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In 2006, there were around 72,000 property transactions in WA with the median house price in Perth at the time a smidgen under $500,000. A decade later, transactional activity had fallen to about 33,000 sales with a median price at the end of 2016 at $520,000.
Think about that for a moment; less than half the sales activity despite some 600,000 more people living here and the many new homes constructed as a consequence. Revenue to the government from transfer duties must also have at least halved.
Successive state governments have relied for too long on property related taxes, especially transfer or “stamp” duties, as a source of reliable income. Transfer duty (along with payroll tax) is one of those taxes considered inefficient because it acts as an obvious disincentive to buy property. At Perth’s median house price the transfer duty (assuming you’re not eligible for a first home buyer concession) is about $18,000 and most buyers borrow this money as part of their mortgage adding on many more thousands for the life of their loan.
Trading up to buy a bigger family home for say $800,000 sets you back transfer duty equal to close the average yearly salary. Little wonder transactions have halved. Home owners are more inclined to stay put; add a bedroom, renovate the kitchen, etc for the same money. No wonder Bunnings is so busy on the weekends.
We all know that state governments need to raise money for important infrastructure and services but budgeting for income based on property taxes is fraught because the free market determines sales volumes, not the government. No one could have accurately predicted in 2006 that market values would have stagnated and transfers would have halved ten years later. Forward estimates, typically three years, aren’t much better with successive governments either under or over estimating revenues from property taxes year after year. About a third of all state revenue other than the GST is property tax related.
REIWA has just surveyed 455 random members of the community, 90 per cent of whom stated that property related taxes are a barrier to them investing in property. With affordability of housing such a hot button issue, encouraging more investment in property by removing taxation barriers releases more property options into the market, adds to housing diversity and opens the market to natural unencumbered freedoms.
It’s time one side of politics committed to a state tax review and found a model that removes inefficient, unproductive and outdated taxes.
By Hayden Groves
REIA Deputy President