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Increasing property prices see stamp duty skyrocket

Property prices have soared throughout the pandemic, as more Australians seek to achieve work/life balance, relocating to lifestyle locations in droves.

The downside? A rise in stamp duty across Australia, with some locations experiencing disproportionately large increases.

PropTrack economist Anne Flaherty told realestate.com.au that prices had appreciated so quickly, many properties had moved into higher tax brackets.

“A major issue is bracket creep in those suburbs that have seen a smaller increase in property prices but an enormous increase in the stamp duty burden,” she said.

Ms Flaherty said prices had risen faster than stamp duty thresholds had been adjusted, with buyers now paying more in stamp duty as a proportion of their income than they were previously.

Grattan Institute Economic Policy Program Director Brendan Coates said average rates of stamp duty had risen over the past two decades, because thresholds have not kept pace with rising house prices.

“The stamp duty impost has increased as house prices have risen relative to average incomes,” Mr Coates said.

The suburbs with the highest hikes

Many regional areas experienced a surge in median prices as Australians sought to achieve a better work/life balance.

“One of the trends we saw during COVID was that a lot of buyers looked to move into more scenic areas, particularly areas close by the water,” Ms Flaherty told realestate.com.au.

“That means median prices in these suburbs have risen and correspondingly stamp duty has also risen.”

The popular desire for a sea change saw coastal and regional locations in New South Wales and Queensland experience some of the more significant percentage increases in stamp duty over the past year, as property prices soared.

Three Northern Territory suburbs topped the national list, including Muirhead with a 416 per cent surge in stamp duty to $27,225 on the back of a rise in the median house price from $350,000 to $550,000.

Leanyer and Rosebery had more subdued price growth but also recorded huge stamp duty increases.

According to Ms Flaherty that was because they crossed into a new threshold above $525,000, where the transfer duty rate was 4.95 per cent of a property’s value.

“As soon as prices jump above that amount, the stamp duty burden is substantially higher,” she said.

In Queensland, beachside suburbs experienced the largest stamp duty rises, after moving into higher transfer duty brackets.

“In Queensland, bracket creep has been the primary driver of the significant stamp duty jumps seen in many suburbs,” Ms Flaherty said.

“The majority of the suburbs which have seen the largest stamp duty increases in Queensland are those with medians that have hit the $1 million median over the past 12 months.”

PropTrack data showed Warana, on the Sunshine Coast, had the sixth highest duty increase nationally, with its median house price jumping to $1.21 million from $775,000 in the past year, making the stamp duty was 109 per cent higher at $43,213.

Ms Flaherty said the fact that many of the suburbs that had seen massive increases, but would usually be considered affordable, demonstrated the significant burden to first homebuyers.

“You’ve got suburbs like Somers in Victoria where the median house price has nearly doubled, so that proportional increase in stamp duty makes sense,” Ms Flaherty said.

In Melbourne’s Mornington Peninsula, the suburb of Somers, with its $1.7 million median house price, incurred a stamp duty of $93,871, up by 79 per cent, making it the highest on the Victorian list.

Inner-city Carlton was second after its median unit price rose to $518,000, increasing stamp duty by 76 per cent to $26,150.

The data showed the Wollongong suburb of Kembla Grange had the biggest duty increase in NSW, coming fourth nationally.

Its median house price more than doubled to $815,500, lisfting stamp duty by 173 per cent to $31,905. 

In South Australia, Goodwood took out the number one spot for stamp duty increases, with buyers now looking at $64,340 in duty for a $1.28 million house.

Perth suburbs experienced the highest increases in Western Australia, with Bicton topping the list. Buyers would have to fork out $58,066 in stamp duty on its $1.3 million median house price.

A heavy cross to bear

Affordability – particularly for first home buyers – was significantly impacted by stamp duty, which was a massive upfront cost, Ms Flaherty said.

Real Estate Institute of Australia president Adrian Kelly agreed, telling realestate.com.au stamp duty remained a prohibitive tax for all buyers, adding tens of thousands of dollars to the purchase of a home.

“Essentially you’d have to save half a year’s salary just to pay your stamp duty in those two big cities,” Mr Kelly said.

“In some of the smaller capitals it’s still a third of a year’s salary, which is a sizeable amount of cash for those people to fund, particularly when salaries aren’t rising but the amount of stamp duty is.”

Mr Coates also believed the one-off payment requirement of stamp duty was prohibitive, and said the economic case to ditch it was “watertight”.

“Stamp duty is very inefficient as it stops people moving to take jobs and it means people often live in houses that don’t suit their needs. It is also unfair because it punishes people who move more often,” he said.

While most states and territories offer exemptions or concessions for first homebuyers, Mr Kelly said the thresholds were no longer appropriate, thanks to big price increases over the past couple of years.

The latest Victorian budget introduced a premium stamp duty rate on properties worth more than $2 million, while NSW has a premium rate for properties worth more than $3 million.

As stamp duty rises, supply reduces

Affordability was further impacted by the reduction of housing supply, caused by increased stamp duty, Ms Flaherty said.

“Because it is a disincentive to sell and buy a new property, properties don’t come up for sale as often as they would in the absence of stamp duty,” she said.

“We know that a reduction in supply has implications for prices by not having enough properties out there for sale to meet the demand of buyers.”

Mr Kelly agreed, and said low supply was in turn, driving prices upwards.

“We’re in a high demand environment with very low supply and prices are rising,” he said.

“That’s due to stamp duty not only at the beginning of the cycle for first homebuyers but also at the other end of the cycle for retirees.”

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