Three things

As the title says, three things this post.

1. Land tax

Below are two media summaries, the first published earlier this year and the second this week.

Victorian Treasurer Tim Pallas and his New South Wales counterpart Dom­in­ic Perrottet are investigating the phasing out of stamp duty on property sales, with stamp duty to be replaced an annual land tax. The NSW government has estimated stamp duty costs the economy $2.35 for every collected dollar, compared to just $0.16 for land tax, while land taxes would provide state governments with a much more reliable revenue stream than stamp duties. Getting rid of stamp duty could boost property transactions in NSW by 25%, according to a 2017 report commissioned by the NSW Treasury.

New South Wales and Victoria have been talking for some months about the possibility of getting rid of stamp duty; the two states get around 25% of their annual revenue from the duty. The property industry contends that now is an ideal time to get rid of stamp duty, given the depressed state of the housing market. Stamp duty would be replaced by an annual tax based on land value, and the ACT government is currently involved in a long-term initiative along these lines. EY’s head of tax policy Alf Capito says any system to replace stamp duty needs to have bipartisan support and needs to be something that is very hard to change once put in place.

To review what I would do go here.

2. Buyer profiles

Much has been written about the apparent fluctuation in overseas apartment buying in recent months.  Also, there seems to be expectation that a bit of magic dust sprinkled over potential property investors will see them toss caution to the wind and buy.  In addition, there seems to be a somewhat widespread belief that first home buyers aren’t active, and they also need further assistance.

Australia – Buyer type

Buyer type 5 years ago Last year Today
New development
First home buyer (owner resident) 15% 33% 36%
2nd and subsequent owner residents 34% 36% 30%
Foreign buyer 16% 6% 7%
First home buyer (investor) 10% 10% 11%
Investors (Australian resident/company) 25% 15% 16%
Established housing
First home buyer (owner resident) 17% 22% 27%
2nd and subsequent owner residents 42% 47% 43%
Foreign buyer 9% 5% 2%
First home buyer (investor) 10% 9% 10%
Investors (Australian resident/company) 22% 17% 18%
Matusik + NAB Residential Property Survey Q1-2020

3. Constraints

Regardless of what you think of NAB, their economic team and the regular email posts are very good.  Mandatory reading if you ask me.  Go here to find out more.

One of the things NAB does well – in the residential research space – is undertake a national quarterly survey about housing constraints.  For March quarter they found the largest constraints by order of magnitude were:

New development

  1. Tight credit
  2. Housing affordability
  3. Sustainability of past dwelling price gains
  4. Construction costs
  5. Lack of development sites
  6. Labour availability
  7. Rising interest rates

Established property

  1. Employment security
  2. Access to credit
  3. High level of prices
  4. Better returns on other investments
  5. Lack of stock
  6. Rising interest rates

End comments

Do first home buyers really need another rebate?  And especially one linked to new construction, when a higher proportion of first home buyers are already buying new when compared to established digs?

If lifting short-term construction employment is the aim, then surely the recently floated ‘renovation grant’ would have more impact regarding helping the building trades secure more work.

But for mine it would be even better to spend this money on building more social housing.

Foreign buyers will return, given Australia’s low COVID-19 infection and death rates, plus as a means of buying future citizenship.  Ditto when it comes to tourism.  We will be stupid, economically speaking, not to plan for this.  But we need a national housing policy, which is clear, concise and enforced.

Rental yields are the new black when it comes to housing investment.

We have an aging demographic, especially when it comes to housing ownership and short-to-medium housing term demand.  We need to free up the ‘sales train’ encouraging older owners to downsize and sell their large homes to younger buyers.

Removing stamp duties will help, but so too will helping these older sellers actually sell their homes.  Many are asset rich but cash poor.

Consideration should be given by developers, especially of completed stock targeting downsizers and retirees, about how they can transact a sale by assisting the buyer sell their current abode.

A sensible COVID-19 government response would be to do likewise.

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