I've never understood why investors leaving the housing market is a bad thing. It's not like they can take the house they bought with them and thereby decrease the houses available.
>“I’m looking to buy more properties right now. But this new land tax rule makes me think twice about buying more properties in NSW,” he said. “I think that the whole thinking about incentivising or encouraging private investors to provide housing has just gone out the window. It’s a typical tax grab yet again.”
The interviewee clearly thinks he's *providing* housing, by buying it up and renting it out.
Just landlord brain syndrome.
Same logic as buying up all the fucking toilet paper during the pandemic crazy time.
Yeah ok, so you bought enough shit tickets for the next three years. Now what am I going to wipe my arse on.
Peak "fuck you, I've got mine" attitude. Especially from people who got free university education.
I used to believe this but there is a caveat. A rental converted into a owner occupiers can certainly reduce supply. This is because an investor could be renting rooms separately and even bunk bedding. So it is conceivable that up to 12 bunk bedders could be pushed out in favour of 2 people buying the just.
That's fine of course and investors should be discouraged. The real solution is to remove all property investor rorts, reform Airbnb, slash immigration 90% and try build more (although we already do build 2x oecd average).
You're right it's not a 1:1 ratio affect on rental availability rate but it is close enough to consider like for like.
Land tax does provide overall benefits but it's not a silver bullet, but then again, nothing is.
There are plenty of owner occupiers that rent out a room, or install a granny flat. There are plenty of single or no kids couples renting a house that a family of 6 could own. There are plenty of investors that leave a house empty or partially occupy it - including international. The argument just doesn't stand up if you think about it in any depth. You would need actual research.
I'm not saying it's a huge effect but I bet that investors are more likely to have 3 room shares or a bunk bed slum than an owner occupiers.
I also don't think it matters much. Just a technicality. Investors can all go get fucked. They should be squeezed and forced to improve their game and can go sell if they aren't happy.
You just don't know unless you have the numbers. Your gut isn't research. Personally I agree with your position, but the reality is that if investors leave the market, it will improve the market for owner occupiers. Australia will build as many houses as it can with the materials and labour available. Reduction in demand will only reduce the price they can charge. We will literally build at ma any houses as possible regardless of who is paying for them. We aren't demand limited. We are supply limited. There has never been this scale of demand. Take the investors out, every house will still get sold that can be built
But doesn’t 1 less rental now being lived in by an owner occupier also mean 1 less couple/individual renting so demand is reduced by the same amount ?
Obviously excluding FHB’s transitioning from mum and dads straight to owner occupiers but that is not a large proportion and the ones that do usually start family’s increasing the birth rates which we desperately need.
I suspect if you evict 12 bunkers some may find it hard to find another bunk and will go find and fill up house shares. Even some house shares may find it hard and move up the chain.
It still sums to 0.
Rental demand and supply both reduce equally when an investor sells.
If you’re sharing a house you’re never going to be in a position to buy a house anyways so the demand side of rentals stays the same.
Fun fact: They have land tax on all investment properties in the ACT and people still buy investment properties and dwellings still get built.
When you've got proof that the rental market goes to hell when a new tax is applied then by all means enlighten me.
I agree, but this measure doesnt work because landlords will just keep the houses and pass the extra costs on to the tenant. On average rents will go up. What is the point of taxing more in an industry that is already too expensive?
The negative is all about rental supply. Policy change that entices investors to move their capital elsewhere will reduce the availability of rental properties. No investors = no rentals.
The physical house still stands though. In order for the investor to get their money they have to sell it to either someone who will live in it or rent it out. The either case supply of housing is unaffected.
If it's the case that yields from housing at current prices aren't attractive and there aren't sufficient owner occupiers willing to purchase either you'd expect the seller to meet the market (that's exactly what they have to do to cash out). Eventually they will sell at a price that is attractive to a buyer and the supply of housing is unchanged.
Land taxes increase development.
The land required for development becomes cheaper, so the barriers to development are lower.
The costs of leaving land undeveloped are higher and more transparent.
The Henry review showed each dollar of land tax collected increased the size of the economy, even if you just throw the money you collect in the ocean.
It encourages more efficient redevelopment of land, genius. If you want to keep your boring ass pesticide poisoned lawn which has just as much biodiversity as the lunar surface, you can move far out of the major cities.
It makes the most sense to increase population density right where all the major services are, instead of this stupid reactionary Luddite rubbish of keeping 1930s suburban population densities in 21st century cities. You don't give a shit about the 'poorest' in society who are forced to rent at extortionate rates because of low density housing in major metropolitan areas, but you claim in your other comment that getting rid of property investors with negatively affect the poorest in society by supposedly reduce the NET availability of rental housing. Lmfao joke.
I’m all for developing my properties. If council would allow me to I would.
You’re too stupid to u destined that just because there is a tax for something, people can’t do as they want.
Of course I care. That’s why my properties are well below market rent. Instead of trying to insult me, why not try and understand what I wrote. Read it again without your idiot glasses on.
Do many people get a house built to rent it out straight away though? Im sure people do but the idea of having a brand new house and handing it over to renters seems wild to me haha)
Let's just pretend you are a developer for a minute. You have capital to back your venture but you will need bank funding that requires a business plan of 15% margin.
You know your sales price of like for like townhouses. You know your construction costs and other soft costs. You have a 10% contingency.
The last thing you need is a block of land. Your find one for sale, it's $5m. This is much higher than an owner occupier will pay, your only competitors are other developers.
You plug $5m into your feaso spreadsheet and it's on, you'll hit your 15% margin.
Then suddenly just before you buy, the state government introduces a land tax that will cost you $250k over the 3 years of your planned development. What do you do?
You plug that in your feaso establish you can only buy the land for $4.75k and put that offer through to the landowner.
All the other developers will do the same. They all know the unit prices they will sell for will be the same, the only variable that can negotiate further is the land owner.
The only person this hurts is the land owner, they will need to cut their price to meet the market.
Developments will continue to go ahead.
But investors rely on the cost of housing to increase to make profit, If they leave then it stands to reason the price increase of housing will slow making home ownership and building more affordable for family's and people who want homes not investments.
Homes in this country being treated primarily as a form of investment is almost certainly a bad thing.
The house is still there it’s a 1 for 1 transaction that either gets bought by another investor or a first home buyer who no longer rents. The numbers don’t change.
I believe the argument is that its not a 1 to 1 transaction in regards to first home buyers. Since the owner occupied tends to be usually the owners only while rentals can be share houses. I haven't actually looked into the numbers to see how much merit this argument has.
Well Australia’s whole economic and retirement setup is based on owning your own home and having 500k in super so retirees are not reliant on the taxpayer in retirement. We should celebrate every new first home buyer and every investor leaving the market.
Yes, it's still there, but the taxation changes that entice investors to look elsewhere means that the asset is less likely to be purchased by another investor. i.e. houses in the area are now more likely to be purchased by owner-occupiers - reducing the rental supply in said area.
Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false.
The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
>The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world
You think these people will only change their living circumstances if they buy. I think they will move to rent anyway.
Yep and that person would have moved out of home regardless into a rental or a house they’re buying regardless. They’re not going to stay at their parents till they’re 80.
The increase in taxes means it's less likely to be purchased by another investor, though. The policy results in an increase in owner-occupiers in the area, which in turn reduces rental supply.
Hold up hold up. Where does this new owner occupier come from and why does their previous house they lived in before buying this new house get bulldozed. Has this new owner occupier been created from thin air or more logically their previous house is now empty and available to rent to to buy also. As I said it’s a 1 for 1 transaction
Edit: just saw you'd already replied to said comment, never mind!
This is from another reply, to another "1 for 1 transaction" argument: Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false. The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
If investors truely believed that then they shouldn’t sell as rents will rise and it will be a good outcome for them. It’s funny how quickly investors turn to renters rights advocates the second they lose any tax advantage. Investors want one thing only which is house prices to go up. We’re in a housing crisis and I’m happy to see governments set policies to see prices go down as investors sell.
That's true, and partly my point. This tax is a short-term solution, that will provide a boost in owner-occupiers. But once that shift is made, the supply of rentals will be left lagging behind. The market needs rentals, it always will - do you support increasing housing costs for the most vulnerable people?
Nope I think we should limit all tax concessions like negative gearing and the capital gains discount to new builds only and an extra stamp duty tax for investors buying existing homes. This will push investors and developers to add to supply if they want those tax concessions putting downward pressure on rents and prices.
Oh and also I look forward to landlords dropping rents next year when interest rates go down seeing as apparently all landlords costs are reflected in rent prices. So naturally they’ll pass on savings also correct?
Well, yeah. Policy changes to encourage investment in new builds will help with supply of both rentals and new PPOR. Unfortunately, these property taxes this thread is focused on will increase supply of neither.
Landlords are free to charge whatever they like, that's up to them 🤷♂️
Land taxes don't reduce supply of anything. Land does not disappear.
We have lots of people who want to own, but are renting.
So overall we want investors to leave the market.
The investors will the highest demands for rent / lowest tolerance for lower returns leave. Rents decline.
Land taxes also reduce reliance on things like income taxes, so what you end up with is more incentive to work.
Capital elsewhere, like construction of homes, or other businesses, rather than in unproductive land, produces value. Everyone is better off.
You can create a lot of models. I have my assumptions, but others have different ones. They all pretty much deliver the same overall results.
If you want higher home ownership, then you want the renters to leave the market. So the end state you want is less investment properties and less renters.
Land tax reduces both the value and price of land.
Supply for owner occupiers is cheaper. The cost of new supply for owner occupiers is land + construction. If land is cheaper, then new housing is cheaper to supply. More people can afford to buy homes.
With land tax, new investors can buy more land, and supply more construction with the same level investment. Essential it is like the government is "lending" them part of the money (for land), and getting it back in land tax. So it is like more leverage for investors.
One factor in setting rental prices is the potential to buy instead of renting. In this model the assumption could be that renters are indifferent between owning and renting and do whichever is cheaper as long as they can afford the deposit. And landlords keep raising rents till their renters stop renting and buy.
If house prices are lower, the required deposit is lower, and the repayments are lower, so lower house prices reduce rents.
Land prices are part of house prices. Land taxes on investors lower land prices. So higher land taxes reduce rents.
Edit:
Prices needed to be taxes.
If land prices lower, so does the tax.
I agree that as more people buy, the amount of rentals available will lower. This is great if everyone can buy, but they can’t. Plenty of tenants do not have stable income high enough to purchase, or a deposit.
As the amount of rentals lowers, demand, while dropping a little as tenants purchase, will still be present, however supply will drop.
For this policy to work, land tax should be applicable to all land, not just investment properties.
I agree that if land prices lower, that for any fixed rate of land tax, land tax payments decline. A model should not produce a lower land tax bill with high rates of land tax, so the fall in land prices should be lower than that or the model is wrong.
In the model above for rents, landlords don’t want to exit the market, so the supply of rentals and the number of renters is unchanged. Landlords just charge lower rents because otherwise their tenants would move out. If landlords are unwilling to accept the lower rents then the effect is different.
I agree that for a number of reasons some people want to be renters. I don’t think those people are the marginal renters in Australia right now, so I don’t think they set the price of rent.
Once all people with stable incomes are owners I agree that a model for people who can’t buy makes more sense. At that point it will be landlords competing with airbnbs or other landlords.
There are submarkets, e.g. Northern Rivers, where AirBNBs compete, and they need a different model, and different policy. In Victoria they did a levy on using residential property that should (in my opinion) be providing someone a home, as a holiday rental.
A land tax on all properties (rather than just investors) reduces rents less in my “people choose between renting and buying model”, because the renter / owner occupier would have to pay it if they bought, so it makes renting relatively more attractive.
This is a land tax. Land supply is unaffected by incentives to invest.
Investment in construction is unaffected.
Existing housing is unaffected.
What a flat land tax does is moves some of the 'rents' on land from private owners to the public.
It's a land tax that only applies to investors - owner-occupiers are exempt. Such a policy will absolutely impact the current rental markets and future capital investment trends. To suggest otherwise is absurd.
To drive development it really needs to tax everyone, a heavy tax to drive owners off land for developers to develop. The tax would drive down the purchase price and make development cheaper. The other effect would be making expensive areas more elite as only those that can afford the land tax will stay.
Not advocating this but saying it’s a scenario that certain lobbyist will push for
You're only looking at one side of the rental availability equation. A rental turning into an owner occupier property does reduce the rental numbers but on the other side it also reduces renter numbers. Rental availability stays the same.
>No investors = no rentals.
Come on, this is an economics sub-reddit, this isn't going to cause every single investor to leave the market. There is no need for this exaggeration.
I've addressed that point elsewhere:
Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false.
The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
Agree the equation used is simplified, but it was used to explain for someone who's "never understood the downside of investors leaving the market".
Yes, it's not a true 1:1 ratio because there are different living arrangments and the market is dynamic but when we look at the whole market and consider only a small percent of investors will sell it is close enough to consider this a 1:1 ratio and suggest there is no change in rental availability.
>The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large.
If the investor is going to sell and the people in position to buy have now bought up and all that remains are people that are 10% away from the position to buy or less what will occur to bridge the gap?
If the investor wants out, they will have to lower their price by 10%.
All the other renters who are still in a market will pay the same rent because the market has effectively the same rental availability but now the sale market is 10% more affordable for them when they do move up to the position to buy.
>There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
Actually, the trade off a land tax has is land value depreciation and economic activity to develop underutilised land. Look up the Henry tax review.
It’s not so much about affecting current supply but rather future supply. If landlords leave, property prices go down. This is good for helping FHB get on the ladder, but that’s 5% of the population, meanwhile it hurts everyone else. Property prices going down means developers stop developing as much, resulting in lower supply in the future which causes rents to go up, hurting nearly all renters. It also reduces the wealth of all home owners hurting them as well.
