NSW stamp duty reform could prompt short term housing price rises: NSW Treasury
The NSW Treasurer Dominic Perrottet has released a progress paper on the Government’s property tax proposal for stamp duty reform.
The reform would see an optional longterm annual land tax paid by residential home buyers who opted out of the current one-off, upfront stamp duty obligation.
The paper notes feedback and submissions from the community and stakeholders received over the past six months.
The paper acknowledges there were "mixed views regarding how the property tax could impact the ongoing affordability of property in NSW."
It noted some industry stakeholders and members of the community suggested that removing stamp duty would cause upward pressure on prices due to an increase in spending power.
But the paper relied on the McKell Instutute which suggested while the introduction of the property tax may place upward pressure on house prices in the short term, "the reduction in stamp duty costs will still result in a net positive effect on housing affordability.”
The paper advised several financial institutions and the Tax Institute provided feedback that the annual property tax would need to be considered in determining a borrower’s capacity (‘loan serviceability’) to repay
any home loan.
Lenders would need to take property tax payments into account as part of their Household Expenditure Measure (HEM) when determining maximum lending limits, which the paper concluded would minimise the pricing impact of property reform on driving up bidding in auctions.
"Any savings made by opting-in to property tax will therefore be unlikely to translate to an increase in property prices," it concluded.
The proposal was originally outlined in the November 2021 NSW budget.
The paper provides additional detail on the proposed reform, which would give prospective homeowners the choice to pay stamp duty or a small, annual property tax when they purchase their new home.
Mr Perrottet said the NSW Treasury “Have Your Say” website received more than 23,800 visits with 3,544 surveys completed since the proposal was announced last November.
It also received 57 detailed submissions from industry stakeholders and 196 community submissions.
“We are proposing a once in a generation reform to make home ownership more affordable and achievable, and the engagement and interest from across all segments of the community has been significant and heartening,” Mr Perrottet said.
The key findings of the consultation period include:
· A strong view that reform of the existing system is needed;
· The proposal resonates strongly with first home buyers struggling to save for a deposit and also pay stamp duty;
· Some stakeholders have concerns about how any reform could impact them;
· The annual nature of the proposed tax raises uncertainty over potential rate increases over time;
· The proposal would benefit people seeking greater mobility who would not be faced with significant transfer duties each time they purchase a property, and
· The more people learn about the proposed reform the more comfortable and supportive of the proposal they became.
“The first round of consultation and submissions showed 84 per cent of people believe stamp duty reform is needed and two thirds of the community said stamp duty was a significant barrier to home ownership,” Mr Perrottet said
“Making changes to the property tax system is highly complex and we want to make sure we get this right."
The paper raised the prospect of a lower than advised rate for owner- occupied residential property, but higher for commercial and residential investment properties and unchanged for farmland.
Comments on the additional information presented in the paper can be sent to TaxReformTaskforce@treasury.nsw.gov.au by Friday 30 July 2021.
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