Stamp duty slash
The NSW Premier Perrotet has suggested that next week's state budget will involve a switch away from stamp duty towards an opt-in land tax for prospective buyers.
Economists have almost unanimously supported such a move for years.
Removing the frictional costs of moving home should make the optimal use of the dwelling stock and make the labour force more mobile, delivering a jobs and growth dividend (there are currently around 400,000 jobs vacancies - a record high - so some mobility clearly wouldn't go amiss!).
The challenge has been getting the electorate used to the idea of a forever tax on a forever home, which could increase over time with land value inflation.
The NSW State government aims to get around this by phasing in the proposal over time, and by allowing buyers to 'opt in' for the land tax option.
Lenders may need to make reverse mortgages more readily available in time for asset rich but cashflow poor retirees.
The NSW proposal is for the top 20 per cent of properties to continue paying stamp duty to prop up revenues (the State Government is likely to rake in almost $15 billion in FY22 from stamp and transfer duties, which is a spectacular windfall, and miles above the $9 billion in FY21).
One of the appealing aspects of the land tax transition is that there will ultimately be a smoother and more predictable tax revenue stream for the government.
Federal support
The proposal may need Federal support to get it across the line, but if New South Wales is successful then other states may follow suit in time.
The ACT is the only other jurisdiction to tackle property tax reform, but went too hard on the property rates, and the rental market has been a nightmare ever since.
With a vacancy rate of 0.6 per cent renting a unit in Canberra costs $560/week, which is higher than anywhere in the country...even Sydney.
Houses cost almost $800/week to rent in Canberra now, which seems wild given how much land there is out there.
Juicing the market
Sydney's median house price hit $1.6 million in the first quarter of this year, meaning a purchase attracting stamp duty of more than $72,500, so the change is potentially a big deal for the market.
Of course the property lobby loves the idea of the proposed transition, since it will mean less friction, more property transactions, and therefore more agency fees.
As first homebuyers won't have to save the stamp duty, such a shift will immediately juice prices from the lower end of the housing market up, the savings being quickly capitalised into property prices.
We may also see far more 'flipping' of property, especially once renovation costs come back down to earth.
As for whether the slated economic benefits ever come to fruition, that's another question entirely, and we'll have to wait and see.
I discussed the proposed switch with Brooke Corte on Nine Money last night here (or click on the image below):