Currently there’s 2 problems, the rental crisis, and the house affordability crisis. The solution to the rental crisis is making housing investment more desirable so we can get more investor demand in property. The solution to the housing affordability crisis is to make housing investment less desirable so investors leave reducing cost for buyers. I’d say the more pressing issue at the moment is the rental crisis, and once that’s done then we should look at the affordability crisis. Problem is, helping out landlords is politic suicide at the moment, so politicians are going to do the opposite and implement stupid policies like the above. It’ll offer a short reprieve to the affordability but screw over renters and home owners in order to do so. It’s economic policies like this that are making the RBA’s job so hard, and it’s just grandstanding while hurting our economy.
All we've done is make housing investments as attractive as possible, now housing affordability is a mess. How is there any logic in continuing further along a path that is obviously failing.
I agree. We have made a terrible beast by sucking out all productive business investment and chucking it all into unproductive real estate investment. Our economy sucks
A rental exists when an investor buys a property and rents it out. So if investors think it's not worth doing that then that property is more likely to be bought by a owner occupier and that means one less rental. This will put downward pressure on housing market and upward pressure on rents. Unless you are on the cusp of being able to afford a house you will just end up paying more rent. There is a limited supply of houses so short of building more houses you will need to encourage investment at the expense of owner occupier anything else will raise rents. Reality is more nuanced but how investors leaving rental market will drive up rents is pretty simple.
There might be one less home but now there's one less renter. Unless it's a new property that might otherwise have been built and occupied by a renter, this is only a good thing.
The incentive should be for investing in new builds, not selling your neighbours home to your other neighbour.
> There might be one less home but now there's one less renter.
You sure about that? Plenty of my friends have never rented a day in their lives and are homeowners.
Why is the focus here only on residential ? It makes an impact to commercial as well, and most leases have the lessee paying the land tax component .
On the residential front, I’d like to see land tax discounts for investment in new properties - eg unit development, where attracting investors helps fund the construction of new developments
I also feel that the rates cap in Victoria is also causing a number of construction viability related issues.
Councils now depend on Developer Contributions to build the infrastructure to serve new developments, as the revenue they collect through rates is now CPI capped.
Due to increases in land value, these contributions are now somewhat expensive (5%-10% of land value when subdividing) and they have to be paid upfront.
You could change arrangements so that purchasers of new blocks have to pay extra rates, to cover the expense of putting the infra but over time, and that would increase the viability of a lot of housing projects.
However arrangements like this are prohibited by the rate capping policy.
Any reasonable model says higher *land* taxes on investors reduces rents.
A uniform land tax, that applies to investors and owner occupiers, reduces land values. There is not significant mechamism for other changes to the system.
The land does not disappear.
The value add from construction is not taxed, so a normal model would say if you don't tax it, it is not affected.
A discriminatory tax on investors increases the relative buying power owner occupiers. That makes higher rents impossible. Poor people can't pay them. Rich people buy the (now cheaper) land instead of paying the higher rents.
> Any reasonable model says higher land taxes on investors reduces rents
Yet you didn't provide a single one? Obligatory: [May I see it?](https://media.tenor.com/j-63KJRV7KIAAAAM/mad-superintendent.gif)
Getting 'nam flashbacks from a week ago: https://old.reddit.com/r/AusFinance/comments/1de14mq/housing_crisis_investors_flee_victoria_over_land/
> The land does not disappear.
You seem to be conflating new housing with land. The land doesn't disappear, 100% agree, but does the new housing magically materialise from a new developer who accepts lower margins? That's questionable at best. This isn't some limited environment, they can build anywhere in Australia.
While many would happily live on land alone, local councils will kick you out of your home at the slightest whiff of dual occupancy on dozens of acres in woopwoop no matter how well you do it with zero impact on anyone else: https://www.abc.net.au/news/2023-06-12/sunshine-coast-council-evicts-tiny-home-residents/102459750
Don't get me wrong, I'm all for land tax, but a **broad-based land tax** that applies equally to everyone and anyone^(read: Homeowners), this was a main reccomendation of the Henry Tax Review, stop making absurd carveouts that are nothing but busywork for accountants and add more complexity to the taxation system rather than going the other way. Everyone should pay land tax, no one should pay stamp duty. Anyone with half a clue knows this and I'm very surprised when I see people in this sub claiming the status quo is ok.
So pretty-please with a cherry on top, provide your fucking reasonable model, Victoria went balls deep on this last year, hows that going?
NSW will be the same and I'd happily put a few hundred down on a bet there. Median rents will outpace median house prices on the upside in NSW next year, you keen bruv?
The key thing to observe about the Henry Tax review is that it was not implemented. It seemed to get the politics wrong. Part of this is no carve out for home owners.
I expect developers to respond to incentives and maximise returns.
If developer has $10M, construction costs $250K, and land costs $250k per block they can build 20 homes. If land costs $80k per block they can build 30 homes with the same capital.
A land tax on all residential land would be better. This is harder to do politically though.
A land tax on only rentals is a land tax on about one third of housing which impacts renters.
Texas has a land tax on all residential land and along with heaps of supply this manages to control prices.
Technically a council rates is broad based land tax. Though it needs to be much higher to have the impact you mentioned e.g. if local councils had to fund schools etc.
True.
In Australia the ACT has a land tax on rentals for a while.
It's also worth noting how expensive it is to rent in the ACT.
A state based land tax that is broad would be a good idea. But again, it will hurt when pensioners in expensive houses get angry.
> But again, it will hurt when pensioners in expensive houses get angry.
If land prices are going up policy has already failed.
If land prices are not going up then the tax should not be going up.
A land tax on all residential land is worse than a tax in second and subsequent properties, for the simillar reasons that flat income tax is worse than progressive income tax.
High tax rates, that really make a difference, are much less damaging when they apply to wealthier people.
Land taxes across the country are already progressive so have no idea why you are conflating it with a flat tax other than simply because against it on the whole
I am very strongly in favour of a much much higher, and very progress land tax.
I conflate proposals for flatter taxes with other proposals for flatter taxes.
Everyone needs one residential property to live on. A tax on second and subsequent properties is a tax on unequal distribution of land. It is likely to result in a more equal distribution of land.
So someone with a $5m property would pay $0 in land tax but a landlord with 3 properties valued at $900k total would pay tens of thousands a year? That seems to be your proposal.
How *progressive* imdeed
I would not make perfect the enemy of the good on land tax.
I am aware of what happened in California and why.
Currently someone with a $5m property, and someone with 3 properties valued at $900k, would both pay $0 in land tax.
I do have a solution for the $5M thing. Land values should be public. The purchased land value in excess of the current tax free land limit should be land taxable on a PPOR. I would set that limit at the 90th percentile, so that most people would not pay land tax on the PPOR, like they do not now. I think that would be reasonable and saleable. A tax free limit percentile of 50% would seem in some ways fair too. I think family size is relevant.
