NSW passes stamp duty legislation but will it turn renters into buyers?

In the absence of the complete abolition of stamp duty, the lifting of the exemption threshold for first home buyers is likely to impact regional markets the most.

The median dwelling price across many pockets of Sydney is still too high for the new threshold to take effect.

Legislation passed on Friday (2 June) means first home buyers in New South Wales will be granted increased stamp duty exemptions and concessions from the start of July.

The First Home Buyers Assistance Scheme raises the threshold for stamp duty exemptions for first home buyers from $650,000 to $800,000, and stamp duty concessions from $800,000 to $1 million.

“Our changes will help more first home buyers to take a step onto the property ladder,” NSW Premier Chris Minns said after the bill passed the upper house.

But it will be interesting to see if the changes encourage renters in regional areas who have been struggling with rental increases to shift into the buyer category, as well as Sydneysiders confronted with higher property prices.

To trigger a broader and more meaningful and sustainable impact on affordability, Governments should consider actually removing stamp duty for other classes of property consumers, such as empty nesters.

Many downsizers choose not to move to properties better suited to their needs because of stamp duty. Consequently, big homes are largely unused and expanding families are living in small, over-crowded properties. The urgency for further reform is clear.

Eyes on the RBA

Further rate rises could be on the horizon if the RBA is adamant inflation needs to come back to the 2-3 per cent range. Whether that happens as early as next week is unclear, but many will be holding their breath.

For investors, the impacts of more interest rate rise pain are relatively predictable. The cost of capital goes up, net yields are impacted, yet rents continue to rise as well.

For tenants, more rate rises won’t move the goalposts.

The cost of rent is driven by supply and demand, not landlords’ financing and other costs.

Alarmingly, investors are still selling up in large numbers and choosing other less burdensome investments to put their money into. Rent freezes, crackdowns on rental bidding, forcing landlords to accept pets; all of these moves discourage people from investing in property.

What’s needed is the opposite and the goalposts won’t shift until then. Tenants, invariably, are the ones who suffer from a dearth of choice.

Even RBA Governor Philip Lowe agrees the solution to the housing crisis is “supply, supply, supply”. No demand side reforms can make an impact without being balanced by supply-side action.

Supply-side inaction

The NSW Government is saying the right things. We need more housing and all local Government areas to accommodate their share. Pressure is coming from the top down to quash the NIMBY (not in my back yard) sentiment persistent in so many localities.

The Productivity Commission has called for the CBD and inner-ring suburbs to shoulder more density.

The developer lobby groups agree.

Instead of extending Sydney’s west laterally, the middle ring suburbs need to rise vertically.

Where there’s transport amenity, infrastructure and jobs, there needs to be housing and plenty of it.

That’s the crux of the argument and it’s hard to disagree. Communities rightfully expect that developments in their suburbs will be of high quality and sustainable in an economic, social and environmental sense. But preventing essential new housing must stop.

Talk must lead to action and it needs to happen now. Even if there’s broad acceptance of the need to increase density in established areas, the time it takes for councils to give a sign-off on what’s needed is unsustainably long.

Many investors target the kinds of inner-city areas the Productivity Commission is talking about. It’s reasonable for councils and developers to assume investors would comprise a meaningful proportion of the buyer cohort for these hypothetical projects.

The key is transforming the hypothetical into the reality.