Housing Affordability is one of the most important problems facing Governments today. My regular readers are aware that I believe that the First Home Owner’s Grant has artificially pushed prices up for properties under $500,000. This is a price bubble that will burst and consequences for those involved are frightening.
I also believe that many properties priced from $500,000 to $750,000 have been suffering from downward price pressure – largely due to the First Home Owners Grant maximizing its benefits at $500,000. Homes that should have been selling for $550,000 have been selling for $500,000. The true and very negative effect of the First Home Owners Grant is more than obvious.
When I purchased my first home I almost choked at the amount of stamp duty (let’s just call it tax) I had to pay the State Government in addition to the purchase price of the house. In New South Wales Stamp Duty is equal to around 4% of the total purchase price. As an example if you buy a home for $1 million, you will pay the State Government around $40,000 in Stamp Duty – this is simply outrageous.
The Government “pretends” to be solving the housing affordability crisis – don’t be fooled because put simply they are not. The Government at a Federal level is unable or unwilling to push the State Governments to co-operate and act in the best interests of the population. Stamp Duty exemption for First Home Buyers in NSW who purchase homes under $500,000 (around 25% of current buyers), does nothing to help the remaining 75% of purchasers in the State.
Our country has layers of tax – in fact if you think about it we are taxed multiple times on the same money and it is quite blatant. Let’s look at an example – A person earning $100,000 per year would pay the Federal Government personal income tax of $26,000, leaving him or her with $74,000 to spend, save or invest. This leaves a disposable income of approximately $1423.00 each week.
With one income, no outstanding car loans and zero balances on all credit cards you would be able to borrow up to $700,000 (depending on which financial institution you choose).
So you have already paid your tax on your income and the rest is yours? Think again. To purchase your home for $700,000 (with a 10% deposit) you pay more tax to the Government, but this time to the State Government.
Stamp duty on the purchase – $26,990
Stamp Duty on the loan – $2461
Registration of the Title Transfer – $184
Registration of the mortgage – $92
The total tax paid to the NSW State Government is $29,727, which is equal to 21 weeks of your total net salary. This is another tax on top of your income tax which you have already paid. Your $74,000 of disposable income is further reduced by the stamp duty tax burden to $44,000 for that year.
You then have to pay mortgage insurance as your deposit is less than 20% of the purchase price which adds another $12,086 to the bill. Add loan establishment and legal fees and your total upfront costs are in the vicinity of $43,000. This of course does not include the $70,000 you needed to give the lender as a deposit on the home. When you combine all of the expenses you easily reach $113,000.
Stamp Duty is an unreliable burden that has been allowed to go on for far too long. It fails miserably in making housing more affordable and is simply a tax on money that has already been taxed. If we then look at GST of 10% which is another tax on money that has already been taxed, the picture becomes clearer that our real rate of tax is enormous.
To save the $113,000 necessary to purchase your new home you would need to save 100% of your income for 79 weeks or around 20 months. You would have to pay zero rent, not own a car, pay zero transport costs, buy no clothing, buy no food and if after all of that you are still alive the Government is ready to tax you. The other option is to save over a very long period of time, pay rent and a host of other expenses and be hit with your larger Stamp duty bill when housing is more expensive and less affordable than it is now in years to come.
I would support increasing GST from 10 to 15% (as an example) to facilitate abolishing Stamp Duty. I would also put forward a more drastic and cost effective measure of abolishing State Governments altogether and creating national streamlined departments and systems. That debate might be best left for another day.
Marquette Turner Luxury Homes on MarquetteTurner.com