Darren Van De Wint and fiancee, Haley Richardson photographed at their Alexandria home. Source: News Corp Australia
STAMP duty is keeping Sydneysiders out of the property market thanks to outdated tax brackets that haven't changed since 1986.
Politicians, industry figures and academics are calling on the NSW government to reduce rates or overhaul the tax, after $198 million in stamp duty collections brought the state budget into surplus.
"The property market has come to the rescue of the government, so the government needs to return the favour," said Tim McKibbin, chief executive officer, REINSW.
In 1986, the maximum stamp duty rate of 2.5 per cent was increased to 4.5 per cent on properties over $300,000 and 5.5 per cent on those over $1 million.
'$50K STAMP DUTY STOPPED ME DOWNSIZING POST DIVORCE'
At the time, the median price of a Sydney house was $98,325, less than five times the average yearly wage of $22,000. A $300,000 property was equivalent to a $2 million property today. A $1 million home was considered extreme luxury, so the top brackets did not affect many people.
Today's Sydney median is $685,000, according to last week's sales reported to RP Data, more than nine times the average wage of $72,000. For $300,000, a buyer can get a unit, or house on Sydney's far outskirts. A $1 million home may be between five and 20kms from the CBD, or further out in some cases.
"The 'bracket creep' phenomenon has increased stamp duty spectacularly over the years," said Robert Carling, senior fellow, The Centre for Independent Studies. "Stamp duty on an average house now is about $25,000, which is 3.8 per cent. In the mid-1980s, the stamp duty on a median house of under $100,000 was $2,000, or 2 per cent. We've seen a doubling on the effective rate because the government has never adjusted the scales."
Results of the proposed changes Source: Supplied
'MUM HAD A STROKE BUT CAN'T MOVE CLOSER DUE TO STAMP DUTY'
Stamp duty is the most substantial of the many added costs of buying a home. A $685,000 home may only have a 10 per cent deposit of $69,000 as a loan; but when stamp duty of $26,315 is added, along with building and pest reports, conveyance fees, mortgage application or approval fees, removalist costs and insurance, the upfront bill can pass $100,000.
Mr Carling said people who needed to move house, were getting stranded, including pensioners who couldn't afford to downsize closer to care networks.
"It has this lock-in effect of forcing people to stay in inappropriate housing," Mr Carling said.
A Genworth survey found 40 per cent of lenders and 30 per cent of mortgage brokers identified reducing or removing of stamp duty as one government change that could benefit the mortgage market.
"The sector is concerned about housing affordability and how it will affect the mortgage market going forward," said Bridget Sakr, chief commercial officer, Genworth Australia.
The 2010 Henry Tax Review labelled stamp duty "volatile and highly inefficient," discouraging property transactions and being unfair, "as people who need to move more frequently bear more tax, irrespective of income or wealth."
The 2008 NSW IPART state taxation review ranked stamp duty among the least efficient taxes, because it "adds to the cost of real estate transactions and so can distort investment decisions; and because it applies to a narrow base (properties sold during the tax year) … the revenue it generates can change dramatically from year to year, depending on the property cycle."
NSW Treasurer Mike Baird said the government is monitoring the impact of stamp duty, but that an increase in the uptake of first homeowner grants for newly constructed homes was having a positive effect on affordability.
"Housing supply is rising to meet demand, which will help get more people into new and affordable homes sooner," Mr Baird said.
NSW Shadow Treasurer Michael Daley dismisses this claim.
"The O'Farrell government is raking in so much stamp duty with the bracket creep, that it is unconscionable for Mr Baird to get rid of concessions for the majority of people trying to get into the market," Mr Daley said. "Supply is not improving because there are not enough houses being built."
Whether removed or reduced, experts agree stamp duty needs to be overhauled.
State taxes specialist Joanne Seve believes a good start might simply be to multiply the brackets by 2.5 to reflect the growth in values and revert to the pre-1986 maximum tax rate of 2.5 per cent.
Doing so would reduce the stamp duty on a median priced house by up to $15,000 and lead to significant savings across the different price sectors, as outlined in Ms Seve's tables.
Darren Van De Wint and fiancee, Haley Richardson had to delay a sensible property purchase because of stamp duty.Source: News Corp Australia
$50K STAMP DUTY STOPPED ME DOWNSIZING POST DIVORCE
After separating from his wife, Darren Van De Wint was living alone in a four-bedroom suburban home.
"I wanted to downsize closer to the city, but the stamp duty cost of $50,000 was a deterrent," Mr Van De Wint said. "I was behind before I even started, so why move?"
Last year Mr Van De Wint and new fiancee Haley Richardson bought in Alexandria and were slugged with a $75,000 tax.
"It was $20,000 more than we budgeted and added extra pressure," he said. "The housing shortage is fuelled by this disincentive to move when circumstances change."
Lisa Maybury wants her mother, Frances Bailey, to move closer so she can provide much needed care. Source: News Corp Australia
MUM HAD A STROKE BUT CAN'T MOVE CLOSER DUE TO STAMP DUTY
Lisa Maybury wanted her mother Frances Bailey to move closer to her in Rouse Hill after she suffered a stroke while riding the bus.
Despite owning her Oakhurst property, the move proved impossible.
"We were looking at what she could afford here," said Ms Maybury.
"We could just manage it, but we found that with the added stamp duty, she couldn't do it."
Two years later, Ms Bailey is still living 30 minutes from her daughter, who has her hands full with work, study and her own children.
"She can't move house because of a tax, which just isn't right," Ms Maybury said. "Stamp duty should be abolished for people over 60 and reduced for everybody else."