Taxation's major impact on housing affordability

Housing is one of the most heavily taxed sectors of the economy

• The housing sector, via land tax, municipal rates, other taxes on immovable property and stamp duties, directly contributes around $51 billion in taxation revenue each year to state and local governments in Australia (about 10 per cent of the total revenue collected by all tiers of government).
• Dwelling ownership and housing construction provide 14 per cent of total GST revenue, despite providing only 11 per cent of economy wide Gross Value Added.

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Source: "Taxation of the Housing Sector" Report (2019) - Centre for International Economics (CIE)

Taxes and regulatory costs add substantially to the cost of housing

• The total outlay made to acquire a new home includes: resource costs (the processes, materials and work that go into creating it), statutory taxes (GST, income taxes, stamp duties, etc.), regulatory costs (cost increases that are created when government policies restrict the supply of land and housing relative to demand), and excessive charges (where the price charged for government services or infrastructure is more than the resources required to provide these items).
• In 2016-17, in Sydney, we estimate that of the total outlay made to acquire a new house & land package in a Greenfield estate (about $841 000), only 50 per cent of this outlay reflects resource costs (about $424 000). The other 50 per cent (around $417 000) is made up of regulatory costs, statutory taxes and excessive charges (which are respectively: 26 per cent, 21 per cent and 2 per cent of the outlay).
• In other cities, as a share of the total outlay, we estimate the regulatory costs, statutory taxes and excessive charges are Melbourne: 37 per cent, Brisbane: 32 per cent, Perth: 33 per cent and Adelaide 29 per cent. See chart below.
• For new apartments in Infill developments, as a share of the total outlay, we estimate the regulatory costs, statutory taxes and excessive charges are Sydney: 37 per cent, Melbourne: 35 per cent, Brisbane: 34 per cent, Perth: 32 per cent and Adelaide: 28 per cent.

"Most of the burden of costs is borne by consumers."

The Centre for International Economics (CIE)

HIA: Tax reform needed to address housing affordability

Whilst the CIE report was delivered in 2019, the situation since its release has only worsened. “While many of the taxes are applied by local and state governments, there are a range of federal financial relations mechanisms that could be used to leverage reforms that directly impact the price of new housing," HIA Managing Director Jocelyn Martin said in 2024.

“The tax that has a direct impact on home ownership is stamp duty. The often large, one-off tax is a major barrier to first home buyers getting into a new home. The added cost of stamp duty often means the difference of being able to buy or not," Ms. Martin continued.

“The Government needs to lead the way via National Cabinet and encourage the states and territories to universally drop stamp duty and replace it with another more equitable and affordable tax. There are also many examples of cascading taxes where a tax paid at one point in the process of bringing a new home to market forms part of the taxable value at a subsequent stage of development further eroding affordability," she concluded.

Regulatory costs on land are driving differences across cities

We estimate the regulatory costs created by the system of zoning and associated development controls are more substantial in Sydney Greenfield development than in other cities, and higher in Greenfield development than in apartment development. This is the biggest factor driving differences in our results.

Most of the burden of costs is borne by consumers

Analysis with an economy-wide model suggests that the majority of the increase in costs from the taxes and regulations will be borne by consumers.

Taxation of the housing sector report: what's inside

Most of this report is devoted to measuring the statutory taxes and regulatory costs in new homes (that is: new house & land packages and new apartments). But, as new housing and existing housing are substitutes, statutory taxes and regulatory costs that are imposed on new houses will, over time, also cause the price of existing housing to rise, which we discuss.

In addition to the bottom up analysis, we also provide a comparison of taxes paid by different industries to illustrate the relative burden in the case of the housing industry. Part of this analysis also includes model simulations to illustrate the incidence of housing cost increases.

This report is structured as follows:

• Chapter 1 sets out the broad economic framework we adopt when considering the impact of taxes and regulation on the cost of housing.
• Chapter 2 uses ABS data to compare how taxes on housing activity compare with taxes on other activities. This chapter includes a model-based analysis which expands this static picture by showing the comparative level of taxes generated by an expansion in some relatively highly taxed industries.
• Chapter 3 provides and overview of our bottom up analysis.
• Chapter 4 sets out our assumptions about the development process which provides a framework for gathering information and setting out the impacts of taxes and regulatory effects along the development process.
• Chapter 5 presents the results of our financial analysis where we do a bottom-up calculation for the outlay homebuyers make to acquire a new house & land package and a new apartment.
• Chapter 6 presents a cross-check on our high-level results.
• Chapter 7 presents our economic analysis where we split the total outlay into resource costs, regulatory costs, statutory taxes and excessive charges.
• Chapter 8 discusses the residual we calculate in the raw the land value, and the evidence we use to interpret this as regulatory cost on land.
• Chapter 9 presents a model-based analysis of the incidence — who actually pays — the tax.

This project synthesises a very large amount of publicly available data and other evidence and presents this in an accessible and coherent framework. The goal is not to perform a cost-benefit analysis on any individual driver of housing costs or government policy. Costs identified in this report should be compared to any benefits created by the underlying policies.

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