Australia’s deepening housing affordability crisis has prompted policy experts to call for sweeping tax reform centered on abolishing what they label the nation’s most economically harmful tax, a change that could open homeownership pathways to thousands of aspiring buyers and downsizers alike. The proposal was laid out during recent hearings of the Senate Select Committee on Productivity, convened to identify actionable solutions to Australia’s decades-long housing shortage.
Matthew Bowes, senior associate at leading independent think tank the Grattan Institute, argues that replacing stamp duty — an upfront tax levied on property transactions — with a broad-based annual land tax would deliver two major wins: a fairer taxation system and a $19 billion annual boost to national economic output. “All taxes dampen economic activity to some degree, but stamp duty is by far the most damaging of all taxes levied in Australia,” Bowes explained. He noted that the reform would primarily benefit two groups locked out of flexible property market access: young households saving for their first home, and older Australians looking to downsize to more appropriate accommodation after their children leave home.
Despite these long-term benefits, Bowes acknowledged that the reform creates significant near-term fiscal challenges for state governments, which currently rely on the bulk of stamp duty revenue collected upfront when a property changes hands. Shifting to a land tax would spread revenue collection over decades, creating an immediate fiscal gap that states have so far been reluctant to absorb. “When you move from an upfront lump-sum tax to a recurring annual tax, you defer a huge share of government revenue,” Bowes said. “That fiscal gap is the single biggest barrier holding states back from adopting this reform.”
Additional structural barriers to reform also complicate adoption: the current GST distribution framework, designed to deliver horizontal fiscal equalization across Australia’s states and territories, penalizes states that grow their own revenue. If a state’s independent revenue increases after tax reform, its share of federal GST distributions is cut, creating an additional financial disincentive that has discouraged past attempts to change stamp duty policy.
Beyond tax reform, the inquiry has also shone a light on deep-rooted productivity failures that have pushed housing prices higher and slowed new construction, worsening the nation’s housing shortage. The federal government’s National Housing Accord sets an ambitious target of building 1.2 million new homes by 2029, requiring 240,000 new completions annually to hit the mark. While recent data from the Australian Bureau of Statistics shows a strong 29.7% jump in dwelling approvals in February, hitting 19,022 for the month, total approvals over the past 12 months sit at just 196,000 — far below the required annual rate.
The February growth was driven by a surge in multi-dwelling development: apartment approvals skyrocketed 191.2% to 5,399 units, while townhouse approvals rebounded 73.8% from a sharp January drop to hit 2,981. Even with this monthly gain, however, the national pipeline remains too small to close the gap between supply and strong population-driven demand.
Housing Industry Association (HIA) managing director Jocelyn Martin told the inquiry that falling construction productivity over the past decade is a major driver of rising housing costs, with excessive regulatory burden the single biggest drag on sector performance. “Residential construction faces multiple overlapping layers of regulation across local, state, and federal levels — everything from planning and zoning rules to environmental approvals and frequent, complex changes to the National Construction Code,” Martin explained. “Every extra layer adds cost, delay, uncertainty, and risk, pulling resources away from actual home building and limiting the industry’s ability to innovate and scale up output.”
Independent analysis from the Productivity Commission backs this assessment, finding that regulation adds between $135,000 and $320,000 in extra cost to the construction of a single detached home, and between $40,000 and $175,000 for each apartment unit. Martin emphasized that any push to improve productivity does not require cutting safety or quality standards, instead calling for smarter, more streamlined regulatory design. “The goal is to build regulatory systems that meet public policy objectives while allowing the industry to deliver homes efficiently at scale,” she said.
Martin also noted that Australia’s concentrated settlement patterns amplify existing housing pressures, with strong sustained population growth flowing almost entirely to a small number of major capital cities. “This concentration ramps up pressure on housing markets, infrastructure, and labor supply, while making the productivity challenges this inquiry is investigating far worse,” she added. As the Senate committee continues its work, the dual proposals of tax reform and regulatory streamlining are emerging as core policy options to address one of Australia’s most pressing economic and social challenges.