Is there a solution for housing affordability in Australia?
The affordability of real estate in Australia is in and out of the media spotlight on a regular basis, but has any real progress been made? While falling interest rates may have made home loans more affordable, the price of new dwellings is still an area of concern.
For example, the Real Estate Institute of Australia has released research that shows that lower interest rates have increased affordability of home loans by 0.7 per cent in the three months to march. However, aiding housing supply is seen by many to be the most essential component in solving the housing affordability issue, and tax on construction and land is said to be a barrier to this.
The Housing Industry Association (HIA) has lambasted state and federal taxation, which it says comprise up to 40 per cent of the price of a new home in some states. The HIA points out that stamp duty is a major part of this discussion, hindering labour mobility and reducing the efficiency of the market.
“As a tax on moving, it discourages households from relocation when this decision may better suit their needs in terms of size, location or employment opportunities,” said HIA chief executive of industry policy and media, Graham Wolfe.
“Unfortunately, the economy and the community do not get the best use out of the available housing stock.”
However, even though the HIA points out that the state-specific tax is the most inefficient impost in the Australian legal system, other taxes such as GST and infrastructure levies play a big part too. With these two taxes exclusively levied against construction and new houses for sale, the HIA highlights that this sector of the market is being unfairly relied upon to support the rest of the community and wider economy.
With so many taxes and costs being paid for in the cost of a new home loan, and stamp duty on top of this, Mr Wolfe says that the government is even taxing taxes. In real terms, levies such as these add around $250,000 to the price of a new house in Sydney, the HIA reports. This would cost the homeowners $1,350 a month in mortgage repayments.
It’s clear that the current economic system is still struggling to adapt to modern times and the quickly expanding need for more homes. Of course, there’s no single solution for housing affordability. In a recent blog post Cameron Kusher of CoreLogic RP Data pointed out there are many factors at play in the market, and a more holistic discussion needs to be had.