IF POLITICIANS WERE SERIOUS ABOUT HOUSING AFFORDABILITY….
If politicians were truly serious about housing affordability, they would take action to:
1. Reduce Stamp Duty
Stamp duty is a huge and growing expense for property buyers – $44,000 on the median Melbourne House price of $818,000. Granted, if you are a first home buyer and purchase a house valued at less than $600,000 you get a one-off exemption (and a partial concession up to $750,000).
However, we aren’t all first home buyers – or eligible for the concession. The thresholds aren’t indexed and start to dictate what and where first home buyers can buy. In addition, the off the plan concession has been wound back and foreign buyers are now subject to a surcharge.
Stamp duty also has nasty side effects. It encourages first home buyers to buy the largest home they can afford (up to the threshold) knowing they won’t be able to afford to pay the stamp duty on a second purchase for some time (if ever). It also discourages people trading down to smaller homes when they no longer need a larger home.
No wonder the average time a property is held has increased from 5 to 10+ years.
The stamp duty thresholds haven’t been materially increased in 30 years during which time the Melbourne median house price has increased from $90,000 (stamp duty of $1,960 – circa 2.2%) to $818,000 (stamp duty of $44,000 – circa 5.4%).Incidentally, reducing stamp duty by increasing land tax really isn’t a solution – particularly with the huge rises in land tax in recent time.
2. Reduce Other Government Taxes and Contributions
One developer client recently remarked that the total cost of government (including council and authority) fees, charges and contributions was in excess of $100,000 per lot for new green acre subdivisions.
New apartment construction isn’t spared with fees and charges often in excess of $25,000 per unit plus GST plus stamp duty on the land purchase plus income tax on development profits.
The biggest financial beneficiaries of development are clearly our three levels of government not the much maligned property developers.
3. Reduce Outgoings
Has anyone else noticed how much council rates, water rates and other property costs have increased over the past 20 years?
All of these costs are borne by home owners and make housing less affordable.
4. Streamline Bureaucracy and Regulation
I have clients that recall a time when planning permits could be obtained within 4-6 weeks. Typical time frames are now in excess of 6 months. In addition, multiple expert reports are often required all of which add to the cost and time required.
This reduces the supply of new house sites and increases the holding costs paid by developers. This all adds to the cost of new houses – and indirectly increases the value of the existing stock.
In addition, all the tradesmen need licences, need insurance and must comply with various compliance requirements.New houses are required to comply with 6 star energy ratings, include solar hot water or rain water tanks and these are only the most recent regulations. Whilst there might be justifications for these regulations – it is certain that these are all costs imposed on new home buyers.
Concluding Thoughts
You might have noticed that the usual villains in media discussions about increasing house prices – overseas investors and tax subsidised local investors – didn’t get a mention above. Meanwhile, higher house prices mean more stamp duty, more council rates, more GST, more capital gains and other taxes and charges….
I believe that home ownership has many and varied benefits beyond the financial. Home owners have greater stability than renters, are likely to be better off in retirement and contribute to the middle class that stabilises our society. The Great Australian Dream should not be allowed to become a mirage for an ever increasing number.
I don’t claim to have all the answers on this issue and some of these increased costs have some value – but I do think we need to have a thoughtful discussion, not a media sound bite, about how we can reduce some of the costs that make housing less affordable.