It’s getting harder and harder for first home buyers to get a foot in the door of the housing market, as the remaining “affordable” properties left grow in price faster than the rest.
Affordability constraints are driving buyers towards cheaper homes, resulting in dwindling options for younger Australians, a report released by online property marketplace Domain on Thursday found.
The effect was being borne out across most major cities.
Since 2022, the cheapest quartile of homes in Sydney has grown 4.1 percentage points faster than the top quartile.
The difference was 6.9 percentage points in Melbourne, 13.6 percentage points in Brisbane and 19.8 percentage points in Perth.
The phenomenon has exacerbated already falling home ownership rates among young Australians.
More than 68 per cent of the population born between 1947-51 owned a home by the time they were 30-34, but today only half of Australians in that cohort own a home.
Domain chief economist Nicola Powell says government policies that boost demand for homes, excess construction regulation and stamp duties were exacerbating the problem by pushing up prices further.
Governments should consider replacing stamp duty, which has risen three times faster than income since 2000, with a broad-based land tax, Ms Powell said.
“You’ll be hard pressed to find an economist that doesn’t think that stamp duty is a terrible tax,” she told AAP.
“It’s so inefficient.”
Because it adds to the upfront cost of a property transaction, stamp duty acts as a disincentive for people to buy and sell homes, even when their current home is the wrong size for their needs or in an inconvenient location.
“One of the things with our housing market is we have a big misallocation of housing, which means that we are not using our current housing stock efficiently,” Ms Powell said.
“By removing stamp duty, what it should do is encourage right-sizing of our homes.”
For people trying to get on the property ladder, stamp duty means there are fewer smaller, entry-level homes.
And for young couples planning on starting a family later in life, it encourages them to look for a home larger than their current needs to avoid transaction costs down the track.
So if the economic consensus is behind getting rid of stamp duty, why is it still entrenched in nearly every state and territory?
The issue is state governments are so heavily reliant on stamp duty and ditching it would leave a massive hole in their budgets until more efficient land taxes contributed enough revenue to make up the difference.
Ms Powell said it would be politically unpalatable to bring in land taxes without grandfathering home owners who recently paid stamp duty on a new home.
It would mean essentially “double-dipping” them in tax.
“I think if we were going to see a broad-based stamp duty reform, it needs to have federal support” to bridge revenue gap for states, she said.
Productivity Commission modelling singled out stamp duties as “exceptionally economically damaging taxes”, chair Danielle Wood told the National Press Club in August.
She noted there were “thorny transition issues” around moving to land taxes but did not have a position on whether the Commonwealth had a role to play in incentivising the states to get rid of stamp duty.