Stamp duty putting a huge financial burden on NSW homebuyers

Stamp duty is rising at a faster rate than wages and house prices in NSW, causing homeowners to stay in properties that aren’t suited to their needs.

Analysis from Domain shows Sydney house prices have risen 280 per cent over the past 20 years, while the cost of stamp duty has escalated 406 per cent.

Over the same period, the median house price in regional NSW has jumped 324 per cent while stamp duty has climbed 524 per cent.

The disproportionate increase in upfront stamp duty when purchasing a home suggests it is contributing to the misallocation of stock and strongly suggests a lack of downsizing.

Domain Chief of Research and Economics Dr Nicola Powell said stamp duty was prohibiting homeowners from changing homes when they need to.

“Stamp duty reduces property transactions due to the sizeable lump sum and means people are less likely to live in a home that suits their needs,” Dr Powell said.

“This changes our life decisions, resulting in many people commuting for longer, not changing jobs, or living in a house unsuited to their lifestyle.”

Source: Domain

In NSW, there are standard stamp duty rates, as well as premium rates, and as house prices have risen so sharply, the number of suburbs falling into the premium bracket is four times higher than three years ago.

The highest threshold within the standard rate is set at a property value above $1.043 million. This is significantly below Sydney’s median house price, meaning many homes will fall into the highest standard stamp duty rate.

Each year the threshold amounts for standard stamp duty and premium duty are adjusted in line with movements in the Sydney Consumer Price Index (CPI). This adjustment has not been in line with the historical rise in property prices and, over time, more homes are falling into higher stamp duty brackets.

In 2019, 2.6 per cent of Sydney suburbs had a median house price that fell into the premium stamp duty bracket and now that number has risen to 10.4 per cent according to Domain.

Source: Domain

The inability to change homes as required puts pressure on growing families and those needing to downsize.

The analysis showed in the private rental market 32.1 per cent of homes are deemed the correct size compared to only 7.6 per cent of homes owned outright and 16.4 per cent of homes being purchased with a mortgage.

Source: Domain

Dr Powell said the State Government should look closely at more efficient forms of tax such the proposed land tax to encourage property transactions.

“Stamp duty is a major source of tax revenue for state governments but it is one of the least efficient taxes with huge economic and social costs,” she said.

“Designing a successful tax system for NSW will significantly improve the accessibility of homeownership and reduce the friction of rightsizing our homes based on life stage.”

When comparing stamp duty to property tax, analysis shows it would take 18 years to accrue the same amount of property tax compared to the upfront cost of stamp duty based on the median house price in Sydney sitting around $1.5 million.

Source: Domain

According to Dr Powell shifting from stamp duty to a property tax could improve housing affordability by reducing the upfront costs of buying a property. 

“This could boost purchasing power, enabling first-home buyers to enter the market sooner,” she said.

“It will be important to understand the intentions of the NSW Government over time to ensure the serviceability of this “forever tax” does not become a challenge.

“Removing stamp duty may drive more “fit for purpose” living choices and optimal use of our current housing stock.”

Dr Powell said the removal of stamp duty could potentially cause prices to rise, benefitting the seller, however, for a buyer the cost is borne across the ongoing household budget and will factor into the holding costs associated with the home. 

“This is a once in a generation opportunity for significant reform to improve affordability and accessibility in the property market,” she said.

Source: Domain

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.