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Housing unaffordability: Vacant homes increase as land prices boom

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Governments must play proactive roles to ensure that housing prices are not out of reach for ordinary Australians (image via Pikist)

Proactive government policy is needed to ensure that all can access appropriate housing, writes Karl Fitzgerald.

DURING THE PANDEMIC, there was widespread dismay as people hoarded toilet paper and hand sanitiser. We quickly censured canned food hogs but for the most basic of human needs – shelter – hoarders were encouraged to control housing opportunities.

A line doing the rounds online says: housing should be like dinner. Nobody gets seconds until everyone has firsts.

The Speculative Vacancies 10 Report reveals 69,004 vacant residential properties in Melbourne in 2019. That’s similar to the number of properties sold last year.

Vacancy is detected via abnormally low water consumption, picking up empty properties that are not made available for rent. Such vacancies increased by 13.3% over the last two years.  

After some 20 years of a housing crisis, clearly there is a problem with the way we treat a place to call home. 

In 2018, the Victorian Government attempted to address the increasing commodification by implementing the vacant residential property tax. It was a 1% tax on the value of your property — but owners had to self-declare.

During the writing of this report, we recognised there was no oversight of vacancy via water consumption. Compounding our concerns, no fines have been issued for failure to self-report a property as vacant. Worse, vacant property holders don’t even know the tax exists. 

In 2019, less than 600 properties self-declared to the State Revenue Office as empty. That’s less than 3% of the properties we found using no water at all in the same year. Over the thirteen years of reporting on this issue, we have repeatedly found over 20,000 properties using zero litres of water – over a full 12 months. 

On our numbers, the tax could raise between $150-500 million. Instead, the Government received just $6.1 million in vacancy revenue.

A more effective tax would not only raise revenue but deter vacancy, reducing pressure across the market. Vancouver’s vacancy tax is also a 1% property tax — but importantly it has a $10,000 per day fine for failure to self-declare. The tax enjoys widespread support such that it was recently tripled. Vacancies have reduced, particularly among properties owned by foreign investors, who face a higher rate. 

Vancouver has also enacted an outreach program linking vacancy revenues with affordability outcomes. Victoria’s recent "record investment" into 12,000 public houses could have been significantly funded by such a tax. At the very least, it could have covered the $150 million we spent on hotels for the homeless during the pandemic.

Instead, the Treasurer opted to give lazy property owners more time off by putting the vacancy tax on hold. The state budget is leaking billions of dollars, but those wealthy enough to own surplus property were given a free pass to sit and wait for the profits. 

Similarly, Treasurer Pallas’ decision to cut stamp duties for purchases under $1 million will not save homebuyers money. The stamp duty savings will simply translate into higher prices as buyer bids against buyer, now able to borrow what they would have spent on taxes.

The winners here are the vendors, developers and banks. The losers are potential home buyers stretching to keep up with deposit requirements.   

In 2018-19, Australian land prices fell by twice as much as during the Global Financial Crisis. Following the Labor’s federal defeat and some time to reassess after the Royal Commission into Financial Services, national land prices again took off. With the pandemic wiping so much progress away in the first half of this year, our jaws dropped when the Australian Bureau of Statistics (ABS) declared national land prices had increased by $423 billion in 2019-20, the fourth highest on record.

Victorian property owners shared in a $136 billion windfall. NSW landholders enjoyed a $161 billion windfall. 

The two largest states took 80% of the national land value uplift. 

Record high infrastructure spends act to turbocharge land prices, delivering a form of public subsidy to neighbouring landholders. For speculators, infrastructure investment announced in any government budget is a boon.

They can simply wait until the community grows around them before they phone their property manager to utter those two words young families so need: “sell now.” 

Economic recovery demands the regeneration of local industries. The industrial and commercial property sectors regularly reported last year that the market was tight, with prices for some industrial warehouse categories up 125%.

This told only half the story. 

Three times as many business sites sat dormant as were sold last year. These sites used zero litres of water over a full 12 months. Such scarcity leads to higher land prices which in turn demands higher rents.

This undermines wage growth, small business incubation and export competitiveness. 

A higher tax on vacancy, or ultimately a higher commercial land tax, would awaken those property owners from their slumber. Such eyesores would soon be sold or rented out, putting downward pressure on prices and rents. 

So much was promised by the development industry during the Matthew Guy era as the Victorian Planning Minister, when he transformed Melbourne’s skyline into a massive bar graph of potential affordability. Despite extensive supply rezonings in the CBD, apartment prices have increased 25.8% since 2010. 

We are now poised to see an apartment correction back towards the affordability that public policy has always promised.

Will prices be allowed to fall, to ensure a fairer future or will property hoarders be given economic shelter over and above those seeking to enter a property-owning democracy? 

Karl Fitzgerald is the Director of Research at Prosper Australia, an NGO focussed on economic justice in the face of monopolistic control. Karl has expertise in vacant housing and property speculation. He broadcasts the monthly Renegade Economists podcast.

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Housing unaffordability: Vacant homes increase as land prices boom

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