Removing stamp duty will likely provide homeowners an opportunity to find the right home that fits their needs, according to the latest research by Domain.

Domain chief of research and economics Dr Nicole Powell said replacing stamp duty may drive more “fit for purpose” living choices and optimal use of the current housing stock.

“Bedroom capacity by home ownership status implies that Australians may not be living in dwellings that suit their current needs,” she said.

“Rightsizing our homes should be encouraged by the removal of stamp duty, although this needs to be met with a diverse array of housing to meet the aspirational needs of our ageing population.”

The study came amid reports of New South Wales Premier Dominic Perrottet seeking support for reforms that would allow homebuyers to have an option to pay annual land taxes instead of an upfront stamp duty.

Reports say that under the reforms, a broad-based land tax would be introduced in New South Wales but the top 20% of residential properties in the state in terms of price would continue to pay stamp duty.

Stamp duty keeping Aussies from rightsizing

The Domain research found that the average number of bedrooms has been rising at a time that the average number of people per dwelling remained steady.

Dr Powell said many Australian households are living in dwellings that have multiple spare bedrooms, which indicate a “misallocation of housing”.

“Spare bedrooms are more common among owner-occupiers than private tenants, suggesting the upfront transactional costs associated with purchasing a home are deterring homeowners from downsizing or younger families planning for their future housing needs sooner,” Dr Powell said.

Rightsizing appears to be more common in the rental market — in fact, 32.1% of homes in the rental market are considered to be in the correct size, higher than the 7.6% of fully-paid homes and 16.4% of homes with mortgages.

Multiple bedrooms are more common among homeowners, with 55% having at least two extra ones.

“It suggests owner-occupied dwelling choices are less fit for purpose relative to those that are being rented,” Dr Powell said.

Dr Powell said many homeowners are choosing to stick to their properties believing that they could “claw back” the cost of stamp duty the longer they stay.

“Removing stamp duty may encourage housing turnover — the large upfront cost of stamp duty distorts decisions we make around housing and can be a disincentive to move."

Dr Powell believes that shifting from stamp duty to a property tax could improve housing affordability by reducing the upfront costs of buying a property.

“This could boost purchasing power, enabling first-home buyers to enter the market sooner.

“It will be important to understand the intentions of the NSW government over time to ensure the serviceability of this “forever tax” does not become a challenge.”

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