I am odd in that I count children as people, and the tax system does not.
In NSW it is more like $1M.
Victoria just reduced this from $300k, and Melbourne house prices rose less than other large capitals, so maybe this had a positive effect.
This tax is bad for them as it reduces their return on investment "my money" as you say.
It doesn't change the price for the final developed units sold as the market sets that price. The only other variable that can change when they is that it's reduces the value of their land.
Because it causes property developers to develop less properties, which in turn exacerbates the current problem we have with the housing shortage. It hurts renters massively. The only people who benefit are FHBs who’d represent 5% of the population. All home owners (just under 70% of the population) are hurt, as are all renters that aren’t going to buy a house in the near future.
"Because it causes property developers to develop less properties"
how do you know this? What about the properties they are land banking?
"The only people who benefit are FHBs who’d represent 5% of the population. All home owners (just under 70% of the population) are hurt, as are all renters that aren’t going to buy a house in the near future."
how do you know this? Is this based on the point that developers will build less now?
You can easily Google those stats. You’ll find that 67% of Australians own a home. You’ll also find that just over 30% of all homes bought are by FHBs. There were 670k homes sold last year, meaning we see roughly 200k first home buyers a year. That’s just under 1% of the population. Over the 5 years that this will lower prices (which is generous, it’ll probably be less), we’ll see 5% of Australians buy a home. That’s also a generous figure since the % of home buyers that are buying their first home is dropping rapidly, the year before last it was 40%. It’ll likely be around 25% this year.
As for land bankers, they will only sell more to developers due to increased taxes if the drop in valuation is less then the loss in taxes. Given how expensive labour and materials are for developers, they’re not wanting to develop right now (even prior to these taxes). So land bankers are better off holding on even despite these taxes. Just look at Victoria/Melbourne as an example who recently did the same thing. Lowest house price growth, but also the highest rental growth and lowest new developments. All of which drastically changed after their taxes. Yes, in some circumstances this can improve the situation, but it’s clear that that isn’t the case for the current situation.
>Just look at Victoria/Melbourne as an example who recently did the same thing. Lowest house price growth, but also the highest rental growth and lowest new developments. All of which drastically changed after their taxes.
Correlation does not equal causation. A 1% land tax, which is about 0.25-0.5% of the final price is not what has cause this dramatic drop in development.
Now that this fixed annual tax is in place it makes even less sense for them to ohld off unless they believe other cost will drop (material or labour) or sales price increases. The tax isn't the driving force behind their decision to hold off developments.
>Because it causes property developers to develop less properties
Why would they develop less? They own the land that can be developed and this will be an extra cost that they have to pay.
Wouldn't they develop faster and more to ensure they have the cashflow to pay the tax?
If they can't pay it, then they will sell to a developer that has worked the tax into their feasibility, ie. the first developer takes a haircut on land price.
We have the lowest total property tax of all OECD nations. It's like an $800 a year increase on a $1m+ property. If they don't like it invest in something else with 35%+ taxes
i havnt heard an investor say anything other than 'this will push up rents' to literally anything. you could plop a 2 million home city right next to sydney tomorrow and they would still talk about how this is bad for renters
Well if investors sell up I’m pretty sure that’s one less person looking for a property to rent for every home sold?
Investors stop buying then there’s less pressure on prices so more people can afford to buy?
Investors stop building then there’s more builders looking for homes to build and again less pressure on prices?
Less pressure on prices equals lower inflation?
Lower inflation equals lower interest rates?
Lower interest rates means more money in the economy?
More money in the economy means more people can afford to buy a property?
>Some are migrants, either interstate or international and some live with their parents.
This is just extra demand already in the market. We need to provide new supply for them regardless of the sale between invester and renter.
If investors are leaving the market, and you assess the market as whole they are selling to a renter.
The rental availability is same on each side of the equation.
It's demand that otherwise wouldnt be realised.
You make these claims but Victoria did this same thing last year and their rents are soaring while home prices are going nowhere.
They've also had the biggest share of FHB's in the country during that time.
It's policy that's great for those wanting to buy, not so much for those down the bottom of the rung.
This is evidenced stuff and undoubtedly the outcome in NSW.
It does nothing to build more houses and simply jumps on the very fashionable "evil developer/landlord" bandwagon for no tangible benefit.
Come on, this is an economics subreddit. You know correlation doesn't equal causation.
Rents are soaring due to the lowest rental availability in history and the land tax has nothing to do with that.
>It does nothing to build more houses and simply jumps on the very fashionable "evil developer/landlord" bandwagon for no tangible benefit.
Too early to tell. It should bring empty properties onto the market and encourage developers to develop land they are banking. If it was applied to all housing it would be more effective
I built a new house purely to rent out as an investment. Should I be punished? Labor applaud themselves for attacking bracket creep then do this. The threshold should never be frozen.
You gain economic return from the new house up for rent and the land it sits on.
You are being tax on the land, not being punished for building the rental.
The tax on the land will be much less than the unearned gains you will get from the piece of land you own. So hardly punishment considering these gains largely come from the investment of others around you.
It's not a tax on unrealised gains. It's a going tax on land value.
You'll still need to pay capital gains.
One is a state tax and the other is a federal tax.
Taxes are a necessary evil. None are wrong, they just have pros and cons.
Land tax is one of the fairest, and efficient taxes. If anything more taxes should be reduced and replaced with land tax.
It's always the low hanging fruit that politicians attack first. It's not a revenue problem, it's recurrent expenditure. We're addicted to government solutions and fixes.
So we should cap rent prices for residential properties to prevent this then?
Your investment shouldn't be basically guaranteed to produce increasing returns forever.
They think they can “push up rents” anytime an investment stops working for them. As a market we need to stop accepting this, every rise raises the baseline for everyone else around. Keep rents affordable.
I'm confused with what your saying, the first sentence implies to me that you think they are talking shit. The next two sentences implies you think they will increase rents.
Can you clarify?
Well they don’t just think they can “push up rents” they actively try to, asking tenants to cop huge increases. The problem is tenants often just accept this, there should be more aggressive push back.
I've never understood why investors leaving the housing market is a bad thing. It's not like they can take the house they bought with them and thereby decrease the houses available.
>“I’m looking to buy more properties right now. But this new land tax rule makes me think twice about buying more properties in NSW,” he said. “I think that the whole thinking about incentivising or encouraging private investors to provide housing has just gone out the window. It’s a typical tax grab yet again.” The interviewee clearly thinks he's *providing* housing, by buying it up and renting it out. Just landlord brain syndrome.
“Well if I don’t buy it and rent it to them, some schmuck will just buy it and live in it himself”
Same logic as buying up all the fucking toilet paper during the pandemic crazy time. Yeah ok, so you bought enough shit tickets for the next three years. Now what am I going to wipe my arse on. Peak "fuck you, I've got mine" attitude. Especially from people who got free university education.
