Courtesy of The Australian
12.03.2025
Anyone taking out a mortgage to buy a new home is right to be horrified that half of the cost of their purchase goes straight to tax, regulation and infrastructure charges. These costs have grown as much as 106 per cent since 2019 and represent up to $576,000 for a new-build house in NSW. The situation is the same in other states. As we report on Wednesday, government-imposed charges make up 43 per cent of outlays in Melbourne, 41 per cent in Brisbane, 36 per cent in Perth, and 37 per cent in Adelaide and Hobart. Government imposts on new apartments and infill developments total 38 per cent in Sydney, followed by Melbourne, Brisbane and Perth.
It now takes longer to get approvals than to build a house, including an estimated seven months of unnecessary delays. Development approval for a subdivision takes more than 12 months, nine months to gain planning permits, and just six months to build a dwelling. Higher interest rates and increased workplace regulation and compliance costs add to the burden.
While a lot of the focus rightly has been put on the failings of local government in making suitable land available for development, this is only part of the story. Research by the Centre for International Economics, commissioned by the Housing Industry Association, shows that about 10 per cent of total revenue collected by all tiers of government is from taxes on the housing sector. The GST plays a significant part, with housing accounting for about 14 per cent of total GST revenues when the costs of housing construction and dwelling ownership are taken into account.
Housing is rightly a hot-button issue across the electorate given the high costs and barriers to entry. But while government schemes to build additional housing may have some impact at the margins, they are no substitute for getting the big things right.
This includes ensuring that dwelling numbers can cope with immigration targets and that policies designed to assist with cost-of-living pressures do not simply inflate housing costs further or push the pain elsewhere. The protest-focused Greens have been quick to tap into community disquiet about the cost of housing and rents but they are short of realistic solutions. Capping rents or lifting taxes for investors is likely to further reduce supply, not prices.
The federal government’s plan to become more involved in house building, with a target of 1.2 million dwellings, belies a history of failure where this has been tried elsewhere. It also wants superannuation funds to invest in rental property. The federal opposition says it will have a lot to say on the issue during the election campaign. But in responding to the political challenge, the major parties must be careful not to make things worse.
The HIA has called for a freeze on GST on housing to ease the cost burden. HIA chief economist Tim Reardon argues that housing is a necessity and should be exempt from GST, similar to other essentials.
The difficulty is that the 14 per cent of GST revenues generated by housing-related imposts cannot be replaced easily. Removing the GST from the building sector would significantly complicate the tax system and shift the burden to other sectors. It would put even more of the financial strain on wage earners already caught in a spiral of bracket creep. Young workers who are least able to afford a house will bear a disproportionate share of the cost.
The real answer lies in removing the heavy hand of government from across all areas of the economy by streamlining approvals and reducing bureaucracy to what is absolutely necessary. This is something that applies not only to housing but also should be a mantra of reform-minded government – to get it out of the way of enterprise and off the back of those wanting to make their way in life.
The housing sector provides a perfect illustration of how big government works against the interests of those it purports to represent. In a world in which a shortage of housing stock amplifies the generational inequities already baked into the challenge of an ageing population, slugging new houses with high taxes, over-regulation and numerous workplace imposts is simply bad policy. Together with a declared government agenda to increase the cost of employing young tradespeople who are being tempted by less onerous work in a care economy on the government tab, the challenge to national productivity is clear.