Australia’s housing supply problem has many causes, but one of the quietest culprits sits in the tax code. Sourceable contributor Tom Forrest argues that the GST, applied to newly built homes but not existing dwellings, makes new construction uncompetitive on price before a single nail is driven.

Forrest, a property industry advocate, writes that cutting GST from new housing would immediately improve development feasibility and lift supply. The states would lose GST revenue, he concedes, but would claw it back through stamp duty and payroll tax on the extra homes built. The federal government, meanwhile, has collected a windfall from immigration-driven population growth through income and company tax, which could be used to offset state losses.

On affordable housing contribution schemes, Forrest is blunter. He argues the policies, which require developers to hand over cash or floor space whenever a rezoning increases dwelling yield, routinely make projects unworkable. The result, he writes, is that in most suburbs you end up with neither affordable housing nor market housing. Sydney councils including Randwick, Ku-ring-gai, Inner West and Woollahra have all moved to introduce or expand such schemes in the current financial year, often layered on top of state government mandates through Transport Oriented Development and infill bonus pathways.

The one NSW policy Forrest singles out as working is the Infill Affordable Housing Bonus, introduced by the Minns Government in late 2023. It trades a 20 to 30 per cent increase in height and density for 10 to 15 per cent of dwellings being managed by a community housing provider for 15 years before reverting to market use. He describes the parallel TOD policy, which requires floor space to be gifted to a community housing provider in perpetuity, as inexplicably different and less workable.

Forrest also takes aim at the federal budget’s changes to capital gains tax and negative gearing, saying the Albanese Government’s messaging undermined investor confidence in new housing, even though the changes largely protected new builds. The NSW budget, he writes, was a missed opportunity.

For tradies and building businesses, the argument cuts close to home. Fewer feasible projects means fewer contracts, fewer apprentice starts, and fewer hours on the tools. Whether governments act on the GST question before the NSW election in March 2027 will be worth watching.

Frequently asked questions

Why does GST apply to new homes but not existing ones?

Under Australia’s GST rules, newly constructed residential properties are a taxable supply, meaning GST is included in the purchase price. Sales of existing homes are input-taxed, so no GST applies. This creates a structural price disadvantage for new builds relative to established housing.

What are affordable housing contribution schemes?

These are planning policies that require developers to provide cash payments or a proportion of dwellings for affordable housing whenever a rezoning lifts the number of homes a site can yield. Critics, including Tom Forrest, argue they can push projects below the returns needed to proceed.

What is the NSW Infill Affordable Housing Bonus?

Introduced by the Minns Government in late 2023, the scheme offers developers a 20 to 30 per cent increase in height and density in exchange for 10 to 15 per cent of dwellings being managed by a community housing provider for 15 years, after which they revert to market use.

How would removing GST from new homes affect state budgets?

Forrest argues states would lose direct GST revenue in the short term but recoup it through extra stamp duty and payroll tax generated by the additional homes built. He suggests the federal government’s income and company tax windfall from population growth could be used to compensate states during the transition.

Sourced from Sourceable. Original article.