The Stamp Duty Debate

The recent abolition of stamp duty for first home buyers (FHBs) in South Australia and adjustments in Queensland have sparked a significant debate among experts. While these policies aim to support young buyers, there is growing concern about their long-term impact on housing affordability. Research suggests that demand subsidies, such as stamp duty exemptions and grants, may drive up house prices, ultimately making homes less affordable in the long run.

South Australia:

In the 2024–25 budget announced on June 6th, the South Australian government abolished stamp duty for FHBs purchasing new homes. Previously, exemptions were only for homes costing $650,000 or less.

However, brokers in South Australia have expressed mixed feelings about this policy. Steven Voroniansky from Time2Refinance observed a $150,000 overnight price increase for a newly built home following the announcement. This suggests that while the policy might ease entry for some, it could inflate prices, exacerbating affordability issues.

Queensland:

In Queensland, the state government has raised the stamp duty threshold for FHBs from $500,000 to $700,000, with concessions for properties up to $800,000. This change, expected to cost $350 million over four years, aims to align with rising property prices. Premier Steven Miles and Deputy Premier Cameron Dick argue that these reforms offer better support compared to Sydney and Melbourne.

However, critics argue that such demand-side measures only temporarily ease affordability pressures. UNSW professor Hal Pawson highlighted that while stamp duty cuts are popular, they ultimately raise prices for everyone. This sentiment is echoed by the Real Estate Institute of Queensland, which welcomed the changes but called for even higher thresholds and broader eligibility.

A look at the history of first home buyer grants and subsidies in Australia provides valuable insights into their long-term effects. Introduced nationally in the early 2000s, first home buyer grants aimed to offset the cost increases from the GST. However, research indicates that these measures often lead to higher house prices, counteracting their intended benefits.

A study by the Australian Housing Urban Research Institute revealed that demand-side policies have worsened generational inequality and affordability. Unlike countries like Canada and Germany, Australia has focused more on bolstering demand than increasing supply. This approach has led to inflated home values, with first home buyer grants alone responsible for a significant portion of price increases over the past decades.

A Deakin University study in 2012 found that first home buyer grants significantly impacted house prices due to inelastic supply. This inelasticity means that new housing construction cannot keep up with the demand surge from demand subsidies, leading to higher prices. The current market, characterised by high immigration and soaring construction costs, suggests that this trend will continue.

While the abolition of stamp duty in South Australia and the increased thresholds in Queensland provide short-term relief for first home buyers, their long-term impact on housing affordability is highly questionable. Historical studies and economic theory suggest that these demand-side measures may only lead to higher house prices, ultimately making homes less affordable for future buyers. Policymakers need to better consider a balanced approach that includes both demand and supply-side measures, to address the housing affordability crisis effectively.

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