A new report by SQM Research prepared for the Real Estate Institute of Australia has found the percentage of Australian homes available to purchase has fallen from 4.5% in 2008 to just 2.5% today, with figures considerably lower in the major capitals.
This fall in liquidity has been driven by “bracket creep” in stamp duty, which has risen from 4.2% of a homes price, up from 3.2% in 2011. As expected, Sydney and Melbourne carry the largest stamp duty burdens:
SQM Research has found that nationally, duties as a percentage of median dwelling prices has risen to 4.2% in the March quarter of 2021, up from 3.2% nine years earlier. Stamp duties as a percentage of median property prices have jumped in most capital cities over the nine years between the March quarter of 2011 and March 2021 because of rising property prices.
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As such, home buyers have been suffering from as ‘duty bracket creep,’ whereby the stamp duty payable rises as property values move into higher brackets over time. Only in Canberra and Darwin have stamp duties fallen as a proportion of property values, as indicated in Table 1…
Sydney and Melbourne carry the largest burden in percentage terms. Based on the Sydney median house price as measured by the ABS, an estimated 4% of the price is added onto the cost by way of Stamp Duties.
For Melbourne, the additional cost is 5.4% for a house. Brisbane carriers the lowest burden on purchase of a house at 2.1%. Brisbane also has the lowest % duty for a unit (out of all capital cities) at 1.4%…
SQM Research has examined the burden of stamp duties as a proportion of average earnings and found that in almost all capital cities, stamp duty obligations have increased significantly over the past nine years…
The greatest increases are evident in Melbourne and Sydney, where stamp duty on houses as a proportion of annual earnings in the March 2021 quarter sat at 48.9% and 46.3%, respectively. Stamp duties in these jurisdictions command almost half a person’s annual income (before tax). The outcome is marginally better for units at 34.4% of earnings for Melbourne and 31.6% for Sydney.
In our opinion, the evidence is strong that stamp duties on housing reduce the turnover of property. The tax adds a significant upfront cost to buying property and the data in this report from SQM Research reveals that over time, as the stamp duty burden has increased, the availability of existing property has fallen.
SQM Research has illustrated with this paper that liquidity has fallen in all cities across the country at the same time as the proportion of stamp duties compared to dwelling prices and incomes have risen in most capital cities. And that the cities recording the tightest liquidity and/or the largest falls have also recorded the largest rises in stamp duty burden…
In 2008, liquidity reached a peak of 4.5% of total established properties being available. Presently it is 2.2%, with a clear trend downward through various cycles from 2011…
In Sydney, SQM Research has recorded a sharp decline in liquidity for housing from around 1.9% in November 2018 to just below 0.9% in 2021. This is the lowest level of liquidity recorded for any capital city in Australia and the lowest level recorded since the SQM Research series begun in 2008…
In Melbourne too, there is a recorded decline in liquidity for housing from a high of 3.2% in June 2012 to just below 1.5% in August 2021…
You will get no argument from me. I have been stung twice by Victoria’s stamp duty regime, which is the most punitive in the nation, costing the typical house buyer around $45,000.
To be fair, cutting stamp duty won’t improve affordability much since it would merely be capitalised into home prices. However, doing so would provide other economic benefits if replaced with a broad-based land tax, including:
- Mobility: Abolishing stamp duty would encourage people to move to homes and locations that best suit their needs.
- Efficiency: Allowing households to move where they want to live means more efficient allocation of public investment in transport infrastructure, land and health care resources. Moving to a broad-based land tax would also encourage a better use of land by discouraging land banking and vagrancy.
- Equity: it is unfair for buyers of the circa 5% of homes that turnover each year to pay punitive taxes to fund services provided to the other 95%. It would be much fairer to share the load via a broad-based land tax.
- Revenue stability: because stamp duties are a function of both dwelling values and sales volumes, they are highly volatile and experience large booms and busts. Land taxes, by comparison, are far more stable.
Reflecting the above, the Australian Treasury’s Tax White Paper concluded that property stamp duties are one of the least efficient taxes in Australia, whereas land taxes are the most efficient source of tax.
In fact, land taxes create positive welfare gains to the resident population they are also levied on non-resident property owners (see next chart).
So far, only the ACT and NSW Governments have shown an appetite to replace stamp duties with land taxes. Hopefully other state governments will eventually follow suite.