STAMP duty should be scrapped and replaced with an annual land tax a public hearing for a Senate Inquiry into Affordable Housing was told yesterday.

The approach suggested by research group Prosper Australia would remove many of the exemptions to land tax currently present, including one for the family home, but could potentially spread the upfront cost of stamp duty across years of home ownership and put tens of thousands of dollars back in the pockets of prospective home buyers.

More than 200 submissions have been made to the inquiry with a number calling for drastic changes including scrapping parts of negative gearing and scrapping first-home buyer grants, sought by Swinburne University’s Institute for Social Research, and scrapping foreign investment, the Sustainable Population Party.

The Swinburne Institute for Social Research spoke at a round table discussion.

Their submission to the inquiry called for negative gearing to be limited to tax paid by landlords on rental income and claims no longer allowed on home loan interest.

Economist Saul Eslake made a more direct submission to the Inquiry calling for negative gearing to be scrapped entirely, claiming it had failed to encourage sufficient new development of rental properties with most investors using the tax dodge to speculate on capital growth for established homes.

Both Mr Eslake and the Institute called for first-home owner grants to be wound up.

David Collyer, Prosper Australia policy director, told yesterday’s inquiry land tax could improve affordability and replace stamp duty, though greater controls needed to be set on how much Australian’s can borrow.

Under the Prosper proposal, modelled on Australian Housing and Urban Research Institute research, a 1 per cent tax on land values, $3,600 per year on a $360,000 block of land, would make home ownership more affordable for everyone except those in Melbourne’s priciest municipalities — such as Boroondara, Stonnington and the City of Yarra where land values are commonly upwards of $1 million.

It would be paid on top of local council rates.

The AHURI research projected a $335,000 plot of land would see its value decline by $24,000 as prospective buyers accommodated for future land tax payments.

Mr Collyer said if the government were to use this money to reduce other tax burdens, like payroll tax, it would give buyers more disposable income on top of removing the upfront cost of stamp duty.

“(But) if the government just put the money in their pocket, it would drive prices down,” he said.

Foreign investors have also been targeted in a number of submissions made to the inquiry.

The Sustainable Population Party called for the government to “end foreign non-resident purchase of Australian real estate”, in their submission.

The Inquiry is scheduled to report on its findings by November 27.