Stamp duties are making Australian housing affordability worse

WILLIAM WEST / AFP / Getty Images

Soaring stamp duty costs and prices, especially in Australia’s southeastern corner, are discouraging Australians from selling their homes.

According to new research from CoreLogic, less than 5% of all Australian homes changed hands in the year to May, well below the 8%-plus levels seen in the early 2000s.

Here’s how total turnover compared by state and territory over that period.

Source: CoreLogic

Cameron Kusher, research analyst at CoreLogic, said low turnover levels were driven by a variety of factors.

“Advertised stock levels remain low across those cities where capital gain conditions are strong,” he said in a note earlier this week.

“Additionally, high transactional costs, which are based on a percentage of the purchasing price, have become a larger disincentive across those markets where values have shown a material rise.”

Higher stamp duty charges, as a result of strong price growth, are dissuading Australians from upgrading or downgrading their properties, in other words.

And, as Kusher pointed out earlier this month, that provides a disincentive for families, couples and individuals to move to more appropriate housing for their circumstances.

“These inefficiencies also have an economic impact as the high cost of exiting and entering the housing market is likely to impact on labour mobility as home owners may choose not to move for employment because of these high costs,” he said.

With turnover levels continuing to trend lower, some believe that this may exacerbate housing affordability constraints as potential home buyers compete for an increasingly-small amount of stock.

“We know from a variety of property data sources that stock levels are steadily declining and a key reason why the affordability issue presents a bigger picture problem, particularly for Sydney and Melbourne,” says real Estate Institute of New South Wales (REINSW) president John Cunningham.

“When we have stock on market, it keeps the property market competitive and in balance. Without stock we see less vibrancy and activity across the market and much more buyer competition taking place as opposed to activity between properties.”

Although Cunningham is talking his own book, he’s does raise a valid point that strong demand and weak supply are unlikely to result in anything but further price gains.

While abolishing stamp duty in favour of an annual land tax would potentially help to free up housing supply and encourage more turnover, it’s unlikely that state governments will be willing to consider this given the strong revenue streams received as a result of recent house price gains.

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