Tax & Legal

What reforms to property taxation could mean for first home buyers

In a property market already difficult for first home buyers to access, there’s been much conversation on the potential benefits of replacing stamp duty with an annual land tax. It’s claimed a new annual tax could remove a significant upfront barrier and help more aspiring home owners acquire properties that meet their lifestyle needs.

The NSW government recently passed legislation that offers first home buyers who purchase properties worth up to $1.5 million the option of paying an annual fee of $400 plus 0.3 per cent of the land value or instead pay stamp duty upfront. While the government is hailing these changes as a win for first home buyers, the NSW opposition has branded land tax “a forever tax on the family home”.

What is certain is that in recent years, rising property prices have seen stamp duty costs soar, presenting a serious roadblock for buyers at their most challenging time in the purchasing journey.

According to recent REIA-REIV research, for an average house in Victoria valued at $824,500, $44,540 stamp duty is payable as a lump sum upon purchase. That’s half an average Victorian’s annual income. Home-in data showed that, on average, in Queensland, each home buyer paid $13,516 in stamp duty over the past six months. In NSW, it was $29,031, and in Victoria, customers paid up to $38,761.

In light of these recent changes to the law in NSW, this article examined the factors driving reforms and what the introduction of an annual tax might mean for home buyers — particularly first home buyers.

Will an annual property tax support the next generation’s changing lifestyles?

It’s fair to say stamp duty met the needs of those living in the era it was introduced, back when property values were lower and Australian lifestyles were suited to living in the one forever home. Today, though, emerging first home buyers have lifestyles with far more movement. As a result, it’s to be expected that property tax regimes might look at ways to accommodate increased consumer mobility.

Today’s family dynamics are also changing. With relationship separations, remarriages, and family blending all on the rise in upcoming generations, it means today’s home buyers will likely need to relocate more frequently or buy a different-sized home to suit their changing family or lifestyle needs. For example, current figures showed an estimated one in five Australians are already living as part of a stepfamily.

Even more evidence of increasing market movements arrives when we consider that Australians are changing jobs more than ever. According to the ABS, nearly 10 per cent of employed Australians moved to a new workplace in the 12 months to February 2022. The average young Australian will change jobs 12 times in their career, with an average tenure of just 3.3 years. Moving house or relocating is often a necessity when changing jobs — especially when a new role is regional or interstate — and making it easier to buy and sell properties would help cater to this trend.

Will an annual tax improve supply for buyers in attractive suburbs?

With 58 per cent of Home-in customers being first home buyers and 80 per cent being owner-occupiers, we see the importance of having a choice in a property’s location. For the sake of our wellbeing, it’s key that the average Australian is able to access properties that suit their lifestyle.

Beach lovers, for example, should have housing options in seaside towns. Those who work in city CBDs and wish to live nearby should also have plenty of options — large or small — that meet their needs. The unfortunate reality though is that property listings and affordable options are both pretty scarce.

One reason for the lack of affordable options is the long-term housing supply crunch — a problem exacerbated by an inefficient use of Australia’s current housing stock, which some market analysts suggested is influenced by stamp duty.

Today, we also have a generation of empty-nesters in large family homes who has been slow to downsize — possibly in part due to the cost of the transaction. With the number of Australians aged 65 or over set to more than double over the next 40 years, this problem could certainly worsen. Empty-nesters staying put makes the market more dormant and leaves growing families with fewer purchase options.

Supporters of an annual tax claim it could drive up transaction volumes in Australian cities, seaside towns, and lifestyle suburbs, increasing listings and offering first home buyers more choices in finding the property of their dreams. Likewise, it allows those who no longer enjoy the area or size of the home to easily move away.

They also say stamp duty removal would give first home buyers extra purchasing power, helping them find and acquire their desired home, rather than forcing compromise on crucial criteria just to ‘get on the ladder’. RateCity found buyers in Sydney could move into a property five years faster if they paid an annual tax instead of stamp duty.

What do critics of land tax say?

However, it is important to note the introduction of an annual land tax may not be the panacea of all property tax problems. Critics of the scheme, including the NSW opposition, said that an indexed land tax could end up costing families more — especially if they plan to stay in their home for a long time.

They also pointed out that anyone who chooses to move out of their home and rent it out could find themselves paying a much higher rate of land tax than they had expected.

Finally, critics believe there is the potential for stamp duty removal to influence home buyers to take out larger loans, leading to further increases in house values and harming the first home buyers whom the scheme was intended to help.

An important discussion to have

Whether or not an annual tax replaces stamp duty in the near term, it is true that a national discussion on property tax reform is brewing.

At the moment, we have distinct policies and incentives for different jurisdictions, despite it being well understood that all property participants — from first home buyers to investors and even renters — could benefit from a more unified national public policy. It’s an approach that could also benefit the increasing number of Australians moving across state borders post-COVID-19, many into regional cities.

Stephen Timm is the managing director of Home-in.

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