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Explainer: Do taxes on property cause high house prices? No.

www.macrobusiness.com.au
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Housing industry lobbyists in Australia and abroad often claim that property-related taxes comprise a large and growing share of the price of new housing and are hence pushing up the market price of new and existing dwellings. Land taxes, stamp duties on property transactions, GST on value-added investments, and other fees and charges are generally
Housing industry lobbyists in Australia and abroad often claim that property-related taxes comprise a large and growing share of the price of new housing and are hence pushing up the market price of new and existing dwellings.

Land taxes, stamp duties on property transactions, GST on value-added investments, and other fees and charges are generally included in this analysis, as are many inferred price effects that are assumed to be due to regulations.

This note explains four reasons why the claims of this tax summation approach are not valid.

Many of the included costs are not taxes on new housing. Adding indirect taxes double counts. Assumed price effects are implausible. Taxes on property assets reduce market prices, not add to them.

A persuasive tax story

Lobbyists for property owners and developers often circulate in the media personal stories about the burden of taxes on new home buyers. Behind these persuasion efforts typically lies an economic analysis of taxes and new housing by CIE economic consultancy based on a "tax summation" approach (and often not publicly available).

For at least two decades, the Housing Industry Association (HIA), Property Council of Australia (PCA) and the Urban Development Institute of Australia (UDIA), have used this strategy.

Three of these tax summation reports are summarised in Table 1. The estimated share of the median new dwelling price that reflects total taxes was 24.6% in Sydney in 2009 and 50% in 2019. In that time, Sydney dwellings increased in price from $663,000 to $841,000. Total estimated taxes related to the production of new dwellings went from $163,000 to $417,000.

The economic reports that sit behind these claims use a tax summation approach. All taxes, fees, or charges that are related to property ownership, transactions, or housing production, are added together and compared to the market price of a new dwelling. Table 2 shows the typical inclusions in the tax summation approach. The included taxes…
Cameron Murray
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