Development levies, stamp duties, and housing affordability

The resulting uplifts for property owners do not represent a loss of affordability, because they are caused by improvements in utility, not higher prices for sites of given utility; moreover, improved "utility" is often realisable as a recurrent cash saving or cash flow, in which case it pays for itself from the viewpoint of potential buyers and renters.

Meanwhile, the SWT (in lieu of other property transfer taxes) improves affordability by lowering the barriers to development (a prerequisite for building) and to property sales (which are correlated with building), thereby loosening the supply of accommodation and improving the competitive positions of buyers and renters relative to sellers and landlords. Improved affordability does not mean a loss for existing property owners - it only means that their gains must come through improvements in utility, not through the desperation of buyers and renters. It is analogous to making a bigger cake so that everyone can have a bigger slice.

But would everyone get a bigger slice? In other words, can the SWT be designed so that it does not create a class of prospective losers who would campaign against it?

If every property sold after a certain day ("D-day") pays SWT on the real increase in the site value since acquisition, even if acquisition occurred before D-day, then the continuing turnover in the property market will cause a steady stream of SWT revenue to start immediately, allowing the immediate abolition of existing property-transfer taxes.

That turnover will also ensure that uplifts due to infrastructure projects are immediately reflected as increases in revenue. But vendors who have received large uplifts before D-day will pay more tax on those uplifts than they would have paid under the old system, and might therefore allege that the SWT is retrospective.

Such complaints will be prevented if a taxpayer disposing of a property acquired before D-day has the option of paying tax as if the property had been sold and bought back (at market price) on the day before D-day. Under this option, any property vendor who pays more tax than would have been payable under a continuation of the old system does so solely because the site has appreciated in value after D-day - in which case the taxpayer is not a "loser" and is not "retrospectively" affected.

The exercise of this option does not affect the financing of infrastructure, because uplifts caused by infrastructure after D-day are still immediately reflected in higher SWT receipts through normal market turnover.

In conclusion, housing would be more affordable if development levies, betterment levies and conveyancing stamp duties were replaced by a site windfall tax (SWT) - that is, a tax payable on the transfer of a property and equal to a fraction of the real increase in the site value since the last transfer, with a deduction for any cost incurred by the taxpayer in contributing to that increase (for example, infrastructure built by a developer).

To avoid claims of "retrospectivity", a taxpayer disposing of a property acquired before the introduction of the SWT ("D-day") could be allowed to pay tax as if the property had been sold and bought back (at market price) on the day before D-day. All legislation necessary for the tax reforms and the sharing of SWT revenue could be enacted at the state or territory level.

These reforms would not only improve housing affordability by lowering the barriers to development and sales, but also bring some consistency and logic to what has been a fragmented and arbitrary area of taxation.