Taxes and red tape have hijacked efforts to rein in housing costs and build more homes, with government charges now accounting for nearly half the cost of new homes in Sydney.
Alarming new research has revealed that buyers of new Sydney house and land packages are being slumped with an average of $576,000 in regulatory costs and taxes.
These charges are almost as high as the $606,000 in land, labour and materials costs required to build houses and have pushed the total average cost of Sydney house and land packages to $1,182,000.
Up to $346,000, or 38 per cent, of the cost of a new apartment in Sydney is government taxes, regulatory costs and charges, according to the Centre for International Economics analysis.
An average Sydney home building project faces seven months of red tape delays, the study showed. Picture: Flavio Brancaleone
The study, commissioned by the Housing Industry Association, laid bare some extreme increases in tax and red tape costs over the past five years.
Taxes and regulatory costs contributed about $417,000 to the cost of house and land packages back in 2019, but the charges have since risen by nearly 40 per cent.
These increases have come despite government pledges to build more homes to ease the housing crisis.
HIA chief economist Tim Reardon said the volume of taxes and other charges showed that governments at all levels were just paying lip service to the housing crisis.
Governments were instead constraining new home building and impeding productivity in the sector, Mr Reardon said.
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Tax charges have added to extreme rises in materials and labour costs. Picture: Lisa Maree Williams/Getty Images
“The term ‘house and land package’ may as well be changed to ‘house and tax package’,” he said.
“Governments have added almost $600,000 to the cost of a new home in Sydney that new home buyers are then required to repay as part of their mortgage for decades.
“New home buyers also have to pay interest on top of that tax. Over 30 years, the value of taxes plus the interest on it amounts to more than the value of the home itself.”
The analysis showed it took over a year, on average, to obtain a development approval for a subdivision in Sydney, while an additional seven months were attributed to unnecessary delays.
“Governments of all tiers appear to have housing as a last priority, given the volume of taxes, charges, regulations and delays they impose on building them,” Mr Reardon said.
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Premier Chris Minns and the NSW government have pledged to get more homes built across NSW. Picture: Justin Lloyd.
“In Sydney, half of the time it takes to get a development approval for land subdivision are unnecessary delays.”
It comes as ABS and Money.com.au research showed those buying new homes in the last three months of 2024 were taking out bigger loans than those buying established houses.
“Financing a new home is now more expensive than an established property, creating a ‘new build premium’ for buyers,” said Mansour Soltani, a property expert at Money.com.au.
“Rising material costs, labour shortages, and developer pricing for quality finishes, energy efficiency, and customisation are key drivers.
A recent home auction that drew more than 20 bidders. More houses are needed to ease buyer competition in the housing market. Picture: Julian Andrews
“Meanwhile, land prices in high-growth areas and ‘sister suburbs’ are also climbing.”
The CIE analysis was an update of a 2019 study, with the differences in the findings of each report suggesting that certain settings in the housing industry may have gone backwards.
Increases in government and red tape charges on new houses added nearly $160,000 to costs over the five years. These costs ultimately fall on the shoulders of buyers.
They included stamp duty on the land and house, GST, land tax, council rates, income and company taxes and more.
Mr Reardon said tax and regulatory costs were strangling the development industry.
“The more governments tax new homes, the fewer homes will be built. Sydney recorded a decade-low 12,500 houses approved in 2024, which (is) nowhere near what is required to meet demand.
“Higher taxes on new housing leads to fewer new homes and higher prices for existing homes. It is no wonder that Sydney is the most expensive housing market in Australia.”
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