Malcolm Turnbull became Australia’s 29th Prime Minister (PM) on September 15, 2015. While the new PM’s popularity is higher than his predecessor, Tony Abbott, many of his peers and constituents are waiting to see what changes he will make to policy, especially in relation to property.
The key areas affecting the property market are tax reform and housing affordability. Given that these are just two hot property topics, what does the new Turnbull government mean overall for the property market?
When Malcolm Turnbull became PM this resulted in a new ministry being selected. Scott Morrison was appointed as the Treasurer and Jamie Briggs as the Minister for Cities and the Built Environment, which is as newly-created portfolio.
According to housing experts this new ministry is very capable with them focusing on the domestic economy, which includes boosting household income and increasing economic stability for all Australians. Undoubtedly housing plays a significant role in Australian life, in both an economical and personal sense. However, escalating home prices, particularly in Sydney and Melbourne, have bought the question of housing affordability to the forefront of the debate.
According to the Property Council of Australia, the appointment of Turnbull and Briggs could lead to a deeper understanding of cities, in relation to the economy and people’s everyday lives. With more than 80% of the Australian economy, in Gross Domestic Product (GDP) terms, being produced in our cities, the Property Council of Australia estimate that the main population growth in Australia is expected to occur in Sydney, Melbourne, Brisbane and Perth. Given this, if these cities don’t perform, then Australia won’t achieve its economic objectives.
Therefore, the key areas of focus for the Turnbull government are expected to be tax reform. At present, 9% of Australia’s total tax revenue is estimated to come from real estate compared to the Organisation for Economic Co-operation and Development (OECD) average of 5%.
The Property Council of Australia (PCA) say they are encouraging a national tax reform that focuses on economic growth. This means looking at and revising the taxes that are deemed as the worst.
Stamp duty is one of Australia’s worst national taxes as it disrupts the decision by Australians to buy or sell property. This is mainly attributed to the fact that stamp duty can add thousands to the cost of buying a home, which puts many prospective home owners off of home buying and making changes to their living arrangements.
The APC suggests that possibly millions of Australians are locked into housing that may not be suitable for them, but they are fearful of added expense, so they stay where they are. This, in turn, reduces economic activity.
The biggest challenge for tax reform in this area is to find a methodology that phases out stamp duty all together. Suggested taxes that will replace stamp duty include a ‘property levy’ of $2 per $1,000 of improved land value, which will be paid annually. This means that property owners who have a median priced home in Sydney will pay around $772 per annum and in Melbourne $550 per year.
Another suggestion is to increase the rate of GST that is currently paid from 10 to 15%. While these proposals sound effective in theory, they also open-up a realm of new arguments.
For instance, while a higher rate of GST may help the government to provide better services and maintain Australia, will this rise have an impact on the cost of living and further reduce Australian household income? This, in turn, could also reduce housing affordability further. Furthermore, if a new property levy tax is introduced will the levy only be charged on newly purchased homes after the introduction date of the new tax, or on all Australian property? If the new tax is paid on all Australia property, then those home buyers who have already paid a hefty stamp duty on their home will be double-taxed and this undoubtedly will spark an uproar.
The new Australia Treasurer, Mr. Morrison is said to bring a solid understanding of the property market and housing affordability issues with him to the new government. This is due to Morrison previously being the Minister of Social Services prior to his new appointment.
Morrison undoubtedly has a view on housing prices and what is and what is not affordable, and what factors will have an impact on Australian home prices and property affordability. Morrison understands that just because Australia currently has sound home construction figures that have spanned over the last two years, this won’t be enough to keep-up with a growing population and current housing demand. Morrison firmly believes that without continued building there will be an increase in rental demand which will push-up rental prices as property availability becomes less. This, in turn, will reduce property affordability further. This means that solutions need to be found in the near future to resolve Australia’s home affordability crisis.
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