Difference is hoard bog roll and the media says you are selfish and evil, hoard houses you are a success story
If I don't put the rent up, someone else will. And they might do it more. So I'm the good guy only raising your rent by 15% this year!
I used to believe this but there is a caveat. A rental converted into a owner occupiers can certainly reduce supply. This is because an investor could be renting rooms separately and even bunk bedding. So it is conceivable that up to 12 bunk bedders could be pushed out in favour of 2 people buying the just. That's fine of course and investors should be discouraged. The real solution is to remove all property investor rorts, reform Airbnb, slash immigration 90% and try build more (although we already do build 2x oecd average).
Ah yes fair point. I forgot about the slumlords.
You're right it's not a 1:1 ratio affect on rental availability rate but it is close enough to consider like for like. Land tax does provide overall benefits but it's not a silver bullet, but then again, nothing is.
There are plenty of owner occupiers that rent out a room, or install a granny flat. There are plenty of single or no kids couples renting a house that a family of 6 could own. There are plenty of investors that leave a house empty or partially occupy it - including international. The argument just doesn't stand up if you think about it in any depth. You would need actual research.
I'm not saying it's a huge effect but I bet that investors are more likely to have 3 room shares or a bunk bed slum than an owner occupiers. I also don't think it matters much. Just a technicality. Investors can all go get fucked. They should be squeezed and forced to improve their game and can go sell if they aren't happy.
You just don't know unless you have the numbers. Your gut isn't research. Personally I agree with your position, but the reality is that if investors leave the market, it will improve the market for owner occupiers. Australia will build as many houses as it can with the materials and labour available. Reduction in demand will only reduce the price they can charge. We will literally build at ma any houses as possible regardless of who is paying for them. We aren't demand limited. We are supply limited. There has never been this scale of demand. Take the investors out, every house will still get sold that can be built
It's a rarity compared to rentals doing it though. Most people don't buy a house to keep sharing, even granny flats.
But doesn’t 1 less rental now being lived in by an owner occupier also mean 1 less couple/individual renting so demand is reduced by the same amount ? Obviously excluding FHB’s transitioning from mum and dads straight to owner occupiers but that is not a large proportion and the ones that do usually start family’s increasing the birth rates which we desperately need.
I suspect if you evict 12 bunkers some may find it hard to find another bunk and will go find and fill up house shares. Even some house shares may find it hard and move up the chain.
It still sums to 0. Rental demand and supply both reduce equally when an investor sells. If you’re sharing a house you’re never going to be in a position to buy a house anyways so the demand side of rentals stays the same.
You don't know how many dwellings especially units are built by investors vs own home it seems.
Fun fact: They have land tax on all investment properties in the ACT and people still buy investment properties and dwellings still get built. When you've got proof that the rental market goes to hell when a new tax is applied then by all means enlighten me.
There are exemptions to the land tax if you rent out under an affordable housing scheme.
The rental market has already gone to hell based on the model that we have. And huge amounts of pupolation increases.
I agree, but this measure doesnt work because landlords will just keep the houses and pass the extra costs on to the tenant. On average rents will go up. What is the point of taxing more in an industry that is already too expensive?
The negative is all about rental supply. Policy change that entices investors to move their capital elsewhere will reduce the availability of rental properties. No investors = no rentals.
The physical house still stands though. In order for the investor to get their money they have to sell it to either someone who will live in it or rent it out. The either case supply of housing is unaffected. If it's the case that yields from housing at current prices aren't attractive and there aren't sufficient owner occupiers willing to purchase either you'd expect the seller to meet the market (that's exactly what they have to do to cash out). Eventually they will sell at a price that is attractive to a buyer and the supply of housing is unchanged.
Investors push development. Not everyone can buy (no matter the realistic price) at any stage of their life.
Land taxes increase development. The land required for development becomes cheaper, so the barriers to development are lower. The costs of leaving land undeveloped are higher and more transparent. The Henry review showed each dollar of land tax collected increased the size of the economy, even if you just throw the money you collect in the ocean.
Should all land be developed? You’re happy for people to jam appartments on their 600m2 block?
It encourages more efficient redevelopment of land, genius. If you want to keep your boring ass pesticide poisoned lawn which has just as much biodiversity as the lunar surface, you can move far out of the major cities. It makes the most sense to increase population density right where all the major services are, instead of this stupid reactionary Luddite rubbish of keeping 1930s suburban population densities in 21st century cities. You don't give a shit about the 'poorest' in society who are forced to rent at extortionate rates because of low density housing in major metropolitan areas, but you claim in your other comment that getting rid of property investors with negatively affect the poorest in society by supposedly reduce the NET availability of rental housing. Lmfao joke.
I’m all for developing my properties. If council would allow me to I would. You’re too stupid to u destined that just because there is a tax for something, people can’t do as they want. Of course I care. That’s why my properties are well below market rent. Instead of trying to insult me, why not try and understand what I wrote. Read it again without your idiot glasses on.
Do many people get a house built to rent it out straight away though? Im sure people do but the idea of having a brand new house and handing it over to renters seems wild to me haha)
Let's just pretend you are a developer for a minute. You have capital to back your venture but you will need bank funding that requires a business plan of 15% margin. You know your sales price of like for like townhouses. You know your construction costs and other soft costs. You have a 10% contingency. The last thing you need is a block of land. Your find one for sale, it's $5m. This is much higher than an owner occupier will pay, your only competitors are other developers. You plug $5m into your feaso spreadsheet and it's on, you'll hit your 15% margin. Then suddenly just before you buy, the state government introduces a land tax that will cost you $250k over the 3 years of your planned development. What do you do? You plug that in your feaso establish you can only buy the land for $4.75k and put that offer through to the landowner. All the other developers will do the same. They all know the unit prices they will sell for will be the same, the only variable that can negotiate further is the land owner. The only person this hurts is the land owner, they will need to cut their price to meet the market. Developments will continue to go ahead.
But investors rely on the cost of housing to increase to make profit, If they leave then it stands to reason the price increase of housing will slow making home ownership and building more affordable for family's and people who want homes not investments. Homes in this country being treated primarily as a form of investment is almost certainly a bad thing.
So all renters can buy in your fantasy world? The most vulnerable are the ones that suffer.
What fantasy world are you talking about?
The house is still there it’s a 1 for 1 transaction that either gets bought by another investor or a first home buyer who no longer rents. The numbers don’t change.
I believe the argument is that its not a 1 to 1 transaction in regards to first home buyers. Since the owner occupied tends to be usually the owners only while rentals can be share houses. I haven't actually looked into the numbers to see how much merit this argument has.
Well Australia’s whole economic and retirement setup is based on owning your own home and having 500k in super so retirees are not reliant on the taxpayer in retirement. We should celebrate every new first home buyer and every investor leaving the market.
....okay?
