I keep getting emails telling me about how much more affordable housing has become now that interest rates are declining.
Yet the evidence is wafer thin, with more often than not, an index chart attached to the spruik which needs a magnifying glass and a lot of imagination to see any actual improvement in housing affordability.
Yet the biggest impediment to housing affordability – being stamp duty - isn’t being addressed.
Two tables accompany this post.
| Table 1: Interest rate reduction’s impact on a 30 year, $500,000 mortgage | ||
| Interest rate reduction | Saving per month | Saving per year |
| 0.25% | $75 | $900 |
| 0.50% | $150 | $1,800 |
| 0.75% | $225 | $2,700 |
| 1.00% | $300 | $3,600 |
| Table 2: Stamp duty* paid on a $500,000 purchase of an established dwelling | ||||
| State or Territory | Primary residence | Investment | Transfer fee | |
| 1sthome buyer | Other buyer | |||
| NSW | $283 | $18,215 | $18,215 | $141 |
| Vic | $1,366 | $23,336 | $26,436 | $1,258 |
| Qld | $1,494 | $10,244 | $17,419 | $1,307 |
| SA | $25,485 | $25,485 | $25,485 | $3,992 |
| WA | $18,197 | $18,197 | $18,197 | $261 |
| Tas | $18,589 | $18,589 | $18,589 | $207 |
| NT | $24,218 | $24,218 | $24,218 | $145 |
| ACT | $12,631 | $12,631 | $12,631 | $386 |
Whilst lower interest rates no doubt help, there is a lot of evidence to show that most mortgage holders keep their payments steady and pay off their loan sooner.
In addition, there is little confirmation to show that more are buying or are taking out a larger loan because interest rates are slightly lower.
In fact, the latest figures show that the average new housing loan has dropped by 4% in size over the last 12 months.
Yet most buyers will tell you that the high price of stamp duty is one of the main reasons from keeping them from moving and is the biggest drag on affordability.
A recent investigation by CoreLogic found that 73% of the buyers polled in their study believed that the best way to make housing more affordable to them was to reduce or remove stamp duty.
If you really want to help make housing more affordable and help kick start the housing market is a meaningful way, then stamp duties need to be removed and replaced with a flat transfer fee.
The second table shows how low the transfer fee component of stamp duty is in most states/territories.
Sadly, state governments are now hooked on stamp duty revenues.
My initial response is that stamps should be replaced with a broad based land tax.
But better still we don’t really need to spend as much on infrastructure projects as we do and if we stop wasting money, then stamp duty revenue – at their current high cost – aren’t really needed.
Oh, and by meaningful way, I mean that removing stamp duty will help downsizers move into smaller, more appropriate dwellings, helping free up their larger homes for families with children and it will also help get the ‘sales train’ moving.
Often a new sale is stalled or doesn’t proceed because a buyer cannot sell their existing home or investment property.
Interestingly, 63% of those surveyed in the CoreLogic survey said that appointing a federal housing minister would also help improve housing affordability.
Well Michael Sukkar over to you!
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* Stamp duty includes mortgage transfer fee, transfer fee and stamp duty. Includes electronic transfer in Vic; south of the 26 parallel in WA; Darwin in NT + not eligible for the pension, $120,000 household income with 2 children in ACT.
