• The NSW government has released a proposal that will remove stamp duty for first home buyers and potentially increase the state’s home ownership by 6%.
• It comes in response to the increasing unaffordability of property in the state, with Sydney’s median house price hitting $1.1 million.
• Experts have embraced the proposal and said – while it won’t push down house prices – lower upfront costs will benefit first home buyers.
• Visit Business Insider Australia’s homepage for more stories.

The NSW government has proposed an overhaul of the state’s property tax with a $25,000 grant to help first home buyers enter the market.

Under the reforms, the grant would replace existing stamp duty concessions for first home buyers, which would initially allow buyers to choose paying stamp duty or an annual levy.

The proposal comes as home ownership for those under 40 plummets, with experts saying the tax changes offer the best chance for young people to get into the property market.

It is in line with federal schemes that create pathways for first home buyers in the absence of action to meaningfully lower property prices, such as the national First Home Owner Grant (FHOG) which offers a one-off payment to eligible buyers, and the First Home Loan Deposit Scheme (FHLDS), which allows first home buyers to buy property with a deposit of 5%.

Stamp duty raised $8.3 billion for the state last year, with about 75% of that from residential sales.

NSW Treasurer Dominic Perrottet said he wanted to scrap stamp duty and move to a land tax in last year’s state budget, however the proposal will not feature in next week’s budget.

Instead, the government has released a progress paper which claims the reforms could see home ownership rise 6% and allow 300,000 more NSW residents to buy a home.

The paper’s release follows the government’s intergenerational report, which revealed that 60% of ‘early baby boomers’ — those born between 1942 and 1951 — owned homes by the ages of 25-34.

For those born between 1982 and 1991 the number drops to just 45%.

Increasingly unattainable house prices have also placed renewed pressure on the state and federal government to address housing affordability.

Recently released CoreLogic figures show house prices in Sydney rose 3.5% in May in one of the biggest monthly gains since the late 1980s, with Sydney’s median house price now exceeding $1.1 million.

Responding to the report, the NSW Treasurer said the government was taking steps to remedy what he called a “very stark statistic.”

“The message which comes through very clear again and again is the huge challenge of achieving home ownership for our younger generations,” Perrottet said.

The government says the reforms would reduce its revenue but “over the longer-term, the property tax would be revenue neutral, collecting the same amount of revenue as stamp duty and land tax”.

Under the proposal, the government would also legislate to ensure nobody would be required to sell their home if they could not afford the property tax.

Perrottet said he estimates up to 50% of NSW properties will be subject to the annual levy within 20 years, with stamp duty on property purchases completely phased out by 2050.

Changes to property tax the best way to reverse home ownership trends, experts say

Michael Buckland, CEO of progressive think tank the McKell Institute, which contributed a submission to the progress paper, said he considers the proposal a “great reform” which “removes a barrier to home ownership.”

The progress paper says submissions produced mixed reviews around how the property tax could impact the ongoing affordability of property in NSW, as well as questions around whether abolishing stamp duty would “cause upward pressure on prices due to an increase in spending power”.

However it concluded that “lower up-front costs are expected to particularly benefit first homeowners who have typically had less time than other purchasers to save for a deposit.”

Buckland said that long-term results of the tax changes would be more prospective buyers getting into the market.

The McKell Institute’s submission concluded that “the introduction of the property tax may place upward pressure on house prices in the short term but the reduction in stamp duty costs will still result in a net positive effect on housing affordability.”

“Right now elderly people are punished for downsizing and young people are punished for taking an entry-level step into the market where they should be encouraged,” Buckland said.

While he accepted the change will assist housing affordability but not cause an immediate decline in house prices, he said it was still the best way to navigate the current housing market.

“It will make things more affordable for first-home buyers because they will not have to incur a stamp duty upfront,” he said.

Buckland also welcomed the safeguards around property tax, which he said would help combat public skepticism around “such a large tax change.”

He said he hoped the reforms would be put in place later this year.

“The progress report demonstrated there was wide public support for a reform of this kind,” he said.

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