The Real Estate Institute of New South Wales has marked the State Government’s role in the property market in 2020 as a ‘fail’ but has identified five key ways it could perform to an A+ standard this year.
For its efforts in navigating COVID-19 and defending the health of the community, the NSW Government deserves much credit, REINSW CEO Tim McKibbin said.
However, government has ignored issues of huge importance to the property sector created by COVID-19 and failed to address matters that have plagued the industry for decades, which is extremely disappointing, he said.
“Sadly, if property was a subject, the Government came up short in 2020,” Mr McKibbin stated.
“The opportunity for tax reform was not seized upon. The potential move from stamp duty to a property tax is subject to consultation, but either way, swapping one bad tax for another is hardly reform.
“The proposed property tax cannot be called a broad-based tax when it taxes only property, and at a time when the state desperately needs tax reform, government has delivered a discussion paper.
“From an employment perspective, hundreds of jobs remain in limbo as Fair Trading’s bureaucratic inefficiencies keep people out of work, at a time when the industry needs more qualified people to service the needs of the community.
“For people who have scrimped and saved to purchase an investment property for their retirement income, or who are paying off a property for their retirement nest egg, the impacts of the rental moratorium have been devastating.
“The government’s support for tenants adversely affected by COVID-19 has actually been funded by mum and dad investors.
“Property is without question the most important industry in NSW. It contributes more than any other to the state’s finances and employment, and is also one of life’s essentials.
“The various shortcomings in the Government’s performance in relation to property last year amounts to a ‘fail’,” Mr McKibbin stated.
Room for improvement: five major opportunities
But all is not lost. The REINSW has outlined a list of measures the NSW Government could – and should – take in 2021 that would be deserving of an A+ grade.
1. Implement actual tax reform and stop disincentivising people.
“The housing market has a huge role to play in the prolonged economic recovery, however the lack of affordable homes for people to buy and rent will significantly limit the positive potential of real estate to contribute,” Mr McKibbin said.
“Most consumers are unaware that about 40 per cent of the cost of new property is taxes and charges.
“It’s a huge disincentive for people to transact property and the prospect of stamp duty or a property tax is particularly unattractive to people who own their home. Staying put, even if that home is no longer suited to their needs, is viewed as a better option.
“Tax should be a consequence of a transaction, not a consideration. There’s plenty of empirical evidence to demonstrate that reducing stamp duty will increase property transactions, benefiting both government and the community, with more transactions easily offsetting any reduction in tax from a revenue perspective.
“Segmenting the market is another opportunity for government to increase property transactions and help the economy.
“For instance, incentivising an empty-nester to move from a residence that no longer meets their needs might mean a growing family could move in. It is worth noting that on average, 25 per cent of the available space in residential property is not utilised.
“The current rates of tax applied to property transactions are over 30 years out of date. Failing to address this issue is simply unconscionable,” he said.
2. End the rental moratorium and compensate out of pocket landlords.
“The NSW Government is ignoring the fact that the rental moratorium is jeopardising the financial security of mum and dad investors who depend on their rental income to live.
“It’s simply untrue to assume all landlords are wealthy, with around 80 per cent of landlords owning a single investment property that they depend on to pay their living expenses,” Mr McKibbin said.
“Other states understand that a healthy rental market means supporting both tenants and landlords. In Western Australia, for instance, there’s assistance for landlords adversely affected by deferred or reduced rent arrangements. In Tasmania, a Landlord Support Fund has been established in recognition of the need to support landlords too.
“The NSW Opposition successfully negotiated an amendment to the COVID-19 legislation that empowered government to assist landlords. However, government has elected to not activate this legislative power.
“The NSW Government’s strategy of supporting only one side of the rental market is having a predictably imbalanced and damaging impact,” he stated.
3. Establish a Property Services Commissioner as a more appropriate regulatory authority for the property services industry
“NSW Fair Trading is a high volume, low dollar value, minimal legal complexity regulatory authority. It is spread across 40-plus industries. If your new toaster doesn’t work and you need assistance, you seek the help of Fair Trading.
“But for property transactions, which always involve large sums of money and are by their very nature legally complex, Fair Trading is incapable of providing adequate consumer protection,” Mr McKibbin said.
“Property is an industry that demands a dedicated, experienced regulatory authority able to work constructively and cooperatively with the industry.
“Fair Trading is currently sitting on hundreds of real estate licence applications, preventing fully trained agents, some with a job waiting for them, from commencing work.
“These delays can be remedied easily by accredited private sector operators capable of processing these applications within two business days. There is a major disconnect and it is costing the economy.
“The establishment of a property services commissioner with industry knowledge and experience is essential from a consumer protection and the economy. We look forward to Parliament’s consideration and support for this critical reform,” he stated.
4. Re-invest the revenue collected from property taxes back into the industry.
“The most recent stamp duty revenue collections show that the NSW Government, in the five months to December 1, 2020, pocketed $3.378 billion, which is $297 million more than for the corresponding period in 2019.
“In other words, in the context of the COVID-19 economic fallout, the property industry is a revenue-raising juggernaut,” Mr McKibbin said.
“With this enormous pool of additional funds, the capacity for government to support the industry that delivered the windfall is clear. Landlords who are providing support for tenants should be supported by government, as it clearly has the money,” he says.
5. Reform a clunky planning system that constrains new supply and help NSW build affordable homes
“COVID-19 may alter the design of new housing projects but the fundamental need to increase the number of homes built remains critical in metropolitan and regional locations,” Mr McKibbon said.
“Tax disincentives for developers, discrepancies between state and local government priorities and delays in approvals all contribute to unnecessary costs and constrain supply, while preventing the broader economic benefits of a healthy construction market from playing out,” he concluded.