Prosper Australia is concerned that government incentives in the property market have gone too far, sending our market spiralling without the necessary checks and balances.
Next week’s expiry of the eviction moratorium brings the precarious nature of renters into focus. With jobkeeper finishing, the covid newstart bonus wrapping up and investors facing more stringent rental conditions (i.e. biennial gas appliance checks,) renters are on edge.
Victoria’s new rental regulations may ensure tenants have adequate heating but a number of investors – particularly those that owned older houses where more affordable rents were common, have decided to sell out of the rental market rather than bring the property up to standard..
Whilst many property owners have faced cash flow pressures, they have enjoyed significant land price gains.
Only 10.7% of Victorian landlords engaged in rental relief – the ‘sharing in the pain’ our leaders demanded. Despite a lacklustre 2019, Victorian land prices still managed to increase by $135.6 billion in the 19-20 financial year. We expect even higher gains this financial year with a raft of incentives designed to prop the market up. From homebuilder to high state infrastructure spends, from access to super to stamp duty and vacancy tax holidays, from land tax relief to mortgage breaks, support for property owners has been deep and meaningful.
However, the support for the rental community and those looking to buy a house lacks conviction. Most support targeting potential buyers actually translates into a sellers subsidy, making prices more expensive.
The covid stamp duty holiday helped bring forward demand, but it didn’t make it any easier to afford a home as supply shrank from the market. Victoria’s regional first home buyers grant helped push rural property prices well beyond local wage growth. The $80m rental relief program has been fully subscribed, but really acted to support the landlord’s property valuation. The most meaningful leg up for first home buyers, the NHFIC’s first home deposit loan scheme, is also fully subscribed.
The recent swathe of government inquiries, whether it be for homelessness, mental health or aged care, all point to the continued pressure society faces under the weight of record high land prices. Every dollar more we pay for housing is less than can be spent in local economies, affecting employment, wage growth and small business.
With total Australian land prices soon expected to pass $7 trillion, we wonder whether we can afford the macroeconomic inflexibility of high land prices and the private debt it entails? When a flood, fire or pandemic hits, housing debt looks more like an economy-wide ball and chain than the straight road to a comfortable retirement.
In order to apply some checks on the runaway growth of land prices, Treasurer Pallas must commit to a reformed and reinvigorated Vacant Residential Land Tax. Reforms required include:
- basing the tax on Site Value rather than Capital Improved Value
- an expansion beyond the inner city ring to include all of Greater Melbourne
- a commitment to penalise every vacant home that doesn’t pay their way. The government must signpost with conviction that wasting land and housing is a social bad. There are at least 21,000 sites that use zero litres of water and are demonstrably vacant. Last year only 587 sites self-declared.
- oversight must include the use of abnormally low water consumption as a proxy for vacancy. It appears no oversight is currently in place
- self regulation doesn’t work at the best of times – significant fines of $10,000 per day must be implemented and enforced, as adopted in Vancouver
- all land tax notices must be accompanied by a brochure outlining the VRLT
- funds raised to be hypothecated towards affordable housing projects.
The government has estimated that only $4m per annum will be raised over the next four years via the vacancy tax. Our Speculative Vacancies report found between $160m – $495m in revenue was potentially available. In time we would like to see that the tax pushes more properties onto the market and raise less, but the difference between the government and our numbers are just too great to not raise serious questions.
Property is not and should not be a risk free investment asset. We all need safe and secure housing.
In terms of creating the correct conditions for more affordable housing to occur, the Andrews’ government has been proactive by increasing land supply. There are now some 370,000 housing lots coming through the system, up from 150,000 lots in the late 00’s. Supply should be delivering on its promises and pushing house and apartments prices lower. The market power land owners enjoy needs to be held in check when people are desperate for a better way of living during potential lockdowns.
Have efforts to prop up the property market backfired? With stimulus measures such as the Victorian stamp duty holiday driving a vibrant market, we ask whether more households will be pushed into rental stress by a rocketing market, undermining the much heralded 12,000 social housing builds over 4 years?
It is time for State Labor governments to challenge the culture of housing as an investment stream. A progressive government must ensure the majority of its housing policies direct public subsidy to housing as a service, rather than housing as a means to build personal wealth.
