The Victorian Treasurer’s recent housing policy announcements delivered an odd sense of hope for affordability wonks. The state finally saw fit to place extra tax burdens on the property sector with an increase in land taxes, stamp duties and importantly, on rezoning windfalls. The cumulative taxes will raise $2.4 billion over four years.
Whilst the property lobby has been quick to hit the outrage button, it’s worth remembering that Victorian residential land values increased by $135.6 billion during lockdown (19-20). Even commercial property, which faced stronger headwinds during the pandemic, saw land values rise by $6.6 billion over the year. If we were to multiply such gains over four years, the property tax increases seem quite reasonable in light of such large returns.
Surely paying $638 million extra a year is reasonable when the spoils for investors average some $21 billion in annual land price inflation?
Sharing the load via higher land taxes and stamp duties is commensurate with rebuilding an economy that was brought to its knees by the pandemic. Record Job Keeper and Seeker federal payments flowed straight through to rent, keeping a roof over peoples heads during precarious times. So whilst the wider economy was slammed shut, if land prices are anything to go by, the property economy barely missed a beat.
With so many nervously hovering around the TV waiting for covid news updates, thousands were jittery about whether their landlord would oblige with a rent freeze or perhaps even allow a discount. According to figures from Consumer Affairs Victoria, barely 10% of landlords registered a rental discount with their tenants. This was a long way from ‘sharing in the pain’ that the Prime Minister called for. In contrast, the $80 million in rental relief was quickly snapped up by renters under stress, further supporting investor rental streams and thus property values.
Property investors also received another benefit during lockdown. Vacant property owners who were averse to putting their property on the market pre-covid, were suddenly given a free pass with the pausing of the Vacant Residential Land Tax. This saved some $6 million for those willing to leave investment properties vacant during a time of dire housing need.
Prosper Australia’s Speculative Vacancy report shows that the government could be raising close to $150 million per annum on its vacancy tax, not just $6 million. Now the pandemic is seemingly under control, Treasurer Pallas was expected to reinstate the vacancy tax in light of our twenty year housing crisis, perhaps even with genuine oversight. During the tax’s short operation, not one landlord was fined for failing to self-declare as vacant. Many landlords don’t even know the tax exists. However, that wasn’t to be, with the budget extending the holiday for lazy land use by another four years, effectively mothballing the tax.
For those who curiously read the consistent property lobby claim that higher land taxes mean higher rents, here is the public interest perspective. We regularly quantify significant vacancy levels in Camberwell, Malvern and Hawthorn. Higher land taxes on properties with a land value above $1.8m will see those vacant penthouses that are used occasionally, or held for capital gains, more likely to be put on the market or rented out. This will result in those magic words – increased housing supply – pushing down rents and home prices in that market. This is just the signal needed, if only across the board. This added competition in the market makes it very difficult to pass on the tax. Tenants are advised to move if they try to pass it on.
After the glimmer of hope allowed in the pre-budget announcements, affordability advocates shed a tear onto their smashed avocado when reading the budget in full. Treasure Pallas has managed to make once affordable land more expensive (rising land tax thresholds for 61,000 lucky property investors) alongside making expensive land slightly more affordable (higher land taxes, stamp duties). Along the way he has essentially mandated that Melbourne’s median house prices are ok at $1 million with a suite of stamp duty concessions surrounding this price point. CBD apartment developers had their market power solidified, with a new tax concession for any $1m properties unsold after 12 months now free from stamp duty.
It should be affordability advocates rather than property lobbyists banging down the doors of Parliament this week.
But let’s stay positive. In terms of forward thinking, the lessons learnt from the John Woodman inspired Casey land saga seem to have registered. The new rezoning windfall gains tax will see some $38 million collected each year from the golden pen tick needed to upzone a site. This is a long way from the $5.7 billion in rezoning windfalls we calculated in our Budget submission, but at least it is a start.
Surely it’s time that windfalls along multi-billion dollar infrastructure projects were shared amongst the wider community. It’s not just project cost blowouts that hurt. In many cases, surrounding landowners benefit by three times more than the cost of the total project.
Hopefully policy makers aren’t too late to the party to ensure land value capture systems are capable of sharing in some of the windfalls from the Suburban Rail Loop or Airport link. Developers can just write off the new tax as a cost. They can’t pass it on as previously approved developments are competing in the same market.
With all the concern raised by the property lobby, we should remember that national land prices are forecast to increase by more than $600 billion this financial year. Both federal and state budgets suggest governments are happy to be seen to be doing the right thing, but deep down are quite happy to keep campaign contributors happy.
To pull the speculative heat out of the property market, government tax inquiries have been calling for decades to tax away the profits in real estate. Pallas tried to have an each way bet, but instead succeeded in giving away our tagline as the world’s most liveable city.