Premier Daniel Andrews announced a range of housing affordability measures Sunday, some of which will help.
The eye-opener is the introduction of a Vacant Residential Property Tax at one per cent of the capital improved value on properties held vacant for six months or more.
This mimics Vancouver’s Vacancy Tax introduced last November – also set at one per cent.
Vancouver relies on self-reporting, which sounds naive until one takes into account the further C$10,000 fines per day for landholders who dare to lie about keeping their properties empty.
Victoria’s move was prompted by Prosper Australia’s Speculative Vacancies report that used water meter data to show 82,724 dwellings were held vacant all year, or almost twenty per cent of all investor-owned homes. This is despite soaring prices driven by demand from investors, homebuyers and a torrent of migrants.
The only other Melbourne vacancy measures look only at actively-advertised rental properties.
Dr Gavin Putland of the Land Values Research Group lays out the economics behind a Vacancy Tax:
“If the land-wasters pay the vacancy tax, they reduce the amount of revenue required from the rest of us. If, on the contrary, they avoid the vacancy tax by attracting tenants (building or renovating as necessary), they generate taxable activity, expanding the bases of other taxes and allowing their rates to be reduced. Either way, the rest of us pay less.
“Moreover, a vacancy tax, by forcing unoccupied properties onto the rental market and reducing rents, makes it easier for employers to pay for business premises, easier for employers to pay workers enough to pay for housing within commuting distance of the premises, and easier for jobseekers to move to where jobs are available. These are multiplier effects. They are also disinflationary and are therefore further multiplied, not offset, by their influence on monetary policy. Through the multipliers, a vacancy tax yields a bigger increase in economic activity, hence a bigger tax cut for the rest of us, than meets the eye.
The Premier’s announcement was detail-light about who would be liable for the tax. The property industry will be furious at this limiting of their freedom to manipulate the market. Expect calls for exemptions for all kinds of reasons. An army of PR flacks is already working on how to frame these arguments to create waves of sympathy for oppressed investors.
The current Stamp Duty concession for off-the-plan apartment buyers will be limited to those who intend to reside there. That concession did not help buyers as vendors simply captured the benefit in their asking prices.
Daniel Andrews also announced a first home buyers’ Stamp Duty discount that will simply inflate land costs for everyone, as his sworn political enemy federal Treasurer Scott Morrison was quick to point out.
Yet the market was even faster than Morrison. The $15,000 concession available to FHBs was fully capitalised into land prices overnight. Victorian Treasurer Tim Pallas’ claim, “We are making it easier for first home buyers to get their foot in the door,” qualifies as an alternative fact.
Steve Keen’s denunciation of what he called the First Home Vendors’ Boost back in 2009 explains how this helps those who sell to FHBs – developers and those trading up to their second homes – but not starry-eyed first home buyers. Good politics; terrible economics.
The adjustments to Stamp Duty show that the government knows exactly the economic costs it imposes on citizens – particularly those excluded from buying or trapped in dwellings that no longer meet their needs.
Victoria would be better served by scrapping Stamp Duty entirely, as the ACT is doing. The re-election of ACT’s Barr Labor government last October, despite a focused and virulent campaign by the Liberal opposition, proves this reform is possible.