Why abolishing stamp duty could bring balance to the housing market

If it passes muster with state and territory governments, ongoing calls to introduce blanket stamp duty reform could transform the nation’s housing market.

The state government tax is paid when buying a house, which increases the price of a housing transaction significantly, deterring many from making a move, even if their quality of life would be improved in a larger or smaller home.

States and territories raised $35.2 billion from stamp duty in 2021/22, the most recent Productivity Commission analysis reveals.

As the cost of living crisis continues to cripple the finances of Australian households, the potential for further stamp duty legislative changes gives some families hope that they could afford to get into the property market.

In July this year, Tasmania abolished stamp duty for eligible first home buyers on the purchase of an existing home on properties valued up to $750,000, saving them up to $28,900.

The ACT is also moving to lower stamp duty and increase land rates, while Victoria announced a 12-month stamp duty concession for anyone buying an apartment, unit or townhouse when purchasing off the plan last month.

But recent comments by Federal housing minister Clare O’Neil have ignited hopes that other states will follow suit after she backed business groups and economists wanting states to dump stamp duty. O’Neil agreed in a media interview that abolishing the state tax would ease the housing crisis and remove barriers to property transactions.

She dubbed stamp duty a ‘bad tax’ that prevents people moving around the housing market in a way that suits them best, adding costs for everyone selling or buying a home.

Economists, the real estate industry and business groups have wanted states and territories to stop insisting on charging stamp duty, arguing the tax is inefficient and discourages people from moving or downsizing.

Adding to the noisy calls for abolishing the tax, the Business Council also recently released a landmark report calling for the abolishment of stamp duty. The Real Estate Institute of Australia has also long wanted the tax axed.  

Balancing the market

The Housing Minister’s assessment of stamp duty sparks an important conversation about its impact on property mobility, says LocalAgentFinder acting chief executive Suresh Raghavan.

Phased stamp duty reforms and thoughtful incentives could support a smoother, more balanced market over time, Mr Raghavan says.

Stamp duty reform is likely to boost buyer activity, presenting new opportunities for sellers.

Increased buyer activity may also drive more competitive offers, though sellers might need to adjust strategies during the transition. “The challenge will be ensuring the reforms incentivise the right buyers to ensure stability in the market,” Mr Raghavan says.

“While scrapping or reforming stamp duty could reduce barriers to selling, it’s essential that any transition considers the knock-on effects on property prices and supply.

“Sellers may benefit from increased buyer demand if stamp duty is reformed, but without the right incentives, we risk simply shifting the affordability challenge elsewhere. Clear and thoughtful policy changes will be critical to ensure sellers aren’t left navigating a market that becomes more unpredictable in the short term.”

Mr Raghavan also said that encouraging downsizing or upgrading could be the key to unlocking housing stock, through introducing new housing initiatives will be essential to maintain market balance. “Sellers benefit from stable, predictable policies, as sudden changes can make the market feel uncertain.”

Aussies want reform

Meanwhile, a new survey released by Mortgage Choice reveals that half (49%) of Australians believe that reforming stamp duty for property buyers would make home ownership more achievable for future generations.

The quarterly report asks consumers how they’re feeling about entering the property market shows respondents are feeling slightly more hopeful this quarter than they were last quarter.

Mortgage Choice chief executive Anthony Waldron said the survey respondents, regardless of their age, agree that affordable housing is crucial for Australia’s future.

“It’s interesting to see consumers’ awareness about the potential of stamp duty reform, as I believe this tax presents one of the biggest barriers to first time buyers,” Waldron says.