30/01/2007 - 22:00

State has role to play in house affordability

30/01/2007 - 22:00


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Stamp duty on housing transactions is something that I have kept a weather eye on, to some degree, for the past year or two.

Stamp duty on housing transactions is something that I have kept a weather eye on, to some degree, for the past year or two.

While there has been much rhetoric about this impost, much of it has come from those with a direct interest – which admittedly is an awful lot of people when it comes to those in the market and the army of agents brokering each deal.

In my view, stamp duty was growing unhealthily, but there have been other taxes that have affected business more. The most notable is payroll tax, which was altered to make life easier for small business, but hits them hard when they start to gather a bit of pace and momentum which pushes them past the tax-paying threshold.

In some ways, the viewpoint that cutting stamp duty during a housing boom would not lower prices is accurate. People will pay what they can to buy the best property they are able.

The tax is just part of the price. With fears that Western Australia’s housing boom was creating the environment for an interest rates rise, it seemed clear to me that any cut in stamp duty last year would have been a bad economic message. People were already over-investing in the property sector, so why do anything to further encourage that?

Furthermore, the state government has little incentive to lower revenue from a sector where people are falling over themselves to buy. Governments should be allowed to benefit from the conditions they helped to create.

But that environment has changed now. There is clear evidence that WA’s housing boom is over and a slump is occurring.

Typically, this would just be part of the normal cycle, if the cost of property had not become a significant brake on the economy.

As a believer in market forces, I’d like to think that lowering investor demand would bring prices down to allow all those new skilled workers to come here and buy a home.

But the property market doesn’t quite work like that.

In times of falling prices, people stop selling, so prices level out for a while rather than fall – unless there is a drastic correction.

Meanwhile, many people – not just first homeowners – can’t afford a house in an area they’d like to live.

That is a problem for business, which used to be able to at least point to cheap property prices to attract workers here.

So, for the past six months or so, housing affordability, and thus stamp duty, has become a real issue to the business community.

With the property sector on the slide, cutting imposts such as stamp duty could now have genuine and positive impact on this issue.

There is, now, a real incentive for the state to reconsider its position.

Gouging taxes in good times is understandable; to continue to do so when the cycle turns is a big mistake.

The world has shifted dramatically in the past two years and Alan Carpenter’s government has to bring some fairness back into the equation.

Increasing the threshold where the tax kicks in to the current median house price is an immediate, albeit band-aid, solution. Permanently linking it to the median, not the current figure, would be the most honest bit of policy here.

In addition, lowering the actual percentage would also recognise that, with each transaction, the government has unfairly grown its slice of the pie in just two short years.

In the end, the government can blame whomever it wants for housing affordability issues.

Just six months ago, its argument that there was little to be gained by cutting taxes on transactions had some currency.

Today, the state can play a big role in making housing more affordable.


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