The Victorian government has warned owners of vacant inner-city properties to fill them with tenants or sell up, with less than two months before the state’s vacancy tax begins on 1 January 2018. Meanwhile, in Queensland the Greens have drawn the ire of property lobby groups with their plan for a similar scheme.
Premier Daniel Andrews on Thursday issued his warning while visiting the City of Darebin, north of Melbourne CBD, which has an estimated 50 properties sitting vacant. Though this figure pales in comparison to figures in other inner and middle city areas, with the City of Yarra believed to have more than 1000 properties sitting vacant, Moonee Valley with 1700, and the City of Melbourne with more than 2500.
All up the government believes there are 20,000 properties in inner Melbourne laying dormant.
These government figures could be underestimating the problem, however, with analysis of water use by Prosper Australia finding that about 83,000 properties across the city are being left empty, with many believed to be in high-value inner areas.
The government solution is a vacant residential property tax, which will charge one per cent of a property’s capital improved value (CIV), payable on a calendar-year basis for properties left empty for more than six months a year, and applied only to 16 inner councils.
“In a time when so many Victorians are trying to get into affordable housing, these homes shouldn’t be sitting idle and unused,” Mr Andrews said.
He said the government didn’t want any money to be raised from the tax (though government estimates suggest $80 million will be raised over four years).
“We just want these empty houses filled with families.”
Queensland Greens up the ante
In Queensland, the Greens have upped the ante, calling for a five per cent tax on capital improved value, with the funds to go to building more affordable housing.
“Right now there are 20,000 homeless people across Queensland while in Brisbane alone there are 21,000 houses and apartments sitting empty,” Greens candidate for McConnel Kirsten Lovejoy said.
“When there are more houses and apartments sitting empty than homeless people you know our system is broken.”
She said the vacancy tax would target “a small number wealthy investors” deliberately leaving properties vacant.
The plan has drawn ire from the Property Council, with Queensland executive director Chris Mountford saying it was “unworkable”.
“Official capital improved property values are not recorded in Queensland and the costs for administering and policing this policy would be astronomical,” he said.
“The policy proposal poses significantly more questions than answers.”
How effective are these systems?
There’s also questions over whether vacant property taxes are enough to disincentivise investors leaving properties empty, who are hoping to cash in on capital gains while having the flexibility to sell quickly.
Prosper Australia project director Karl Fitzgerald told The Fifth Estate a vacancy tax was “a step in the right direction”, but in Victoria many would see the one per cent tax – about $5000-$6000 on a typical apartment – as something that could be absorbed as property values rose (See Prosper’s Dr Cameron Murray on why investors may choose to leave properties empty).
Speculative land banks a big problem
A bigger problem, Fitzgerald believes, is “land bankers” that would not face the full impact of the tax.
“If levied on a CIV basis, marginal dwellings may be demolished in order to minimise tax. This may lead to decreased marginal housing stock, with implications for affordability amongst the most vulnerable.”
As academic Hal Pawson wrote recently in The Conversation, speculative land banks owned by developers are an issue for housing affordability, which can be seen in the fact that in the past year there were 56,000 development approvals granted in Sydney, but only 38,000 homes built.
“The whole tax system does nothing to address that,” Mr Fitzgerald said.
Governments were just “window dressing” until they got their act together and replaced stamp duty with a land tax, he said, which would decrease the incentive to hold land and vacant properties, while providing more incentive to downsize.
“It’s just unanimous. Most economists and even the Property Council say we need to replace stamp duty with a broad-based land tax.”
He also suggests doing more to capture some of the windfall gains made from rezoning.
- See Funding Sydney: Where’s the value capture? and News from the front desk: Issue No 331 – On zoning changes and “winning the lottery”
“So much of the easy money in real estate is in rezoning, and the windfall gains there. [Value capture] would pull a lot of that speculative heat out of the market.
“We’re hoping that this vacancy tax is the start of more moves in the right direction.”