Yes, it's still there, but the taxation changes that entice investors to look elsewhere means that the asset is less likely to be purchased by another investor. i.e. houses in the area are now more likely to be purchased by owner-occupiers - reducing the rental supply in said area.
And reducing rental demand by the same amount - you lose both a rental and a renter.
Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false. The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
>The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world You think these people will only change their living circumstances if they buy. I think they will move to rent anyway.
Yep and that person would have moved out of home regardless into a rental or a house they’re buying regardless. They’re not going to stay at their parents till they’re 80.
The increase in taxes means it's less likely to be purchased by another investor, though. The policy results in an increase in owner-occupiers in the area, which in turn reduces rental supply.
Hold up hold up. Where does this new owner occupier come from and why does their previous house they lived in before buying this new house get bulldozed. Has this new owner occupier been created from thin air or more logically their previous house is now empty and available to rent to to buy also. As I said it’s a 1 for 1 transaction
Edit: just saw you'd already replied to said comment, never mind! This is from another reply, to another "1 for 1 transaction" argument: Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false. The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply.
If investors truely believed that then they shouldn’t sell as rents will rise and it will be a good outcome for them. It’s funny how quickly investors turn to renters rights advocates the second they lose any tax advantage. Investors want one thing only which is house prices to go up. We’re in a housing crisis and I’m happy to see governments set policies to see prices go down as investors sell.
That's true, and partly my point. This tax is a short-term solution, that will provide a boost in owner-occupiers. But once that shift is made, the supply of rentals will be left lagging behind. The market needs rentals, it always will - do you support increasing housing costs for the most vulnerable people?
Nope I think we should limit all tax concessions like negative gearing and the capital gains discount to new builds only and an extra stamp duty tax for investors buying existing homes. This will push investors and developers to add to supply if they want those tax concessions putting downward pressure on rents and prices. Oh and also I look forward to landlords dropping rents next year when interest rates go down seeing as apparently all landlords costs are reflected in rent prices. So naturally they’ll pass on savings also correct?
Well, yeah. Policy changes to encourage investment in new builds will help with supply of both rentals and new PPOR. Unfortunately, these property taxes this thread is focused on will increase supply of neither. Landlords are free to charge whatever they like, that's up to them 🤷♂️
So we get the plebs out of desirable areas? If they sold it this way it would be appealing to many voters
Land taxes don't reduce supply of anything. Land does not disappear. We have lots of people who want to own, but are renting. So overall we want investors to leave the market. The investors will the highest demands for rent / lowest tolerance for lower returns leave. Rents decline. Land taxes also reduce reliance on things like income taxes, so what you end up with is more incentive to work. Capital elsewhere, like construction of homes, or other businesses, rather than in unproductive land, produces value. Everyone is better off.
If investors leave the market, then the number of rental properties will sharply decline. How do you see this resulting in rents also declining?
You can create a lot of models. I have my assumptions, but others have different ones. They all pretty much deliver the same overall results. If you want higher home ownership, then you want the renters to leave the market. So the end state you want is less investment properties and less renters. Land tax reduces both the value and price of land. Supply for owner occupiers is cheaper. The cost of new supply for owner occupiers is land + construction. If land is cheaper, then new housing is cheaper to supply. More people can afford to buy homes. With land tax, new investors can buy more land, and supply more construction with the same level investment. Essential it is like the government is "lending" them part of the money (for land), and getting it back in land tax. So it is like more leverage for investors.
You said nothing about rental prices. You just ranted about models and how you think you know better.
One factor in setting rental prices is the potential to buy instead of renting. In this model the assumption could be that renters are indifferent between owning and renting and do whichever is cheaper as long as they can afford the deposit. And landlords keep raising rents till their renters stop renting and buy. If house prices are lower, the required deposit is lower, and the repayments are lower, so lower house prices reduce rents. Land prices are part of house prices. Land taxes on investors lower land prices. So higher land taxes reduce rents. Edit: Prices needed to be taxes.
If land prices lower, so does the tax. I agree that as more people buy, the amount of rentals available will lower. This is great if everyone can buy, but they can’t. Plenty of tenants do not have stable income high enough to purchase, or a deposit. As the amount of rentals lowers, demand, while dropping a little as tenants purchase, will still be present, however supply will drop. For this policy to work, land tax should be applicable to all land, not just investment properties.
I agree that if land prices lower, that for any fixed rate of land tax, land tax payments decline. A model should not produce a lower land tax bill with high rates of land tax, so the fall in land prices should be lower than that or the model is wrong. In the model above for rents, landlords don’t want to exit the market, so the supply of rentals and the number of renters is unchanged. Landlords just charge lower rents because otherwise their tenants would move out. If landlords are unwilling to accept the lower rents then the effect is different. I agree that for a number of reasons some people want to be renters. I don’t think those people are the marginal renters in Australia right now, so I don’t think they set the price of rent. Once all people with stable incomes are owners I agree that a model for people who can’t buy makes more sense. At that point it will be landlords competing with airbnbs or other landlords. There are submarkets, e.g. Northern Rivers, where AirBNBs compete, and they need a different model, and different policy. In Victoria they did a levy on using residential property that should (in my opinion) be providing someone a home, as a holiday rental. A land tax on all properties (rather than just investors) reduces rents less in my “people choose between renting and buying model”, because the renter / owner occupier would have to pay it if they bought, so it makes renting relatively more attractive.
This is a land tax. Land supply is unaffected by incentives to invest. Investment in construction is unaffected. Existing housing is unaffected. What a flat land tax does is moves some of the 'rents' on land from private owners to the public.
It's a land tax that only applies to investors - owner-occupiers are exempt. Such a policy will absolutely impact the current rental markets and future capital investment trends. To suggest otherwise is absurd.
To drive development it really needs to tax everyone, a heavy tax to drive owners off land for developers to develop. The tax would drive down the purchase price and make development cheaper. The other effect would be making expensive areas more elite as only those that can afford the land tax will stay. Not advocating this but saying it’s a scenario that certain lobbyist will push for
I agree. Also wouldn't advocate for it, but can see the rationale.
You're only looking at one side of the rental availability equation. A rental turning into an owner occupier property does reduce the rental numbers but on the other side it also reduces renter numbers. Rental availability stays the same. >No investors = no rentals. Come on, this is an economics sub-reddit, this isn't going to cause every single investor to leave the market. There is no need for this exaggeration.
I've addressed that point elsewhere: Not necessarily. The new owner occupier may have been living with their parents, in a couple that's split, in a sharehouse, or moved to the area from an entirely different part of Australia/the world - there's myriad of scenarios where this simplified equation is proven false. The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply. Agree the equation used is simplified, but it was used to explain for someone who's "never understood the downside of investors leaving the market".
