Housing taxation burden rises sharply over five years

The cost of government taxes and regulatory charges on new homes has surged in the past five years, with a new report from the Housing Industry Association (HIA) revealing significant increases in housing taxation across major Australian cities.

The report, commissioned by HIA from the Centre for International Economics (CIE), updates findings from 2019 and highlights the growing financial burden on new home buyers.

According to the report, taxes, regulatory costs and charges now account for half of the cost of a new house and land package in Sydney, amounting to $576,000. This represents a 38 per cent increase, or an additional $160,000, since the 2019 report. Brisbane recorded the largest increase, with tax and regulatory imposts more than doubling—rising by $179,000 or 106 per cent.

For new apartments, the report found that $346,000, or 38 per cent of the cost, is attributed to government-related charges in Sydney. In Brisbane, the tax and regulatory cost component of a new apartment increased by $104,000, or 68 per cent, over five years.

HIA Chief Economist Tim Reardon said the findings underscored the impact of taxation on housing supply and affordability.

“Australia has an acute shortage of housing because governments continue to tax new home building and impede productivity in the sector,” he said.

“In Sydney, governments are adding in excess of half a million dollars to the cost of a new home, which new home buyers are then required to repay for decades as part of their mortgage.”

Mr Reardon said taxation on new housing extended mortgage repayment periods and increased financial pressure on buyers.

“With half of the cost of a new home being taxes and government charges, new home buyers are spending 15 years of a 30-year mortgage just paying off that tax,” he said.

“New home buyers also have to pay interest on top of that tax. Over 30 years, the value of taxes plus the interest on it amounts to more than the value of the home itself.”

Mr Reardon also noted that taxation on new homes had increased significantly in some capital cities.

“In Brisbane and Adelaide, government taxes, fees and charges on new homes have doubled in five years. Not even the best, legitimate investment strategies could achieve that same level of return,” he said.

He added that regulatory delays were further impacting housing supply.

“It takes over a year to obtain a development approval for subdivision, and up to seven months are attributed to unnecessary delays,” he said.

Mr Reardon said taxation policies were exacerbating housing shortages and driving up prices.

“New home building taxes appear to be the target of governments under fiscal pressure, seeking to find other sources of revenue. What they do not realise is that when they increase taxes on housing, there ends up being fewer of them,” he said.

“It is incongruous that governments set home building targets while at the same time taxing new home building even more. The more governments tax new homes, the fewer homes will be built.”

He argued that a review of housing taxation policies was necessary to address affordability challenges.

“If governments were keen to solve the affordability problem, they need to look at the tax they are imposing on new housing,” he said.