duty increased so sharply? Firstly, home prices have grown faster than incomes.

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A Sydney buyer today, looking at a median-priced home, will need to pay nearly $45,000 in stamp duty – equivalent to half a year’s worth of take-home salary.

Between the early 1980s and today, home prices have increased 14-fold, while incomes have grown a bit over five-fold.

That’s an important part of the story, but it’s not the whole story.

The other big driver is bracket creep.

Bracket creep happens because stamp duty rates are “progressive” – more expensive properties pay a higher rate of stamp duty.

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But the price brackets have been updated only infrequently.

That means more properties have moved up the brackets and into higher stamp duty rates as home prices have increased.

In New South Wales, the current rates of stamp duty were set in 1986 – with only some modest changes since.

When those rates were set, fewer than 2 per cent of Sydney homes fell in the top $1 million plus bracket. Since then, that bracket has been adjusted up a little (to $1.168 million) and today 43 per cent of Sydney homes now fall above that mark.

This far higher burden from stamp duty matters.

For first-home buyers not eligible for government concessions, stamp duty makes saving a deposit harder – the cost of stamp duty represents months, or years, of extra needed savings. For existing homeowners, stamp duty discourages people from downsizing, or from moving for work, meaning our housing market isn’t working as well as it could or should.

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Originally published as Homebuyers paying half their salary in stamp duty