How The NSW Government Could Drive Home Affordability Reform
The Victorian government has recently announced a sweeping slate of property reforms, all designed to combat the growing issue of housing affordability.
Many of these schemes are directed towards first home buyers, who are arguably the most affected by rising prices and a hyper-competitive market. One of the biggest changes set to be introduced in Victoria is the abolishment of stamp duty for all properties under $600,000 purchased by first-time buyers. For properties above this threshold, stamp duty will be calculated on a sliding scale.
Getting rid of stamp duty at the lower end of the market reflects the new realities of buying property in Australia, with Premier Daniel Andrews reiterating the new challenges faced by buyers today.
“These changes will help thousands of Victorians make the Great Australian Dream a reality. With negative gearing and capital gains tax concessions, the odds are already stacked against first home buyers. This will help level the playing field,” he said in a press release.
But will we see a similar reform in NSW? Here are a few ways the government could address the affordability conundrum.
One of the best ways to address affordability for first home buyers would be to roll back stamp duty.
Abolishing stamp duty
Like Victoria, one of the best ways to address affordability for first home buyers would be to roll back stamp duty. According to news.com.au, “stamp duty now equals almost 40 per cent of the average yearly household income, raising the barriers even higher for first-home buyers in Sydney.”
This money is undoubtedly important for the state’s bottom line and goes back into key developments around the state, but the tax is now at a level where it is having a huge impact on whether or not people can afford to buy. Of course, NSW does have a few exemptions from stamp duty, but these are mostly focused around newly constructed homes. By introducing a blanket reduction or abolishment in the tax paid by first home buyers, it would be possible to give new buyers a better chance of saving enough to pay a deposit and other up-front costs.
A more extreme measure would be for the government to roll out grants for first home buyers. The Australian Financial Review identifies this as the most obvious way to help this demographic enter the market, especially with banks adopting far stricter policies around securing a home loan.
Unfortunately, the idea of grants isn’t the simple fix that it might seem. Most experts agree that injecting cash into the market will only serve to increase prices even further. Instead, states are focusing their grants on newly built houses, which helps to solve the problem of lack of supply versus overwhelming demand. At the same time, getting rid of grants for investment property purchases is a positive move that will slow the stream of buyers looking to take advantage of negative gearing.
Tax foreign investors
A final point worth considering is the taxing of foreign investors. Over recent months we’ve seen a wave of penalties handed out to overseas buyers who have purchased property illegally, and in 2016 the Treasury revealed that more than 40 properties have been forcibly divested, with a combined purchase price of over $90 million.
Australia could introduce a direct tax on foreign buyers.
This is a good start, as it prevents foreign buyers from sweeping in and purchasing property as an investment and then letting a house sit empty. However, there’s still room to go even further. Australia could adopt the model used in countries like Canada, where there is a direct tax on buyers from overseas. As an added positive, this tax could go some way towards offsetting the reduction in stamp duty.
We’ll have to wait for the release of the 2017-18 NSW budget for more concrete information. However, the changes in Victoria have put new pressure on the state government, and we’ll likely see some sort of response over the next few months.
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