ACT land tax policies already cutting mortgage payments, report says
Frank de Jong
ACT moves to bring in a land tax have cut up to $2200 off annual mortgage payment costs and kept house price growth 20 per cent below what it would otherwise be after only three years, a report by economic think-tank Prosper says.
Dwelling price growth in the ACT previously closely tracked the national average, but since the policy's introduction in 2012 had slowed dramatically, meaning the median Canberra home price of $535,000 would otherwise have been $642,000 without the changes, according to the report The First Interval: Evaluating ACT's Land Value Tax Transition, due to be released on Monday.
Over the same period, the average home loan in the ACT has grown 9 per cent to $364,000, while it was up an average 19 per cent in the rest of the country – excluding the Northern Territory and Tasmania – suggesting a reduction in the average loan size of up to $37,000 – or a saving of $2200 per year, it says.
While the introduction of land tax and reduction of other taxes is being done in a staggered manner over two decades, the sudden changes showed buyers were already factoring their future land tax payments in to pricing decisions, report author Cameron Murray said.
"The surprise was just how quickly it seems that everybody adjusted to it," Dr Murray told The Australian Financial Review. "I expected that not to be the case. Within three years everybody's adjusted, with prices reflecting the expectation of additional land tax obligation."
Lowering the pace of Australia's seemingly unchecked house price growth could help the affordability barrier locking many out of home ownership. Broad-based land taxes are also more efficient ways for governments to raise revenue than the current slew of transaction-based taxes such as stamp duty and payroll tax, which push up transaction costs and penalise economic activity. Politicians, however, are wary of policies that push property prices lower and raise taxes for property-obsessed voters, even though mechanisms to stagger, slow and ease the introduction of new imposts exist.
Prosper's Speculative Vacancies report last year showed that almost 20 per cent of Melbourne's investor-owned homes lay vacant.
Last November NSW and South Australia, two states leading the push on tax reform,rejected the idea of a land tax, arguing for a higher GST instead. Canberra residents complain of higher local rates that have accompanied the introduction of the property tax.
The report says the ACT's relatively higher average income levels and economic equality – along with existing policies that already charge developers for changes in land use – made it an easier place to make the changes.
"Translating these reforms to other states requires acknowledging that additional safeguards for income-poor homeowners may be necessary, along with other support mechanisms during the transition period," it says.
Implementation to date has focussed on easing the pain for residential property, and owners of commercial property have had a harder time.
"With price inflation very low, and asset values in this market falling, the effect of the tax transition is to amplify the poor financial conditions for owners of commercial property," it says.
But lower turnover in the housing market and an increase over the same time in first home buyers were signs the policies were also deterring speculative buyers, Dr Murray said.