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Housing affordability is looming as a major battleground in the New South Wales election but experts have warned scrapping stamp duty could actually push prices higher.
- The government's stamp duty reform comes into effect on January 16
- Labor released its competing stamp duty policy to take to the election on Monday
- Stamp duty has long been criticised as an unfair tax
Both the New South Wales government and the opposition say they're determined to get more singles, couples and families into the housing market by altering the rules on when stamp duty is owed.
If elected in March, Labor is promising to expand the current stamp duty exemption for first homebuyers so it applies to properties up to $800,000 and offer a reduced duty on properties up to $1,000,000.
Currently stamp duty can only be waived on properties up to $650,000.
Meanwhile, the Perrottet government's stamp duty reform, which passed parliament last year, allows first homebuyers to choose between paying stamp duty or a smaller annual land tax.
It's for properties up to $1.5 million or vacant land up to $800,000 and officially comes into effect on January 16.
Both parties say their schemes leave New South Wales buyers better off but the experts aren't entirely convinced.
Stamp duty has long been criticised as the most inefficient and unproductive tax which hinders those trying to enter or remain in the property market.
And Sydney is still the most expensive place in Australia to break into the market; although the median price in many suburbs dropped by more than 20 per cent over the last year, according to Domain.
Some analysts have warned that slashing stamp duty could have unintended consequences.
Suddenly putting more money into the hands of buyers, who will in turn be able to make higher bids on houses, could push up property prices, according to policy coordinator Jesse Hermans from independent research institute Prosper Australia.
"If you give buyers more money by cutting their taxes or giving them cash grants, then that's going to up prices and then the vendors are the ones that are actually going to pocket that as an increase in house prices," Mr Hermans said.
"It's like a leaky bucket in that so much of the subsidy is leaking back towards existing property owners."
Property economist Cameron Murray also expects to see property prices climb thanks to a lighter stamp duty burden on buyers, but doesn't believe the increase will be dramatic.
He says this is because of the current decline in property values across Australia — a trend which is expected to continue through 2023 — and the fact fewer first home buyers are looking to enter the market now.
"We've just had this doubling of first home buyers in 2020 and 2021 so we're in the shadow of that and there's a finite pool of potential first home buyers that you can draw from," Mr Murray said.
"Labor's proposed $800,000 cap would also exclude many in a housing market like Sydney so the effect on prices might not be as bad as it could be."
But for many first home buyers, not having the stress of forking out for stamp duty is simply an unequivocal win.
For Noam Okewenwu, it would mean owning a home in Western Sydney six months earlier than anticipated.
He's recently been looking at properties around $400,000-$500,000 in the Canterbury area.
"Stamp duty will cost me about $15,000 dollars up-front. This is a large amount I can do without. It's definitely a no-brainer to me. This will definitely assist me in getting a home," he told the ABC.
Mr Hermans and Mr Murray predict both parties' schemes will speed things up for people like Mr Okewenwu, who are very close to buying, but won't open doors for many other hopeful homeowners.
Nevertheless, the government's First Home Buyer Choice scheme will provide valuable data on people's willingness to choose land tax over stamp duty.
A land tax has only ever been introduced in one other Australian jurisdiction, the ACT, which started its 20 year transition away from stamp duty in 2012.
Mr Murray says giving people a choice between a land tax and stamp duty is the "most minimal policy change I can think of" and believes governments would get more value from investing in more public housing.
"This is why in the 1950s and 1960s the government went and built housing, and let the tenants buy it at a discount and that's one of the ways we got home ownership up ... it increased from 42 per cent before the war to 72 per cent in the 1970s," he said.
But Mr Hermans believes Premier Dominic Perrottet's pet project will be an important test.
"We really need to see some pilot projects in terms of these reforms [because] we've been struggling to get any sort of tax reform going in Australia for over a decade."