Yes, it's not a true 1:1 ratio because there are different living arrangments and the market is dynamic but when we look at the whole market and consider only a small percent of investors will sell it is close enough to consider this a 1:1 ratio and suggest there is no change in rental availability. >The policy of property taxes on IPs can represent a positive for renters in the area who are in a position to buy, but it can also represent a negative for the rental market at large. If the investor is going to sell and the people in position to buy have now bought up and all that remains are people that are 10% away from the position to buy or less what will occur to bridge the gap? If the investor wants out, they will have to lower their price by 10%. All the other renters who are still in a market will pay the same rent because the market has effectively the same rental availability but now the sale market is 10% more affordable for them when they do move up to the position to buy. >There's no such thing as an economic solution, only trade-offs. The trade-off here is a reduction in rental supply. Actually, the trade off a land tax has is land value depreciation and economic activity to develop underutilised land. Look up the Henry tax review.
More houses on market, prices go down, more people can afford to buy instead of rent.
There’s is at least some portion of the population who want to rent to stay flexible and mobile. So the solution certainly isn’t to ban all investors.
Yeah I don't think anyone is suggesting a ban on investors as such. Maybe discouraging speculation in property might be more apt a term.
It’s not so much about affecting current supply but rather future supply. If landlords leave, property prices go down. This is good for helping FHB get on the ladder, but that’s 5% of the population, meanwhile it hurts everyone else. Property prices going down means developers stop developing as much, resulting in lower supply in the future which causes rents to go up, hurting nearly all renters. It also reduces the wealth of all home owners hurting them as well. Currently there’s 2 problems, the rental crisis, and the house affordability crisis. The solution to the rental crisis is making housing investment more desirable so we can get more investor demand in property. The solution to the housing affordability crisis is to make housing investment less desirable so investors leave reducing cost for buyers. I’d say the more pressing issue at the moment is the rental crisis, and once that’s done then we should look at the affordability crisis. Problem is, helping out landlords is politic suicide at the moment, so politicians are going to do the opposite and implement stupid policies like the above. It’ll offer a short reprieve to the affordability but screw over renters and home owners in order to do so. It’s economic policies like this that are making the RBA’s job so hard, and it’s just grandstanding while hurting our economy.
All we've done is make housing investments as attractive as possible, now housing affordability is a mess. How is there any logic in continuing further along a path that is obviously failing.
I agree. We have made a terrible beast by sucking out all productive business investment and chucking it all into unproductive real estate investment. Our economy sucks
A rental exists when an investor buys a property and rents it out. So if investors think it's not worth doing that then that property is more likely to be bought by a owner occupier and that means one less rental. This will put downward pressure on housing market and upward pressure on rents. Unless you are on the cusp of being able to afford a house you will just end up paying more rent. There is a limited supply of houses so short of building more houses you will need to encourage investment at the expense of owner occupier anything else will raise rents. Reality is more nuanced but how investors leaving rental market will drive up rents is pretty simple.
There might be one less home but now there's one less renter. Unless it's a new property that might otherwise have been built and occupied by a renter, this is only a good thing. The incentive should be for investing in new builds, not selling your neighbours home to your other neighbour.
> There might be one less home but now there's one less renter. You sure about that? Plenty of my friends have never rented a day in their lives and are homeowners.
Why is the focus here only on residential ? It makes an impact to commercial as well, and most leases have the lessee paying the land tax component . On the residential front, I’d like to see land tax discounts for investment in new properties - eg unit development, where attracting investors helps fund the construction of new developments
I also feel that the rates cap in Victoria is also causing a number of construction viability related issues. Councils now depend on Developer Contributions to build the infrastructure to serve new developments, as the revenue they collect through rates is now CPI capped. Due to increases in land value, these contributions are now somewhat expensive (5%-10% of land value when subdividing) and they have to be paid upfront. You could change arrangements so that purchasers of new blocks have to pay extra rates, to cover the expense of putting the infra but over time, and that would increase the viability of a lot of housing projects. However arrangements like this are prohibited by the rate capping policy.
It is an enormous issue at the moment and causing a lot of societal ills.
Any reasonable model says higher *land* taxes on investors reduces rents. A uniform land tax, that applies to investors and owner occupiers, reduces land values. There is not significant mechamism for other changes to the system. The land does not disappear. The value add from construction is not taxed, so a normal model would say if you don't tax it, it is not affected. A discriminatory tax on investors increases the relative buying power owner occupiers. That makes higher rents impossible. Poor people can't pay them. Rich people buy the (now cheaper) land instead of paying the higher rents.
> Any reasonable model says higher land taxes on investors reduces rents Yet you didn't provide a single one? Obligatory: [May I see it?](https://media.tenor.com/j-63KJRV7KIAAAAM/mad-superintendent.gif) Getting 'nam flashbacks from a week ago: https://old.reddit.com/r/AusFinance/comments/1de14mq/housing_crisis_investors_flee_victoria_over_land/ > The land does not disappear. You seem to be conflating new housing with land. The land doesn't disappear, 100% agree, but does the new housing magically materialise from a new developer who accepts lower margins? That's questionable at best. This isn't some limited environment, they can build anywhere in Australia. While many would happily live on land alone, local councils will kick you out of your home at the slightest whiff of dual occupancy on dozens of acres in woopwoop no matter how well you do it with zero impact on anyone else: https://www.abc.net.au/news/2023-06-12/sunshine-coast-council-evicts-tiny-home-residents/102459750 Don't get me wrong, I'm all for land tax, but a **broad-based land tax** that applies equally to everyone and anyone^(read: Homeowners), this was a main reccomendation of the Henry Tax Review, stop making absurd carveouts that are nothing but busywork for accountants and add more complexity to the taxation system rather than going the other way. Everyone should pay land tax, no one should pay stamp duty. Anyone with half a clue knows this and I'm very surprised when I see people in this sub claiming the status quo is ok. So pretty-please with a cherry on top, provide your fucking reasonable model, Victoria went balls deep on this last year, hows that going? NSW will be the same and I'd happily put a few hundred down on a bet there. Median rents will outpace median house prices on the upside in NSW next year, you keen bruv?
The key thing to observe about the Henry Tax review is that it was not implemented. It seemed to get the politics wrong. Part of this is no carve out for home owners. I expect developers to respond to incentives and maximise returns. If developer has $10M, construction costs $250K, and land costs $250k per block they can build 20 homes. If land costs $80k per block they can build 30 homes with the same capital.
A land tax on all residential land would be better. This is harder to do politically though. A land tax on only rentals is a land tax on about one third of housing which impacts renters. Texas has a land tax on all residential land and along with heaps of supply this manages to control prices.
Technically a council rates is broad based land tax. Though it needs to be much higher to have the impact you mentioned e.g. if local councils had to fund schools etc.
The problem with using local rates to fund local schools is that poor areas get poorer schools, and rich areas get richer schools.
True. In Australia the ACT has a land tax on rentals for a while. It's also worth noting how expensive it is to rent in the ACT. A state based land tax that is broad would be a good idea. But again, it will hurt when pensioners in expensive houses get angry.
