Changes to stamp duty such as those proposed in NSW and long called for in other states could lead to a short-term rise in house prices but would encourage homeowners to move house more often, according to a new report.
The National Housing Finance and Investment Corporation (NHFIC), an agency of the federal government, produced the report, titled Stamp Duty Reform: The Benefits and Challenges.
Among the report's key findings were that dwelling prices would increase in the short-term and the removal of transfer duty would be capitalised into prices - although it did not put a figure on what these rises would be.
The report found that dwelling prices and the number of transactions in the ACT, which has already enacted stamp duty reforms, both rose during the transition to a land tax.
It predicted that this could be mitigated by lenders taking account of ongoing property tax payments in their lending criteria when determining how much to loan a borrower.
The NSW government recently finished a consultation process and issued a progress paper on stamp duty changes which were proposed in last year's budget, which included phasing out stamp duty in favour of an ongoing property tax, but there's still no indication of when the changes would take place.
Real estate bodies in other states, including Victoria, have long called for similar reforms to those proposed in NSW.
'Right-sizing' housing arrangements
The key benefit of abolishing stamp duty would be an increase in mobility for homeowners, according to NHFIC CEO Nathan Dal Bon.
"Encouraging more household mobility through reductions in stamp duty leads to more efficient use of the housing stock which means people can better 'right-size' their own housing arrangements in line with their individual preferences," he said
"Households that are considering downsizing and upsizing, or just seeking more space when they are working at home during COVID-19 wouldn't be penalised under a broad-based land tax compared with the current stamp duty arrangements across most states," Mr Dal Bon added.
The report found that most NSW households would be better off under a land tax system, calculating that it would take "more than fourteen years to be worse off" than they would paying a lump sum stamp duty.
The average holding period for a property is 12.4 years, according to the NHFIC.
It also called for a short phase out period for any changes, stating a longer phase out would cost taxpayers more and lead to increased uncertainty.
When announced last year, the NSW government proposed that new owners would have a choice between switching to a land tax or paying stamp duty upfront.
Phasing in a tax based purely on new transactions would take an average of 23 years, the report found, assuming all new owners opted for the land tax option.