Economist Peter Abelson has dropped a bomb on Sydney’s madly expensive land market, asserting the usual demand and supply equations have little influence on prices while major positive benefits are available from ending Stamp Duty and using land tax.
His views only came to light after journalist Adam Creighton used FOI to prise his report Housing Costs and Policies with Special Reference to Sydney from the clutches of the NSW government.
“(Even) doubling Sydney’s annual rate of (dwelling) completions from the average of 1.4 per cent per annum … to 2.8 per cent of the housing stock could reduce real house prices by about 4 per cent,” it said.
“The May 2016 report estimated abolishing stamp duty — currently about $42,000 on the median Sydney house worth $1.02 million — would boost property transactions by 25 per cent, freeing up spare bedrooms equivalent to 70,000 houses.
“A broadbased land tax could release a significant amount of under-utilised housing and significantly reduce house prices,” it said. “There is significant inefficiency in owner-occupied housing associated most likely with high movement transaction costs,” the study said, revealing that about 16 per cent of rented homes had a spare bedroom compared to 26 per cent for owner-occupied homes.
“Professor Abelson, who is also the Mayor of Mosman, said land tax was “widely recognised as one of the least distorting taxes available”: land can’t be hidden or created. Stamp duties by contrast “discouraged households from moving to their preferred house size and location, discouraged efficient deployment of workers and encouraged inefficient utilisation of housing space”.
The economics of ending conveyancing Stamp Duty for land tax is a no-brainer. The political problem is its salience: no one likes writing a cheque to Consolidated Revenue.
The ACT’s 20 year move from Stamp Duty to land tax is already four years in, with significant and enduring benefits already apparent, as Dr Cameron Murray shows in The First Interval – Evaluating ACT’s Land Value Tax Transition.
The NSW Business Chamber et al have a good paper out on SD => SLT in NSW. But the NSW Land Tax Management Act 1956 is a shambles, littered with exemptions and wheezes that mean modest land holders pay and big players ride for free. A recent Supreme Court judgement allowed a developer to side-step itys $1m+ annual land tax bill by leasing it for cattle grazing at $17,000 pa. This precedent means no NSW developer need pay land tax if rented to agriculture for a peppercorn.
Australia’s over-reliance on labour and business taxes stifle work and enterprise – a key reason why so many have placed their precious savings in investment property and become rentiers.
We can change all this with a simple, elegant and effective land tax.
The NSW government of Gladys Berijiklianis shows little interest in bold reform, cancelling a very useful improvement to funding fire services with an Emergency Services Levy on land after stern opposition from the well-heeled of Manly. Ironically, this is Peter Abelson’s home ground.