If the New South Wales Government abolished stamp duty on newly constructed dwellings, the state would receive a much needed $1.35 billion boost and create an extra 8,000 construction jobs, according to a new report.
The report prepared by BIS Shrapnel commissioned by Property Council of Australia and its residential arm the Residential Development Council, found that stamp duty plan will create demand for an additional 6,000 dwellings a year.
In addition, the plan will kick-start the state’s ailing housing construction sector and providing a $19,000 benefit for purchasers of an average $520,000 Sydney house.
The package would have a $92 million net cost to government which the Property Council said should be paid for out of the $200 million improvement in the NSW budget position announced in December.
Property Council’s NSW executive director Ken Morrison said housing construction in NSW was at record lows and was dragging down the state’s economy.
“Dwelling commencements are the lowest we’ve seen since the 1980s, while Sydney has the lowest housing starts for thirty years. Economic growth in NSW is flat-lining and in just a few weeks the ABS will tell us if we are in recession as most analysts suspect.
“The Government and Opposition can’t afford to sit on the sideline watching the economy deteriorate,” he added.
Morrison said housing affordability was hurting families and there was a desperate need for more rental accommodation to be provided to ward off rent increases.
“This measure would be strongly welcomed by people struggling to buy a new home and would see more rental accommodation added to the market to help ease big rent increases,” Morrison said.
According to BIS Shrapnel, housing construction in NSW is not expected to pick up for at least another 18 months.
Without intervention, BIS Shrapnel expects rents to increase by 40% and a dramatic imbalance to emerge between future housing supply and demand.
“When construction does return to the market after this weak period we will be facing a pressure cooker situation which will risk further spiralling house prices. BIS Shrapnel expects demand to outstrip supply by over 58,000 dwellings by 2010.
“NSW needs a housing stimulus package to fire up construction activity to relieve this pressure and get our economy ticking again,” Morrison said.
The Property Council said bad public policies of the past like low land release and the now-dumped vendor tax, coupled with multiple rounds of government taxes had pushed new housing out of reach for many people.
“Every purchaser of a new home is paying both stamp duty and GST, as well as big infrastructure levies in many cases.
“Interest rates increases have certainly hurt the NSW economy, but the Government should not sit back and watch NSW slide into recession,” Morrison said.
Australian Property Journal
Summary of BIS Shrapnel findings
Summary BIS Shrapnel Research – benefits and costs of abolition of stamp duty on new dwellings
Key findings include
Current situation
· dwelling construction in NSW is at very low historical levels – detached housing construction is at its lowest levels in 40 years – 32,858 dwelling commencements in 2005/06 in NSW (comparable to 1986/87 low) and 16,200 in Sydney (comparable to 1975/76 levels)
· turnover of existing housing has recovered in 2005/06
· government taxes, charges and levies are adversely affecting new dwelling affordability (average stamp duty on new dwellings ranges between $9,000 – $19,000)
· pipeline of new housing is well below underlying demand, meeting only 2/3 of need. This situation is expected to remain until 2009/10
· market adjustment will involve:
· extremely tight rental market over next 3 years – Sydney’s vacancy rate is forecast to drop to 1.3% low in 2008/09 (3% is a balanced market)
· rents will rise sharply, 40% in total between 2006 to 2010 – to improve investment yields which will generate demand for new supply
· low income earners will be affected most – average income of renters is 40% less than owner occupiers
· BIS Shrapnel forecasts average portion of gross income spent on rent will increase from 20.4% in 2005/06 to 25.8% in 2009/10
· market adjustment will take time, BIS Shrapnel expects annual dwelling commencements in NSW to return to historical average (42,000) in 2009/10
· commencements are expected to spike at 52,600 in 2011 driving building costs high, forcing up house prices
Proposed solution
· abolishing stamp duty on new dwellings would stimulate demand and draw the supply of an additional 6,000 new dwellings forward (4,000 in Sydney, 2,000 in regional and rural NSW)
· bringing supply forward would smooth out an otherwise sharp spike which will generate steep price increase (driven by higher building and labour costs)
· bringing supply forward would reduce mounting deficiency of dwellings in NSW and alleviate pressure on the rental market
· demand for new dwellings will stimulate 8,000 direct building and sub-contracting jobs
· stimulus to dwelling construction would amount to $1.35B in additional building activity in NSW,
· people moving into new dwellings (‘downshifters’ predominantly) would vacate existing dwellings, freeing up more supply for new home buyers
· stimulus would not put upward pressure on inflation (given very low basis of current activity)
Cost to government
· net cost to NSW Government is estimated at $92 million in revenue foregone annually (2.8% of the revenue generated from residential property transfers)
Economy wide benefits
· boost to manufacturing of building materials – mostly located in NSW
boost in payroll tax revenue (in addition to that shown above)
