NSW budget fails to address lack of housing supply

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THE New South Wales government’s billions of dollars’ worth of budget measures to make the housing market more accessible to buyers may not have been broad enough nor directly addressed the issue of supply to make a big impact, according to some observers.

The introduction of a stamp duty alternative for first home buyers and a shared equity scheme for eligible buyers follows house prices soaring throughout the pandemic, including by 40% in Sydney from the trough in June 2020 to March this year, the quickest and sharpest equity boost on record, according to Domain’s NSW Spotlight Report.

Now, prices are now cooling, the average time a Sydney house spends on the market has increased by eight days since the 2021 low, and housing and units listed for sale are up 8% and 10% respectively – although regional NSW buyers are seeing just a 1% increase in house listings and 13% decrease in units.

“Sellers have become more strategic with their market timing, listing homes for sale while prices remain close to a peak and before additional interest rates rise further puts a strain on borrowing capacity and mortgage affordability,” Domain chief of economics and research, Dr Nicola Powell said.

“This is encouraging for buyers as they slowly take back charge as the supply of properties for sale builds, creating better purchasing conditions, providing home hunters time to contemplate rather than compromise, and ultimately allowing rational decisions to be made. There is greater choice and the pleasure of taking a little time if you’re looking to buy.”

However, Powell said that prices are unlikely to return to pre-pandemic levels.

The NSW government is hoping to bring more first home buyers into the market with its $728.6 million scheme to give the option to pay stamp duty or an annual land tax. Powell said stamp duty is a major source of tax revenue for state governments but it is one of the least efficient taxes with huge economic and social costs.

“Designing a successful tax system for NSW will significantly improve the accessibility of homeownership and reduce the friction of rightsizing our homes based on life stage.”

“Stamp duty reduces property transactions due to the sizeable lump sum and means people are less likely to live in a home that suits their needs. This changes our life decisions, resulting in many people commuting for longer, not changing jobs, or living in a house unsuited to their lifestyle.”

Real Estate Institute of New South Wales (REINSW) CEO Tim McKibbin said that the stamp duty option for first home buyers is positive news, as it allows more money to be spent on the property itself, making them more market-competitive.

“However, if the first home buyer is buying their ‘forever home’, then this option becomes less attractive,” he said, noting that first home buyers do not need to pay stamp duty for a property costing less than $650,000, and concessions between $650,000 and $800,000.

“For first home buyers in the market now, the question is ‘should I wait for the reforms to kick in?” They may be eligible for a stamp duty refund but would still need to fund the stamp duty at the point of purchase. In the immediate term, it may create some hesitation,” McKibbin said.

He also said the budget “misses an opportunity” to bring stamp duty brackets up to date for all purchasers. Over the past 20 years, Sydney’s median house price has increased 280% from approximately $418,000 to $1.59 million, while stamp duty payable for a median-priced house in Sydney has increased 406%, from $14,300 to $72,400.

“For the overwhelming number of property consumers, nothing changes. This reform is certainly not the generational change it was touted to be.”

Reforms narrow: REINSW

McKibbin also said the reforms only benefit first home buyers among domestic purchasers, making them narrow in scope.

The measures announced in the budget apply only to first home buyers and in the case of the shared equity reform, to key workers who are nurses, teachers or police, as well as older singles over 50 and single parents with a child or children under 18 years old.

“Limiting the shared equity scheme to a specific group of people seems unjust and there might be some market distortion, and the sub-$1.5 million segment of the market may come under additional pressure, assuming the reforms result in an increase in first home buyer demand,” McKibbin said.

“Of course, the market’s inability to meet already strong demand with sufficient supply is the crux of the affordability problem. There is nothing in these proposed reforms which address the critical shortage of supply.”

Part of the NSW government’s $2.8 billion housing package was $327.8 million for improving regional housing supply, with $174 million set aside to build infrastructure that will enable the construction of homes.

The shared equity scheme is similar to the new federal Labor government’s policy, which Powell said has the potential to get buyers into the market up to 11 years earlier due to the low deposit needed.

“However, it’s worth noting that it can only help 6% of first-home buyers nationally each year and this comes with the need for applicants to be mindful of their long-term financial position to maintain mortgage repayments and maintenance of the property.”

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