A tax for everything
If we want to encourage more people to enter the housing market, there needs to be some incentive for them to do so.
Buying a home is a great dream for many young Australians, and will probably stay that way at least in the immediate future. For those of us who do take the plunge into debt, we are faced with a very ugly word repeatedly: TAX.
For a first home buyer or even a young player who might not be as familiar with the “T” word as our parents are, it can be a very disheartening experience to allocate such a large chunk of your guarded little nest egg to your lender and the government.
Pulling the deposit together is a big enough task without factoring in all the pricey and, in some cases, seemingly unnecessary extras (could someone please justify to me why I need to pay a registration tax for my mortgage? Surely having the mortgage in the first place is enough of a commitment, without being slapped in the face with another monetary request?). Don’t even get me started on stamp duty….
Beware the other naughty word: FEE. This may not sound as harsh as TAX but it sure means the same thing: more money. As hard as you try to assure yourself that all of the little (sometimes hidden) fees and charges, that do add up to be quite a lot of money in the end, are entirely worth it because it’s one step closer to being a home owner, it really is downright unfair.
If people really want to understand why housing affordability is such a scary problem in this country, we need to look beyond just the pricing issue. It’s not as simple as believing that if house prices and interest rates start to fall, home buyers will come out of the woodwork.
A prospective buyer who has been there before or has done their homework will know that they will need a fair chunk of cash set aside purely to spend on everything but the property itself – solicitors fees, building, strata and pest inspection fees, fees to establish your home loan, fees to allow the government to approve the purchase of the darn property in the first place, and the list goes on. For those first home buyers who think the first home buyers’ grant will get you places, let me break it to you gently….it will be gone in the blink of an eye.
We need to look at the housing affordability crisis from a holistic point of view. To mandate that vendors and landlords ask for realistic selling or rental prices is not enough. Financial institutions and all levels of government need to get in on the act and look at what they can do to help out.
I said I wouldn’t go there but I have to. Stamp Duty. What the hell is this tax for anyway? Such a hefty sum of money is enough to put anyone off who operates on even the most flexible budget. I can’t see any good reason for it not to be abolished entirely, and if it must stay, revising the rate at which it’s calculated has got to be worth a try. The introduction of concessions, differing from state to state, for first home buyers, investors and so forth is a good start, but fails to help the bulk of Australians who end up qualifying for nothing.
Leading banks and lenders should be prepared to reward customer loyalty as a first and foremost priority. Charging a fee for every time someone picks up a pen or presses the print button is rather insulting. If we want to encourage more people to enter the market, there needs to be some incentive for them to do so. Customers want to feel as though lenders will compete for and value their business, rather than operate on the “they’re all the same” mentality.
That all being said, there is nothing like having a roof over your head – your roof – even though you might only own one tile on it for a number of years. It should be a very serious goal in this country to have as many Australians as possible embrace the idea and, more importantly, realise the dream of purchasing their own home. Though until the right people come to the party, a realistic and plausible solution is about as likely as introducing an appropriate strategy for paid maternity leave….but that’s another blog!
Alison Gordon is Manager, Client Services, with Global Access Partners.
Douglascomms
October 7, 2008 at 10:20 pm
providing infrastructure
I've lived in places where there's no taxes on property purchases, no council taxes and no rates. No stamp duty, no naughty words like government fees.
Because there are no taxes there's no urban infrastructure – there's no sewerage system, no reliable electricity or telephone lines, no paved roads and no garbage collection, no independent or church schools, no safe roads, no parks, no pound or dog catcher.
Rather than rail against taxes, sit back for a minute and attempt to calculate how much it would cost for you as a private individual to organise the services you need to survive in an urban setting.
Electricity connection back to the mains would hit you up a couple of grand a metre, a septic tank will cost you $5000 – $10 000 for installation, digging a bore and setting a pump will set you back $15000 – $45000, private rubbish collection will cost you about $4000 per year, private security services for your house will set you back at least $15000 per year (remember without taxes we have no police, ranger, youth intervention, catholic schools, department of community services or any of the rest of the social infrastructure on which you depend). Add another $5000 for extra medical costs caused by the poorly maintained raods, and lack of public order and you've got a very costly, and very miserable situation.
All this is before you get mugged or bitten by a rabid dog.
Taxes enable us as a community to take advantage of economies of scale, and provide the infrastructure which separates civilised societies from third world countries. Don't make the mistake that the paultry sum you pay in stamp duty, and government fees when you buy your way into the housing market is spent on anything other than providing YOU with the infrastructure you need to survive in a modern urban environment.
There are places where taxes aren't collected, they're called failed states.
alison gordon
October 8, 2008 at 1:55 am
refining the point
In case the point of my blog wasn't clear, I'm not suggesting we abolish all taxes. I understand the basic arrangement that if you don't pay taxes, governments can't provide infrastructure and so forth. All I was saying was that the total amount a home buyer has to allocate solely to "tax" seems a little unfair and possibly a good explanation as to why some people avoid the prospect in the first place.
The debate over whether stamp duty should be abolished is quite a hot topic at the moment, it would seem I'm not the only person who questions its purpose and validity.
Douglascomms
October 9, 2008 at 11:25 pm
the stamp duty conundrum
If we look then specifically at stamp duty. You're not liable for stamp duty on your first property, so no – it dosn't discourage home ownership – it's actually a duty to discourage people from engaging in property speculation.
When you are buying multiple properties you are not buying homes – you are engaging in property speculation, which is in large part why we are in the mess we're in in terms of home ownership and affordability. I'd argue that stamp duty should have been raised significantly about five or six years back when the previous government was calling an unsustaible speculative property bubble economic growth. It wasn't then and it isn't now. In fact the global financial meltdown has in large part been caused by governments abrigating their responsibility to ensure their populations had access to affordable housing, opening up the market for cheap credit rather than increasing government investment in community and affordable housing projects.
Indiviuals who own multiple properties aren't investing in anything which contributes to the economy in any way – in the current market they are taking unecessary risks with their own financial well being. Stamp duty is a way to make property a fixed rather than liquid asset. As such stamp duty in no way discourages people from entering the market – it discourages people from engaging in damaging and dangerous investment practices.
Young Australians especially should not be encouraged to take on debt in order to extend their presence in the property market any more than they should be encouraged to take on debt in order to invest in the stock exchange. To do so is to gamble with their future and the economic stability of the nation.
olgabodrova
October 10, 2008 at 1:12 am
Question to the previous commentator
The issue of investment property aside, I'd like to ask whether the following scenarios make you a property speculator:
I think your argument is flawed.
Douglascomms
October 10, 2008 at 3:13 am
An intelligent and well illustrated point
An excellent point, there are some circumstances in which people find themselves needing to move house and change property ownership, and I agree you are right there is an argument for stamp duty exemption to account for necessary changes to property title. I'd even take your point further and say there's no reason for the government to prevent individuals from moving house at all.
Ultimately it wouldn't be that difficult to implement either – you simply create a mechanism which enables individuals to apply for a refund once they've settled into their new home.
Given you actually understand the issue, perhaps this is apoint you could bring up with Minister Tanner, as it is a perfect example of the difference between simple de-regulation and strategic regulation.
What we need to do in ensure that investment funds are fulled into real IP-generating invesment and not speculative bubbles which are demostrably destructive both to the invesment community and the economy more broadly.