Moves to scrap stamp duty and replace it with a new land tax are important first steps to improving property affordability but more reforms are needed, according to the LJ Hooker Group.

The proposal announced by the NSW State Government to reduce the costs of buying a home by offering purchasers a choice of paying stamp duty on settlement, or an annual land tax, will assist in lifting the financial burden faced by many when looking to buy a property. 

LJ Hooker Group’s Head of Research, Mathew Tiller, said while the proposed change is welcomed, broader federal, state and local government tax reform is required to help address issues aced by housing markets across the country. 

“It is important to remember that the proposed change continues to impose a high tax burden on housing, adds cost to purchasing a home - replacing one tax with another tax – and it will further eat into household budgets,” he said.

“We would prefer reform that reduced the overall tax burden that is placed on real estate and improves affordability.

“One negative that has been identified in the consultation process is that the proposed changes will create a two-tier tax system where buyers choose a property based on the stamp duty or land tax status of a property.”

Mr Tiller said the current stamp duty, which was introduced in 1865, is not suitable for the modern property market with the current system reducing affordability by increasing the cost of buying a home.

“Stamp duty entrenches the inefficient allocation of housing by stopping people from buying and selling property to suit their individual needs,” he said.

“It stops people from downsizing and families from upsizing, and as a consequence keeps people in unsuitable homes for longer. In addition, it also prevents people who may need to sell due to a change in their situation such as divorce, death and unemployment.”

Overall, the proposed new land tax will benefit the market by reducing the initial cost of purchasing a property and the associated costs of moving. Importantly for first-home buyers, it reduces the time needed to save for a home. 

Under the proposed changes, residential owner-occupied and primary production properties would pay lower rates than residential investment properties, which in turn would pay lower rates than commercial properties.

The land tax would be an annual tax based on unimproved land value. Existing stamp duty concessions for first home buyers would be replaced with a grant of up to $25,000.

Protections would apply so that the property tax does not result in rent increases without a tenant’s agreement.

Mr Tiller said the proposed changes will also have benefits for the employment sector as the current system stops people from selling their property to moving interstate or regionally for a new job.

“People won’t feel so much pressure to remain in a home or hold onto a property for fear of having to pay such huge amounts in stamp duty, it will free up the market and that is good news for everyone,” he said.