What would happen to house prices if stamp duty was abolished?

[BLTN]

Hypothetical question - I'm curious as to what the impact would be.

EDIT: I'm not talking about a freebie - I'm talking about a tax shift. So, most likely, would be an increase in the land tax rates or a broadening of the base (e.g. to include owner occupiers and other exempt categories).

Superficially, one might assume that house prices might go up to compensate - but on thinking about it, this could just be a temporary reaction.

Does anyone know if this has happened before anywhere and what happened to house prices?

 

[danwatto]

Not sure about prices.

But liquidity would improve, which makes prices more accurate. Turnover would no longer be artificially restricted.

This would make more viable the business model of buy, renovate, sell.

It would also allow owner occupiers to move house whenever they want. At the moment OOs can't move due to the large amount of money they have dropped in stamp duty. To sell and move is like flushing that money down the toilet..

The bigger question to ask is what other tax would increase to replace duty. That's what could have a downward effect on prices.

 

[neK]

I think would be an increase of buyers now that a barrier has been taken down.

There would probably be an increase of people buying with the view of flipping as well.

Might have a slightly different outcome if Negative Gearing and Stamp Duty were abolished together though.

 

[BLTN]

Not sure about prices.

But liquidity would improve, which makes prices more accurate. Turnover would no longer be artificially restricted.

This would make more viable the business model of buy, renovate, sell.

It would also allow owner occupiers to move house whenever they want. At the moment OOs can't move due to the large amount of money they have dropped in stamp duty. To sell and move is like flushing that money down the toilet..

The bigger question to ask is what other tax would increase to replace duty. That's what could have a downward effect on prices.

Edited my original post - most likely replacement for stamp duty would be an increase in land tax via broadening the base or increasing the rate.

This has been proposed numerous times - I'm just curious as to what the impact would be.

 

[D.T.]

But land tax is pointless since everyone circumvents it ?

 

[neK]

But land tax is pointless since everyone circumvents it ?

It will impossible to circumvent is the land tax free threshold is abolished.
It would also reduce the amount of properties being held... also probably lead to very little rental properties.

 

[Nemo30]

What you are describing is what the current ACT government has proposed.

Abolishing stamp duty, but significantly increasing rates and land taxes.

Land Tax in the ACT is also different to other states - there is no getting around it.

 

[BLTN]

What you are describing is what the current ACT government has proposed.

Abolishing stamp duty, but significantly increasing rates and land taxes.

Land Tax in the ACT is also different to other states - there is no getting around it.

Yup.

But the ACT is small chips - and also most of the people are loaded there.

How would it impact a bigger state, or Australia as a whole? That is the question...

 

[Angel]

Stamp duty is a state tax, not a commonwealth tax. just saying

 

[BLTN]

Stamp duty is a state tax, not a commonwealth tax. just saying

What's your point?

 

[Angel]

it is only relevant to each state. Currently Stamp Duty rates and policies are different in each state. The commwth govt cant really tell the states what to do with their own revenue raising, can they.

This is still a topic worthy of discussion

 

[BLTN]

it is only relevant to each state. Currently Stamp Duty rates and policies are different in each state. The commwth govt cant really tell the states what to do with their own revenue raising, can they.

This is still a topic worthy of discussion

Correct, but not sure what that has to do with the proposed question?

If one state (or all states) were to eliminate stamp duty in favour of other state taxes that better utilise the land base (e.g. a broader based land tax, or increased council rates etc etc), what would be the impact on house prices and the property market more generally?

The Comm gov has nothing to do with the question.

 

[HiEquity]

Clearly they would go up as it would reduce the Deposit required. Stamp duty is paid by buyers and can't be borrowed so the money thus freed up can be used to pay more. It increases demand from people who previously couldn't stump up the stamp duty as well as allow others to pay more.

But the government's revenue hole would have to be plugged with something else instead. If land tax was increased this would moderate the effect, particularly if the ppor exemption was removed. But any government who tried that wouldn't be in government for long... The benefits of representative democracy!

 

[wylie]

Why can't stamp duty be borrowed?

Or is that in the context that the valuation for a particular house would not cover the purchase price plus the stamp duty and that if the borrower had to sell soon after purchase for some reason, the amount of the loan to purchase plus the extra for the stamp duty would see a residual debt.

So, if that is correct, it must be okay to use equity in another property to pay the stamp duty because plenty of times we've not had the money for the stamp duty and must have used another house as security to borrow enough to pay it. (And... yes we are cross-collateralised.)

 

[HiEquity]

Hi Wylie

Of course you can borrow to pay stamp duty if you have other security and income. But when looking at an individual property, you have to find a way to stump up the deposit, stamp duty and other closing costs from your own resources. You can't borrow directly against stamp duty - you just have to pay it!

 

[MTR]

BLTN
Would make renovation/flips much more attractive, stamp duty is huge % from profits.

On another note, when buying property in New Zealand and USA you do not pay stamp duty.

 

[Peter_Tersteeg]

Land tax would across the board would have a negligible effect on consumers. It's kind of like the local council increasing their rates.

Removing stamp duty would have a substantial effect. The biggest barrier to entry for first home buyers is not affordability, it's deposit. For younger investors often the deposits and equity runs out before the affordability does.

I'd estimate that removing stamp duty could increase most markets by at least 10% and some by as much as 30%.

First home buyers would initially applaud the change but within 12 months would be complaining that housing is unaffordable and would blame the investors.

This would not be a desirable outcome for anyone unless you're planning to sell your property and not re-invest.

 

[Redom]

Agree with Peter - i think it'd have a noticeable increase in house prices.

Out of interest, the ACT is going through a 20 year process of abolishing stamp duty. The intent of doing it slowly (beyond obvious fiscal reasons), is to ensure stability in house prices.

Info here: (http://www.treasury.act.gov.au/taxreform/Documents/factsheet_ConveyanceDuty.pdf )

Even if you matched the land rate increases with equivalent drops in stamp duty, it is likely to still lead to an increase in prices.

Main reasons are financing. The extra saving upfront could be leveraged, meaning that each dollar saved could lead to an extra $5-10 borrowed if servicing allows. This will naturally have an impact on prices.

First Home Buyers are already largely exempt from stamp duty for new properties.

 

[Redom]

What you are describing is what the current ACT government has proposed.

Abolishing stamp duty, but significantly increasing rates and land taxes.

Land Tax in the ACT is also different to other states - there is no getting around it.

Sorry Nemo30, didn't mean to repeat you.

The ACT government have got it spot on in terms of good tax policy though.

Stamp duty is very innefficient, distorts behaviour significantly and reduces liquidity in the market. On the other hand, land tax is much more efficient and quite an effective revenue raiser without distorting incentives.

Andrew Leigh (Federal MP from ACT) probably had a part to play in influencing this outcome. Pretty sure his written extensively on it during his Treasury days.