The ACT Opposition would have us believe that land tax reduces the supply of rental housing. How so? The tax is on the land, not the housing.
The land can’t run away to escape the tax. The owners can’t escape the tax except by selling the land, and the resulting pressure to sell makes land more affordable for prospective buyers.
If the buyers are owner-occupants, they divert the demand for rental accommodation. If the buyers are investors, the tax gives them an incentive to seek tenants to bring in rent and cover the tax liability. To this end, the buyers must build on the land if it has not already been built on.
Thus the effect of land tax is to increase the supply of rental housing and therefore make rents more affordable. And the higher the tax, the greater the effect.
Dr Gavin R. Putland (Research Officer, Prosper Australia), West End, Qld