The NSW government is considering following Victoria’s lead by beefing up its stamp duty concessions for first home buyers, despite economists warning that such a move could actually raise house prices.
Those warnings make sense, because of the way mortgage brokers typically roll taxes and charges into the borrower’s maximum limit.
In Victoria, for instance, a $600,000 purchase attracts taxes and charges of around $30,000. So a client with a $100,000 deposit may be offered a $500,000 loan, but can only bid up to about $570,000 – leaving aside a chunk for stamp duty.
The new Victorian measure will allow first home buyers to keep bidding with the $30,000 they no longer have to hand over in stamp duty.
Voters like the plan because it will shift buying power from investors to owner-occupiers, which is why NSW Premier Gladys Berejiklian says she’s considering extending her state’s more limited stamp duty relief scheme.
NSW has the nation’s most expensive housing stock, so helping first home buyers bid prices higher still might get mixed reviews.
However, there is another stamp duty tweak Ms Berejiklian could consider that would put downward pressure on prices – allowing empty-nesters to downsize from large family homes without copping a large tax bill on the way.
No state government has yet floated such a plan, but given the crushing affordability problems afflicting Sydney, NSW would seem the ideal place to start.
An old problem
Selling a $1.5 million home and buying an $800,000 townhouse makes sense for retired homeowners who’d like a smaller place, less gardening, or a home in a location better suited to retirement.
In NSW that would incur a tax hit of $29,600 for a non-pension-eligible couple, or $23,400 for those on a pension. Most retired parents would prefer to see that money go to their heirs rather than the state tax office.
But stamp duty is not the only policy that puts older Australians off down-sizing – the really big impediment comes from the federal level in the form of pension eligibility rules.
As long as a retiree’s wealth is locked up in their primary residence, it doesn’t count toward the pension assets test. However, when funds are sitting around in the bank or invested in other assets such as shares, they do.
Would-be downsizers therefore face a double disincentive – tens of thousands of dollars wasted on stamp duty and a reduction, or even total loss, of their pensions.
And so they keep rattling around in half-empty homes. Bureau of Statistics research shows that 78 per cent of Australian households have more bedrooms than required for the home’s occupants.
The federal government could step in, therefore, to change that.
Economist Saul Eslake tells me the obvious way to do that would be to include the home in the pension assets test, and to then raise the pension cut-off threshold by about the value of one home – though that might need to be varied state to state.
The political difficulty is that some home owners have built wealth in their home specifically because it’s the easiest way to pass it on to the next generation without huge tax bills.
But at some point, and in some state, a premier will surely suggest to Canberra that both stamp duty relief at state level and a change to the pension assets test at federal level, be used to get family homes back on the market.
Conservative governments tend to focus on ‘boosting supply’ to fix housing affordability – so Ms Berejiklian and Prime Minister Malcolm Turnbull, being on the same side of politics, would seem to have a golden opportunity to get that done.
If they did, they’d unlock a hidden ‘land supply’ that is already served with infrastructure, already close to CBDs or other employment hubs, and highly desirable to families looking for good environments in which to raise their kids.
Younger voters would love it, and there’d be plenty of votes in it from downsizing retirees who no longer have to mow the lawn.