Competing NSW housing policies could put ‘inflationary’ pressure on prices, economists warn

The much-vaunted housing relief packages proposed by Labor and the Coalition in New South Wales are both "much ado about nothing", experts say, warning they are likely to put upward pressure on prices as Sydney's over-heated property market begins to cool.

Labor fired the starter's gun on state election season on Monday, putting a plan to increase stamp duty exemptions for first home buyers facing cost-of-living pressures in western Sydney at the centre of its bid to win government after a decade in opposition.

It is also preparing to announce a new agency, called Homes NSW, in a bid to tackle the state's ongoing housing crisis.

The NSW opposition leader, Chris Minns, said the decision to increase stamp duty exemptions to homes costing up to $800,000 - from the current $650,000 limit - while increasing concessions to those sold for $1m, meant there was now a "stark difference" between the two parties ahead of the March poll.

The Coalition attacked the policy as "kicking" first home buyers who want to buy in a swathe of suburbs where the median house price is already above $1m. But Labor says the policy will mean 95% first home buyers pay zero or a reduced tax when purchasing.

"Homebuyers don't need to pay a new tax, they need help to pay no tax whatsoever, which is what we are outlining here today," the shadow treasurer, Daniel Mookhey, said on Monday.

Last year the Coalition passed its own policy that allows first home buyers who pay less than $1.5m to choose between paying an upfront stamp duty or an annual, ongoing $400 property tax plus 0.3% of the property's land value.

Labor has attacked that policy as a "forever tax on the home", despite analysis showing that in many cases purchasers would have to own their home for more than two decades before they had paid more in land tax than upfront stamp duty.

Housing experts say both policies' exemptions - and the Coalition's land tax policy passed last year - were likely to have an inflationary effect on house prices and were evidence NSW was "clearly in election season".

Brendan Coates, a housing expert from the Grattan Institute, said the increased exemptions and land tax policy were "first home buyer grants by another name", and were likely to be of most benefit to sellers.

"Both policies make it easier for first home buyers to accumulate a deposit but when you boost the purchasing power of buyers you also will increase prices," he said.

"So the big beneficiary, particularly under Labor's policy, will be vendors of the kinds of homes that first home buyers can afford."

Under the Coalition's policy, a purchaser of a house on the market for $790,000 in Mount Pritchard in Sydney's west could choose to pay an upfront stamp duty of $29,017, or $2,044 a year. Under Labor's policy, they would pay nothing.

Labor has criticised the land tax, saying it would push up prices.

But on Monday, Minns defended the decision to increase the stamp duty exemptions, based on recent falls that have seen Sydney's property market drop by 13% amid interest rate rises.

"Now is the right time to introduce a policy that helps first time buyers get into the marketplace, given the market conditions are changing for the first time in about 10 years," he said.

Diana Mousina, a senior economist at AMP, agreed it was not the "worst time" to make the change, but said there was no doubt it would have "inflationary" pressure on the market.

"We know these sorts of housing incentives do make a big change for people in terms of spending decisions, whereas policies like the land tax has a more long term impact," she said.

It comes as Labor announces it would merge the Land and Housing Corporation, Aboriginal Housing Office and DCJ Housing into one entity.

Social housing construction, maintenance and tenant management are currently split across a variety of agencies, with the government regularly criticised for backlogs.

Labor's housing spokesperson, Rose Jackson, said the split was "ineffective, expensive and dysfunctional".

"Tenants and those who support them regularly find themselves bouncing between departments and falling through cracks trying to get basic issues resolved," she said.