NSW will scrap stamp duty for first home buyers on existing homes up to $650,000 from July 1 and increase the threshold for new homes to the same level, despite a warning from former Reserve Bank governor Glenn Stevens against “self-defeating” subsidies that inflate house prices .
On Thursday, Premier Gladys Berejiklian announced a long awaited housing affordability package which starting July 1 will scrap stamp duty on first home buyers on existing and new homes up to $650,000. There will also be stamp duty discounts for homes up to $800,000.
These changes are expected to provide savings of up to $24,740 for first home buyers.
Currently, first home buyers are only exempt from stamp duty on new homes up to $550,000. They can also get a reduced rate stamp duty for new homes up to $650,000.
The government will also abolish the stamp duty charged on lenders’ mortgage insurance, which will save around $2900 on an $800,000 property.
The government says first home buyers will save up to $34,360 under its package.
In his report to Premier, former central bank governor Glenn Stevens said he has not been a “big fan” of demand side support for first home buyers, but the government could avoid putting upward pressure on house prices if the support for first home buyers only increased in line with the rise in house prices.
“The real value of the support has declined as dwelling prices have risen, which suggests that thresholds could be reconsidered. Done carefully, the extent of help could perhaps be moved up, carefully, to recognise the price rises that have already occurred, without this measure itself materially contributing to further upward pressure on prices,” he said.
“The more that additional generosity to some is combined with a tightening up in some other area – such as removing the grant given to anyone buying a new home – such that the changes are more or less budget neutral, the more easily it can be defended against the criticism that it is self-defeating by inflating prices.”
Mr. Stevens said the government should spend the money on supply side measures instead if it wanted to solve the housing affordability problem in the long run.
“But I also note once again, for the record, that the government might expect to achieve much more for affordability in the longer run by spending this money in other ways, that would lead to lower cost supply of new housing.”
Ms. Berejiklian said however that Mr. Stevens indicated the government’s measures will not inflate house prices.
“His conclusion to me was nothing that you are doing will have an unintended consequences as far as he could see,” she said.