Wood Property
Why first home buyer schemes don’t work

First home buyer schemes could be better.

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First home buyers seem like a good idea but there are some underlying issues.

Let’s say you’re a first home buyer in NSW and the “First Home Buyer Choice” programme has just com in. That means (from 16th Jan 2023), when you buy your first home (up to $1.5m), you get to choose between paying a one off stamp duty bill or ongoing Land Tax. Lucky you 😁

Here are your options – (approx. based on a $1.2 million purchase and subject to the land value of that property),

  • stamp duty – one off payment of $50,875 or,
  • land tax – $2,560 per year (ongoing).

The numbers are interesting, but all first home buyer stamp duty relief schemes around the country miss a fundamental issue which is this. People need to progressively buy and sell easily and with mimimal cost each time. We all need to be able to upsize, downsize or geographically to match life’s different stages. All the time building wealth in our home or investment property.

Tax concessions for just one purchase is only part of the puzzle. The transaction cost of paying stamp duty each time someone moves, makes it expensive. Consequently, people don’t sell. This makes it hard for others to buy and a creates a less mobile workforce.

Successive Federal Governments have also been unsupportive of a change from stamp duty to annual land tax. Partly because, for investment owners, it enables greater negative gearing which reduces federal tax income.

The other flaw in the NSW “First Home Buyer Choice” programme is, who are first home buyers purchasing the property from? If the sellers are buying another property somewhere, they will have to pay stamp duty on that purchase so there is a disincentive to sell. This keeps the market tight and prices high.

Many first home buyers say to us “I only get one chance to buy stamp duty free, so I don’t want to waste it on a cheap property as I will need to sell it in 2 years. But then I don’t want to wait too long either”. It’s a tricky situation.

While the schemes are pitched as helping first home buyers, they really put more money in sellers pockets as buyers can now afford to pay more.

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