Small budget hit for big affordability gain
A lack of housing diversity is undermining attempts to make housing more affordable and new initiatives are needed before the market takes off again in Perth
Putting aside location differences it is reasonable to assume the size of homes corresponds to their price. Smaller homes like units and apartments would be more affordable than larger stand-alone houses. However only a third of home sales in Perth are units and apartments. Nationally more than half of home sales are units and apartments. In Sydney over 70% of home sales are apartments.
This analysis partly explains how people in Sydney and Melbourne can still hope to afford housing while property prices are rising sharply.
Unlike much of Australia property values in Perth have not risen in recent years which should make us more affordable. The problem is that a lack of smaller homes like units and apartments means the full benefits of the recent house price affordability boost in Perth are not being realised. Worse still, once the market takes off again in Perth, which is overdue, we will find ourselves in severe housing affordability stress again. It is worth remembering that just five years ago, the median house price in Perth was the same as Sydney.
There are lessons from the larger cities like Sydney and Melbourne in supplying more units and apartments. Ten year ago, both cities introduced stamp duty concessions for off-the plan property purchases where construction of the apartment building or new home had not commenced.
In Adelaide, the stamp duty concession was localized to postcodes ear-marked for greater housing density.
A stamp duty concession would suit buyers of both apartments and houses sold off-the-plan, however its application has greater significance for apartments which are traditionally pre-sold off-the-plan in Perth.
There is also an equity argument in favour of the concession. When you commit to buy a dwelling off-the-plan and prior to construction, it is unfair to have to also require the purchaser to pay stamp duty for the built outcome.
This stamp duty concession will come at a cost to the state Budget but it’s worth it. Research by Urbis reveals the hit to stamp duty revenue to the WA budget in 2016 would have been $22 million. However, there would be more unit construction over the longer term if the concession was applied and this would help affordability as well consolidating development around existing infrastructure, which will be a huge saving to the budget.
It was the introduction of initiatives like a stamp duty concession for off-the-plan purchases in Melbourne 10 years ago, that helped to kick-start that city’s urban renewal and inner-city lifestyle attraction.
Other reforms would also be needed to create more housing diversity, including planning changes to permit more housing density around suburban centres and stations. However, it is clear from the capital city comparisons that the long-term solution to housing affordability in Perth includes more housing choices. A small hit to the state budget is a small price to pay.