Red tape and taxes are strangling supply of housing and forcing up property prices: report

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Megan and Dale Howard, with kids Airlie, 4, Emeline, 8 months, and Loki, 7, bought a house in Caddens. Picture: Brett Costello

Taxes and red tape have been driving up Sydney property prices and now account for half the cost of a typical house and land package.

New research showed the charges totalled an average $417,000 for each transaction, lumping Sydney buyers with the largest tax burden in the country and feeding the highest property prices in the southern hemisphere.

Levies and taxes — including direct charges to buyers, along with government charges developers pay and pass on to consumers — accounted for about a third of house and land prices in other capitals.

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Taxes and regulatory costs comprised 37 per cent of Sydney unit prices, which was also the highest in the country.

Sydney costs were higher because of greater delays from red tape, according to the Centre for International Economics study commissioned by the Housing Industry Association of Australia.

It takes almost a decade for many housing developments to get off the ground.

“Getting a Sydney housing development approved is just as hard as trying to get the go ahead for Adani,” HIA chief economist Tim Reardon said.

The Association’s NSW director David Bare added that it took most projects almost a decade to get off the ground, resulting in “cascading” costs from red tape and taxes.

These expenses included stamp duty on the land and house, GST, land tax, council rates, income and company taxes, which combined to raise almost $180,000 in taxes on a typical house and land package.

This excluded an additional $40,000 in development charges and the $220,000 incurred in red tape costs from site inspection fees, building levies, energy reports, soil testing and numerous other fees.

Mr Reardon said the charges were so excessive that housing taxes were nearly level with “vice taxes” such as cigarettes and alcohol.

“The difference is that housing is a necessity,” he said.

Multiple levels of government were slow to change the current system because they were overly reliant on tax revenues, Mr Reardon said.

The CIE study showed housing was responsible for 10 per cent of revenue raised across the three tiers of government and 14 per cent of GST revenue.

Real Estate Institute of NSW chief executive Tim McKibbin said governments were “addicted” to property taxes, despite evidence they were strangling the supply of new housing.

This, in turn, was driving up home prices, he said. “Governments talk about trying to solve affordability problems but their taxes directly add to prices,” Mr McKibbin said.

“It’s economics 101. If you decrease the supply of something while there is still high demand the price will go up.”

Property Council of Australia director Jane Fitzgerald said most buyers didn’t even realise how much tax they were paying as many government charges were hidden out of sight.

“They are the second largest cost of a new home after the construction itself,” she said.

“By inflating the cost of a new home, these taxes and charges add to the size of a mortgage, meaning that Australians are having to borrow more just to pay costs imposed by government.”

Sydney developers face more red tape than in other capitals.

First home buyer Megan Howard and her family recently moved into a new house in Western Sydney estate Caddens and said they didn’t realise such a big chunk of the $730,000 they paid was taxes.

“It explains why it was so expensive,” she said. “We got a good arrangement and we’re first home buyers so we only paid $800 in stamp duty but the land was expensive for the size.”

Financial planner Vik Anand purchased a Thrive Homes house and land package in southwest Sydney estate Oran Park for $758,000 and was hoping government would make changes.

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“The government really needs to step in to reform the (tax) structure,” Mr Anand said. “People are doing it tough and it’s because of land prices.”

Developer Legacy Property CEO Matthew Hyder said an inefficient planning system was compounding the delays from excessive red tape.

“Developers can respect the need for certain tests and regulations but the problem is that you have to deal with multiple departments that don’t talk to each other,” he said. “This can add years to each project so housing is more expensive to make and buyers end up paying more.”

NSW Treasurer Dominic Perrottet said government had a responsibility to provide infrastructure and this required “significant investment”.

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