Why should first home buyers spend years saving to pay stamp duty? Robert Larocca

Why should first home buyers spend years saving to pay stamp duty? Robert Larocca
Why should first home buyers spend years saving to pay stamp duty? Robert Larocca

It may be popular to say that first-home buyer incentives don’t work or are inflationary but it’s simply not supported by the data in Victoria.

Not only is this not supported by the data but it is also a position which, from a policy perspective, is inequitable for one simple reason: stamp duty.

The REIV believes that first-home buyers deserve a better deal from governments because they have to compete with second- and third-home buyers who enter the market with equity built in earlier transactions. This would be less of an issue if not for stamp duty.

There is no rational reason why a first-home buyer should be subject to a wealth tax such as stamp duty to the same level as someone who has actually generated personal wealth from property.

How is a first-home buyer supposed to compete with other buyers? They have to save for a considerable amount of time to build the deposit, only to see it evaporate when they receive their stamp duty bill.

This is a far more significant issue than the standard debate about affordability for first-home buyers suggests. It is concerning that many who argue for more affordable property don’t also argue for lower wealth taxes on first-home buyers.

The First Home Buyers Grant, now a paltry $7,000 (the equivalent of one 25 point cut in interest rates), pales into insignificance against most stamp duty bills in Australia. Despite that fact, many commentators and organizations take pride in arguing against this form of assistance.

While governments continue to levy large stamp duty bills this is no more than an argument for wealth taxes on those who don’t have any. This position is supported by the findings in the report on Housing Supply and Affordability Reform by the Supply and Affordability Reform (HSAR) Working Party of COAG.

In its report, it found that the FHOG does provide some help to potential first homebuyers in competing against existing homeowners, who have typically benefitted from capital gains from previous property price growth”.

In the Victorian context, there is plenty of evidence of incentives for first-home buyers being both equitable and delivering on their aims.

The first example is the First Home Owners Bonus, or builder’s bonus as it became known. When the Global Financial Crisis hit Victoria, it had a growing population that was not matched with an increase in supply. The National Housing Supply Council pointed to a supply shortfall which was translating into rapidly increasing prices.

In response, governments responded with significant grants – up to $36,500 for a new home in regional Victoria – to both increase activity in the housing market and, more pointedly, get the builders building more homes.

This policy was also part of the stimulus package aimed at generating employment for builders and related trades.

It worked. First-home buyers flocked to the market and the builders built more homes. The increased incentives came into effect on October 14, 2008 and within 12 months the number of first-home buyers in Victoria increased from 2,420 a month to 4,448. Over the last decade first home buyers have comprised 20% of all buyers; this share increased by 50% with targeted government incentives.  Those incentives achieved their aim by increasing the construction of new dwellings and addressing the supply shortfall.

These incentives also seemed to transcend politics as they were commenced under a Labor government, continued by a Coalition one and then, when they were clearly no longer needed, ended.

All home buyers benefited because housing became more affordable as there was less of an imbalance between supply and demand.

So much for suggestions that the incentives don’t work.

The second example is of the cuts to stamp duty in Victoria.

The REIV campaigned for cuts to stamp duty for all first-home buyers because we believe that it is, firstly, unfair to tax first home buyers’ precious deposits, and secondly, inefficient for governments to take with one hand and give with the other. This should not be taken as a lack of support for the grant; first-home buyers need all the help they can get and the moves by NSW, Queensland and South Australia will only make it harder for first home buyers.

As a result of our advocacy and support from the Victorian Government, by the 15th of September next year most first-home buyers will benefit from a 50% cut to stamp duty. Depending on the home you are buying, that is effectively a doubling of the $7,000 grant. This assistance has not had an immediate noticeable impact on the market nor did the REIV ever expect it to; after all it has been progressively introduced, rising from 20% in 2012 to 50% in 2014.

It may not have had the immediate impact of the builders’ bonuses but that was never the point. It was simply to reduce the inequities faced by first home buyers trying to get a start in the market. If this sort of policy is not more widely adopted, then governments are saying that they are happy for first-home buyers to spend years saving to pay a tax.

How does that help anyone?

Robert Larocca is Real Estate Institute of Victoria (REIV) policy and public affairs manager

Robert Larocca

Robert Larocca

Robert Larocca is Victorian housing market specialist for CoreLogic RP Data.

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