Housing inquiry recommends scrapping stamp duty
By Michael Bleby
Australian states should ditch stamp duty and replace it over time with a broad-based land tax, review the taxes holding back development of the emerging build-to-rent sector and reform surging developer contributions that are not being used to fund crucial local infrastructure.
The recommendations are some of the measures outlined in a report tabled on Friday following the House of Representatives Standing Committee on Tax and Revenue’s inquiry into housing affordability and supply in Australia.
The report primarily slams poor planning processes – which inquiry chairman Jason Falinski MP described as “oppressive regulation, muddle-headed central planning, officious big state regulation” – for a fall in home ownership among Australians under 40 to the lowest level since 1947.
At a time of record-low borrowing costs that pushed housing prices nationally up 22.1 per cent last calendar year alone, however, economists question whether supply measures by themselves can bring the market back into balance.
“More expansive supply will help – but in the face of a large increase in demand, it will only help, it will not eliminate the increase in house prices,” RBA assistant governor Luci Ellis told the inquiry last year.
On Friday, Mr Falinski said that criticism was right in the short term. “You can’t just build houses in three months,” he told The Australian Financial Review.
“But over the medium term, what you’d see is house prices coming back to what their long-term average should be. You’d start to see prices beginning to moderate within two years. Over 10 years you would start to see real changes, meaningful changes in affordability.”
The report, tabled just two months before an expected federal election, takes an overtly partisan tone.
In turn, the three Labor members of the eight-person committee issued their own dissenting report, saying they did not accept a report that failed to define for whom housing affordability was being considered, failed to set out what would constitute success and failed to acknowledge complexities of the market.
The wide range of recommendations in the report include supporting changes made in 2018 to give banking regulator APRA power to regulate lending by non-bank lenders if that lending was a risk to financial stability.
It also recommends no change to the charter and monetary policy mandate of the Reserve Bank of Australia to ensure housing price stability was not included in the bank’s considerations, as it has become for the Reserve Bank of NZ.
The replacement of stamp duty with land tax should take place “over time” and should be guided by a separate federal government review into how states and territories could best manage the disruptions to revenue that would occur during such a transition.
In the meantime, to address the problem of bracket creep in stamp duty, states and territories should lift the thresholds for different pricing bands of the impost in line with housing market inflation, the report says.
Mr Falinski said the ACT Labor government’s 20-year effort to replace stamp duty with land tax had only “embedded people’s cynicism” and entrenched a perception that stamp duty had remained even as land taxes had risen.
A separate proposal by the NSW Coalition-led government to abolish stamp duty if a home buyer opted into a land tax regime had stalled because of questions in resolving the revenue gap for the state finances as well as state politics, he said.
“There’s a financial piece around how you fund the gap, the revenue shortfall and because [opposition leader] Chris Minns has said he’ll politicise it to gain votes,” Mr Falinski said. “That’s making people cautious.”
The federal Liberal MP proposes ending the government’s policy of a 30 per cent withholding tax on foreign investment in build-to-rent property developments.
Greystar, the world’s biggest investor in build-to-rent, last year said the withholding tax showed the government had an ideological opposition to the development of a commercial rental asset class.
“The circumstances have changed from when it was first introduced,” Mr Falinski told the Financial Review on Friday.
“There’s a lot of overseas expertise sitting on the sidelines because of that tax. The cost of that is outweighed by the benefit.”
Keep negative gearing, release superannuation
The latest of what Mr Falinski said had been a “fair few” parliamentary inquiries into housing also says negative gearing should be retained, as The Australian Financial Review reported earlier this week, despite the “nominal” impact it had in pushing housing prices higher.
The report supports allowing people to tap their superannuation to access home ownership, recommending first home buyers should be able to use their super balance as security for a home loan.
“This recommendation will therefore remove the largest barrier for home buyers, being the deposit,” it says.
The report also says more must be done to meet the housing needs of homeless people, calling for full implementation of recommendations by a separate parliamentary inquiry last year.
Mr Falinski said the federal government needed to ensure more provision of crisis housing, particularly for victims of domestic violence.
“People do stay in violent environments because they have nowhere else to go,” he said.
“We need to look at how we increase that supply quite substantively. We can’t just wait for the market to magically increase supply when people are in violent situations.”
n addition, local communities should have the power to negotiate better infrastructure in exchange for allowing higher density housing, the federal government should financially reward state and local governments that speed up planning processes and federal grants should be tied to local and state provision of more housing supply, the report tabled in parliament on Friday says.
During the inquiry hearings last year, Nathan Dal Bon, chief executive of the federal government’s National Housing Finance and Investment Corporation, said there were a range of reasons for high prices, but Australia as a country had not set out what role, in a policy sense, it wanted housing to play.
“I think the stumbling point has been, ‘what are the key objectives that we want to have with housing?’,” Mr Dal Bon said. “Whether it’s renting or whether it’s purchase, and working backwards from there in terms of what we think should be appropriate in delivering on those objectives.”
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