Tiny houses are one way young people can afford real estate, but experts say scrapping stamp duty would help more
Jonty Dalton and Lucy Smith are about to achieve the Australian home ownership dream, but on a smaller scale.
Rather than wait for house prices to go down or new government support to be announced, the Hobart couple have found a different solution: a tiny house.
“It gives us everything we need for a much smaller cost than the cheapest of what’s available on the real estate market,” Jonty told The Business.
It’s not suitable or attainable for everyone, but Jonty and Lucy, both 25, felt they had to find another path into home ownership as younger Australians are squeezed out of the market — especially in Hobart, where property prices have risen significantly.
“It doesn’t seem like we’re going to be able to own a house until we’re 40 or 50, if ever,” Lucy said.
They’re not alone. The Australia Talks National Survey 2021 found 65 per cent of Australians in general think owning a home isn’t really an option for most young Australians anymore.
With home ownership still out of reach for many young Australians, many experts are calling for policy reform to improve the situation.
“Housing affordability, which has been a long-running issue … is again back as a really serious problem that young people face,” Curtin University professor Rachel Ong ViforJ said.
It’s left some locked out of the traditional housing market and unable to take up government assistance schemes, resorting to unconventional options like tiny houses.
In regions from south-west WA to south-east NSW, tiny houses are also being used to provide social housing to those at risk of homelessness.
How much does a tiny house cost?
For Lucy and Jonty, the cost of their tiny house was around $120,000, including solar panels.
That compares to the median Hobart dwelling value of $574,543, according to CoreLogic figures from May.
Their solution isn’t an option for everyone — for one, they needed a friend willing to let them use their land for a much smaller rental cost than buying their own block.
And it still requires a deposit. Jonty and Lucy were assisted by family by being able to live at home into their 20s, saving on rent and allowing them to get the deposit together more quickly. The tiny house deposit was much less than the average house deposit.
There were also council restrictions to navigate.
But it means they’re now committed to a seven-year loan, instead of staring down the barrel of a 30-year mortgage.
“Tiny houses offer an affordable living solution that gives you everything you need for a much lower price,” Jonty said.
“In a way, that’s different to any kind of system we currently have.”
Stamp duty adds to deposit hurdle
The deposit is the major hurdle for today’s first home buyers — as property prices rise, so does the size of the 20 per cent deposit.
If you can’t save a 20 per cent deposit, it may come with an added cost: lenders mortgage insurance (LMI), a charge on the home buyer that protects the bank from losses if the buyer can’t repay the loan.
There are several federal government schemes aimed at reducing the time people need to save before they can buy a home.
“[The schemes] acknowledge that the barrier for first home buyers predominantly is getting that deposit together, particularly in a low interest rate environment like we are at the moment,” Federal Housing Minister Michael Sukkar told The Business.
“I think it’s for that reason that we’ve seen first home buyers at their highest levels in nearly 15 years.”
The First Home Loan Deposit Scheme and the Family Home Guarantee for single parents allow buyers to avoid LMI on purchases with deposits of less than 20 per cent, with the government providing a guarantee.
However, there are caps on the number of places in the schemes each financial year, as well as caps on the prices of the properties that can be purchased, which vary based on location.
A separate scheme allows first home buyers to save towards a deposit within their superannuation fund, up $50,000 in total following changes in this year’s budget, and have those savings taxed at a lower rate.
“Those schemes are really quite restrictive in nature and they’re quite limited in the number of people that they can actually help,” housing affordability researcher Rachel Ong ViforJ said.
“While only very few people get helped by these schemes, house prices have been skyrocketing again.”
LMI is just one of the additional costs for would-be home buyers. Another is stamp duty, which is charged at the state level.
“Stamp duty is absolutely, from an economic efficiency point of view, the worst tax,” independent economist Nicki Hutley said.
The ACT has been phasing out stamp duty in favour of land tax for several years. The South Australian and NSW governments have proposed similar moves.
Several states also have stamp duty concessions for first homes purchased under particular prices.
The recent NSW intergenerational report found the need to pay upfront stamp duty typically adds 1.8 years to the time it takes to save for a deposit.
“It would be very meaningful to have that change away from stamp duty,” Ms Hutley said.
Potential ‘painful solutions’ to the housing problem are politically unpopular
The deposit schemes and stamp duty concessions may make it easier for some would-be buyers to save the required amount to enter the market.
However, they also add to the demand for housing and therefore contribute to higher prices, as more people try to jump into the market sooner.
Professor Ong ViforJ says additional reform is needed, to reduce tax incentives for housing investors.
“Many of them already own a family home, but they’re seeking that attractive investment by purchasing the second or the third property,” she said.
“All these concessions that are in place are actually over-stimulating demand for housing and we could look at reforming them.”
That’s not politically popular, however.
“They’re painful solutions … we do need political leadership and willingness amongst our policymakers to execute them,” Professor Ong ViforJ said.
Labor lost the 2019 federal election after campaigning on scrapping negative gearing for existing properties and halving the capital gains tax discount.
Ms Hutley said the modelling had shown changes to both those tax breaks would improve affordability, in the near-term at least.
“Unfortunately, as is so often the case, good economics doesn’t necessarily marry up with what’s politically expedient to do,” she said.
In New Zealand, the government has made significant changes to tax concessions, including removing tax deductibility for mortgage interest costs for property investors.
Housing Minister Mr Sukkar said the government would not consider similar changes.
“The more you tax something, the less of whatever you tax you get, and our view very clearly is the last thing the Australian homeowners and Australian investors need are more taxes on housing,” he said.
Experts want young people to be considered in housing policy going forward
Long-term planning across the states and territories is key to addressing housing affordability, Ms Hutley says.
She’s calling on governments to look at the drivers of high prices, which she describes as “very simple economics”.
“We’ve got a lot of people demanding properties in areas where the supply is limited, so we can increase density in some of those areas,” she said.
“Or we can improve amenity in further-to-reach areas so that people can travel more easily, better their access to schools and hospitals and retail … or we can encourage regionalisation.”
For now, the COVID-19 pandemic has put the brakes on immigration, the source of Australia’s population growth and some of the demand for housing.
Ms Hutley says the proof that increased supply does limit upward pressure on prices can be seen in the apartment market.
“You haven’t seen apartment prices go up nearly as much as standalone houses, but of course with COVID, there’s been much more demand for those standalone houses,” she said.
Changes to zoning, planning and the construction and infrastructure pipelines are not immediate fixes.
In the meantime, many would-be buyers remain in the rental market, while those struggling to access rentals may turn to social housing.
In Hobart, the housing situation is particularly fraught — house prices have climbed sharply and there’s a lack of affordable rentals, with a very low vacancy rate.
“We’re hearing from young people that housing availability and affordability is incredibly challenging,” Youth Network of Tasmania chief executive Tania Hunt said.
“Young people are finding it hard to afford to break into the private rental market.
“We have young people who are on the social housing register, who, unfortunately, are only allocated a small percentage of social housing in our community.”
Ms Hunt says young people need to be at the centre of government housing policies, and hopes the recently re-elected Liberal government in the state will deliver on a number of commitments, including more social housing.
“I think that those initiatives are really a good step in the right direction, but we do need to see a lot more to support young people into affordable and appropriate housing in our community.”
The Australia Talks National Survey asked 60,000 Australians about their lives and what keeps them up at night. Use our interactive tool to see the results and how your answers compare.
Then, tune in at 8:00pm on Monday, June 21 to watch hosts Annabel Crabb and Nazeem Hussain take you through the key findings and explore the survey with some of Australia’s best-loved celebrities.