Australians are paying substantially more stamp duty when they move house than they were 20 years ago – and this is hindering mobility and the efficient use of housing stock, says NHFIC.
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Three key takeaways
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The National Housing Finance and Investment Corporation’s new paper, Stamp Duty Reform: Benefits and Challenges, finds removing stamp duty would increase housing mobility, improve the efficiency of Australia’s housing stock, and reduce state and territory revenue volatility.
NHFIC’s mandate is to support efforts to increase the supply of homes across Australia.
Property industry veteran Adrian Harrington, head of capital and product development for Charter Hall, stepped into the role of NHFIC chair this month, having served as a board member since the organisation’s foundation three years ago.
NHFIC’s research draws on the most recent data to assess the benefits and reform considerations when phasing out stamp duty in favour of a broad-based land tax.
The paper explores how replacing stamp duty with a broad-based land tax in all states and territories would improve economic efficiency.
“Encouraging more household mobility through reductions in stamp duty leads to more efficient use of the housing stock which means people can better ‘right-size’ their own housing arrangements in line with their individual preferences,” says NHFIC CEO Nathan Dal Bon.
The paper finds the typical household across all states and territories, except the ACT, would be better off paying land tax on a median property than transfer duty.
For example, a household in NSW would have to pay a broad-based land tax for more than 14 years to be worse off, which is greater than the 12.4-year average holding period of a property.
A short phase out period can help limit the impact of house price growth on the cost of transition, NHFIC finds. A revenue neutral swap between transfer duty and a broad-based land tax, under a slow house price growth scenario, would require around three times the amount of revenue as a faster transition – $94 billion over a 20-year transition, compared with $32 billion under a five-year transition.
NHFIC’s report highlights the challenges for policy makers, pointing to the ACT’s difficulty maintaining a revenue neutral transition during a longer phase out period. Despite reductions in stamp duty rates during the transition, stamp duty revenue collections haven’t declined much, while residential land tax revenue has continued to grow.
Belinda Ngo, the Property Council’s executive director for capital markets, welcomes the report’s findings.
“This report builds on NHFIC’s vital role informing the national housing affordability conversation. NHFIC’s insights – whether that’s revealing the need for greater housing supply in key states our reconfirming the outsize contribution of the property industry to national job creation – can help us make better decisions and deliver better housing outcomes,” Ngo says.
“NHFIC notes that stamp duty revenue growth is difficult to contain unless policy makers proactively adjust the tax design – and this is currently not the case in Australia.
“The research also supports the Property Council’s long-held view that the ACT’s reforms have been revenue positive for the ACT Government, delivering big increases in residential rates year-on-year.”
NHFIC’s research paper is focused solely on the housing sector and therefore does not consider critical risks, like whether a replacement tax increases the cost of housing development or imposes significant burdens on business and investment.
But Ngo says NHFIC’s work has implications for the NSW Government’s stamp duty reform agenda.
“The NSW Government is highly motivated to improve housing affordability, but the NHFIC analysis shows that house prices are likely to rise in the short term as stamp duty removal is capitalised into prices.”
Download NHFIC’s Stamp Duty Reform: Benefits and Challenges research paper.