November 2020

This is the 28th in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

Big news this month is the announcement by the NSW treasurer, Dominic Perrottet, of the gradual phasing out of stamp duty. Overall, the big media outlets seem in favour of this change though their enthusiasm seems to vary on the details.

For example, SMH economist Jessica Irvine is in no doubt this is one of the big visionary changes in tax reform, and references reviews stating such. The Allhomes Domain subsidiary (itself a subsidiary of SMH) is a little more circumspect and discusses some of the nuances, especially relating to how this might affect NSW-ACT migration (since the ACT is already deep in the process of this very same long term change). Ultimately, the bottom line is the Allhomes article suggests that this change may place an small upward pressure on entry level house prices – especially those favoured by first home buyers – as there will be one less barrier to entering the market, and this will see more people competing for the available homes. There is some sense that this logic seems somehow counter intuitive since stamp duty for first home buyers has already been scrapped in NSW for properties under $650k anyway.

Core Logic seems to agree however that “replacing stamp duty with a land tax may not reduce the cost of housing, or increase affordability” since the asking price is generally a result of “what people are willing to pay”.

Other definite plusses would be the removal of a major barrier to selling. This is something that SMH and Core Logic definitely seem to agree on. As the SMH article says, “We’re about to get more mobile”.

The perspective put forth in the SMH article include examples such as a family needing an extra room, or inversely empty nesters wanting to downsize; these things and more would become simpler processes with a land tax as buyers will not have to stump up a big one off fee. It seems there is research which has proven that transaction fees like stamp duty are actual barriers to making a change. Over time, agree SMH and Core Logic, the cultural shift that this could create may lead to more efficient use of the housing stock, as well as lower joblessness since moving to where the work is, will be easier.

A logical hop, step and jump very quickly leads to considering to what extent the work from home shift spurred by the pandemic might add into the mix, however CoreLogic states that a snapshot of data, even looking over the last few years, may not be enough to predict whether this is a sound proposition or not.

“… a snapshot of capital growth may not be enough to support the idea that structural shifts caused by COVID-19 have been the reason that regional areas have out-performed.”

Having said that, looking at data from RBA, it appears the 2020 exodus from the capitals is at its highest point in at least the last decade (or lowest, in that the graph measures in negative migration from the cities).

Unable to summarise it any further, CoreLogic states,

“Ultimately, the combination of housing and population data highlights that in some parts of the country, COVID-19 may have spurred an increase in movement to regional Australia. This has at least partially contributed to an offset in the decline of values, or an increase in values, through the COVID period. However, migration data suggests the narrative does not appear consistent across the country, and highlights affordability is also an important driving factor of departure from the cities.”

Like many areas, the rental market has experienced strong shocks to supply and demand in the wake of the Coronavirus. The RBA discusses this in some detail. Vacancy rates have increased for a multitude of reasons, and demand has waned for as many more (think ban on international travel, reduced domestic travel for example). This has created something of a problem for investor profitability in rental properties even if it does give the increasing numbers of renters more choice.

Into the future, RBA predicts that a COVID-19 vaccine will help to fill those increasingly empty inner city pads, assuming international travel effectively resumes. However without a vaccine rent growth will likely remain low.