By Cara Waters
The Victorian infrastructure adviser wants to abolish the first home owners grant and stamp duty, which it says are contributing to buyers being priced out of Melbourne’s inner and middle suburbs and pushed to poorly serviced new-build estates on the city outskirts.
Infrastructure Victoria warns the first home owners grant is not helping buyers and is being used to line the pockets of developers in greenfield suburbs on Melbourne’s fringe.
Jasmine Pansino and Adam Moretto at their rental home in Lalor. They recently signed a contract to build a home on Melbourne’s outskirts in Donnybrook.Credit: Eddie Jim
It also wants the government to remove stamp duty concessions, whereby duty is not payable on homes below $600,000 and reduced for homes below $750,000, and to ultimately abolish stamp duty, replacing it with a broad- based land tax.
Infrastructure Victoria chief executive Jonathan Spear said while removal of the first home buyers grant would be controversial, the scheme did not improve housing affordability, as developers already accounted for the funds.
“The first home buyers grant actually lines the pockets of developers to the tune of about $200 million a year,” he said.
“While it may encourage people to buy a home sooner, it doesn’t make homes any cheaper.”
Spear said the first home buyers grant was making more people move to greenfield suburbs sooner, which was contrary to the government’s policy to balance growth between established suburbs and growth areas.
Infrastructure Victoria’s research report Our Home Choices, published on Tuesday, found moderate-income households earning between $88,000 and $132,000 are priced out of many inner and middle suburbs of greater Melbourne.
The government’s long-term planning document, Plan Melbourne, aspires to 70 per cent of new homes being built in established areas, but the proportion of homes built in established areas is declining, with only 44 per cent in such suburbs in 2021.
In place of the first home buyers grant, Infrastructure Victoria is advocating for use of the recently established Victorian Homebuyer Fund as a better mechanism to assist first home buyers without artificially inflating prices.
Under the shared equity scheme, the government co-invests with buyers, with the ability for the money to eventually be reinvested to help other first home buyers.
Infrastructure Victoria also wants to end stamp duty concessions, as it believes they distort the market because the cap of $750,000 means they are predominantly used for new housing estates in Melbourne’s outer suburbs.
“The stamp duty concessions are encouraging people to buy in greenfield suburbs more than they might otherwise,” Spear said.
Infrastructure Victoria’s longer-term goal is to wean the government off its stamp duty dependency by abolishing the system and replacing it with a broad-based land tax.
“Once you’ve paid a big lump of stamp duty, you don’t really want to move, you don’t want to pay it again,” Spear said. “So it means that people are probably buying bigger houses than they need, earlier than they need them, which tends to be in greenfield areas.”
Spear said home buyers tended to stay in a house for years, even if it was too large for them, as they did not want to pay stamp duty again, so the duty reduced mobility. New South Wales and the Australian Capital Territory have already begun to switch from stamp duty to a land taxes system.
“We need to do that in a very considered way, and it’s probably a slow move over time, so that state government tax revenue remains steady,” Spear said.
“There is an opportunity which the state governments and others have already identified for the federal government to help smooth any revenue challenges.”
Developers argue the first home buyers grant is an important affordability measure, and warn any transition away from stamp duty needs to be carefully considered.
The Urban Development Institute of Australia’s Victorian chief executive Matthew Kandelaars denied developers increased prices to factor in the first home buyers grant.
“The market is a long-term cyclical market,” he said. “It’s simply not the case that if the government introduced a stamp duty concession or first home buyers grant that, overnight, the developer increases the price, they simply don’t.”
Kandelaars said that “anyone with a basic high school knowledge of economics” knows stamp duty is a “terribly inefficient tax”, but he advised caution in reform.
“Any attempts to transition away from the terrible tax that is stamp duty need to be carefully considered to ensure that transitions are approached in such a way to avoid distorting the market and having a negative effect on affordability and first home buyers in particular,” he said.
First home buyers Jasmine Pansino, 28, and Adam Moretto, 30, said the first home buyers grant and stamp duty concessions were “amazing” in the assistance they had provided them.
The couple have been renting a two-bedroom townhouse Lalor in Melbourne’s north for four years and have been saving to buy a house for the past two years.
“We really thought this was something that wasn’t going to happen for at least another four or five years,” Pansino said.
The couple have signed a contract with Metricon Homes to build a three-bedroom house in Donnybrook on Melbourne’s outskirts for a $570,000 house and land package.
“We were looking out in Donnybrook, further out, just because we knew it’s a bit harder to buy an already established home with our budget,” Pansino said. “The dream would be to live in Pascoe Vale or Essendon, but that was too far out of our budget.”
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