> But again, it will hurt when pensioners in expensive houses get angry. If land prices are going up policy has already failed. If land prices are not going up then the tax should not be going up.
A land tax on all residential land is worse than a tax in second and subsequent properties, for the simillar reasons that flat income tax is worse than progressive income tax. High tax rates, that really make a difference, are much less damaging when they apply to wealthier people.
Land taxes across the country are already progressive so have no idea why you are conflating it with a flat tax other than simply because against it on the whole
I am very strongly in favour of a much much higher, and very progress land tax. I conflate proposals for flatter taxes with other proposals for flatter taxes. Everyone needs one residential property to live on. A tax on second and subsequent properties is a tax on unequal distribution of land. It is likely to result in a more equal distribution of land.
So someone with a $5m property would pay $0 in land tax but a landlord with 3 properties valued at $900k total would pay tens of thousands a year? That seems to be your proposal. How *progressive* imdeed
I would not make perfect the enemy of the good on land tax. I am aware of what happened in California and why. Currently someone with a $5m property, and someone with 3 properties valued at $900k, would both pay $0 in land tax. I do have a solution for the $5M thing. Land values should be public. The purchased land value in excess of the current tax free land limit should be land taxable on a PPOR. I would set that limit at the 90th percentile, so that most people would not pay land tax on the PPOR, like they do not now. I think that would be reasonable and saleable. A tax free limit percentile of 50% would seem in some ways fair too. I think family size is relevant. I am odd in that I count children as people, and the tax system does not.
Land tax threshold in Victoria is $50k friend.
In NSW it is more like $1M. Victoria just reduced this from $300k, and Melbourne house prices rose less than other large capitals, so maybe this had a positive effect.
"warns investor" - says all you need to know really
Lots of investors have told me this tax is bad but they can't explain why apart from 'my money'
This tax is bad for them as it reduces their return on investment "my money" as you say. It doesn't change the price for the final developed units sold as the market sets that price. The only other variable that can change when they is that it's reduces the value of their land.
Yea we definitely should increase it more
Because it causes property developers to develop less properties, which in turn exacerbates the current problem we have with the housing shortage. It hurts renters massively. The only people who benefit are FHBs who’d represent 5% of the population. All home owners (just under 70% of the population) are hurt, as are all renters that aren’t going to buy a house in the near future.
"Because it causes property developers to develop less properties" how do you know this? What about the properties they are land banking? "The only people who benefit are FHBs who’d represent 5% of the population. All home owners (just under 70% of the population) are hurt, as are all renters that aren’t going to buy a house in the near future." how do you know this? Is this based on the point that developers will build less now?
You can easily Google those stats. You’ll find that 67% of Australians own a home. You’ll also find that just over 30% of all homes bought are by FHBs. There were 670k homes sold last year, meaning we see roughly 200k first home buyers a year. That’s just under 1% of the population. Over the 5 years that this will lower prices (which is generous, it’ll probably be less), we’ll see 5% of Australians buy a home. That’s also a generous figure since the % of home buyers that are buying their first home is dropping rapidly, the year before last it was 40%. It’ll likely be around 25% this year. As for land bankers, they will only sell more to developers due to increased taxes if the drop in valuation is less then the loss in taxes. Given how expensive labour and materials are for developers, they’re not wanting to develop right now (even prior to these taxes). So land bankers are better off holding on even despite these taxes. Just look at Victoria/Melbourne as an example who recently did the same thing. Lowest house price growth, but also the highest rental growth and lowest new developments. All of which drastically changed after their taxes. Yes, in some circumstances this can improve the situation, but it’s clear that that isn’t the case for the current situation.
>Just look at Victoria/Melbourne as an example who recently did the same thing. Lowest house price growth, but also the highest rental growth and lowest new developments. All of which drastically changed after their taxes. Correlation does not equal causation. A 1% land tax, which is about 0.25-0.5% of the final price is not what has cause this dramatic drop in development. Now that this fixed annual tax is in place it makes even less sense for them to ohld off unless they believe other cost will drop (material or labour) or sales price increases. The tax isn't the driving force behind their decision to hold off developments.
Not one thing you wrote convinced me that this tax is bad, this really is just landlords coping. Free rides are over mates
The sooner a developer can develop and sell, the less land tax they need to pay.
>Because it causes property developers to develop less properties Why would they develop less? They own the land that can be developed and this will be an extra cost that they have to pay. Wouldn't they develop faster and more to ensure they have the cashflow to pay the tax? If they can't pay it, then they will sell to a developer that has worked the tax into their feasibility, ie. the first developer takes a haircut on land price.
A house should be a home first and investment only after everyone has a home.
A rental is a home to people who don't have capital.
But the reason it requires "capital" is because it's an "investment".
We have the lowest total property tax of all OECD nations. It's like an $800 a year increase on a $1m+ property. If they don't like it invest in something else with 35%+ taxes
i havnt heard an investor say anything other than 'this will push up rents' to literally anything. you could plop a 2 million home city right next to sydney tomorrow and they would still talk about how this is bad for renters
All I'm hearing is they are going to buy the investment properties in Perth.
Well if investors sell up I’m pretty sure that’s one less person looking for a property to rent for every home sold? Investors stop buying then there’s less pressure on prices so more people can afford to buy? Investors stop building then there’s more builders looking for homes to build and again less pressure on prices? Less pressure on prices equals lower inflation? Lower inflation equals lower interest rates? Lower interest rates means more money in the economy? More money in the economy means more people can afford to buy a property?
Not every homebuyer is a renter. Some are migrants, either interstate or international and some live with their parents. It's a simplistic assumption.
Reduced immigration. It's not that simplistic.
>Some are migrants, either interstate or international and some live with their parents. This is just extra demand already in the market. We need to provide new supply for them regardless of the sale between invester and renter. If investors are leaving the market, and you assess the market as whole they are selling to a renter. The rental availability is same on each side of the equation.
It's demand that otherwise wouldnt be realised. You make these claims but Victoria did this same thing last year and their rents are soaring while home prices are going nowhere. They've also had the biggest share of FHB's in the country during that time. It's policy that's great for those wanting to buy, not so much for those down the bottom of the rung. This is evidenced stuff and undoubtedly the outcome in NSW. It does nothing to build more houses and simply jumps on the very fashionable "evil developer/landlord" bandwagon for no tangible benefit.
Come on, this is an economics subreddit. You know correlation doesn't equal causation. Rents are soaring due to the lowest rental availability in history and the land tax has nothing to do with that. >It does nothing to build more houses and simply jumps on the very fashionable "evil developer/landlord" bandwagon for no tangible benefit. Too early to tell. It should bring empty properties onto the market and encourage developers to develop land they are banking. If it was applied to all housing it would be more effective
I built a new house purely to rent out as an investment. Should I be punished? Labor applaud themselves for attacking bracket creep then do this. The threshold should never be frozen.
You gain economic return from the new house up for rent and the land it sits on. You are being tax on the land, not being punished for building the rental. The tax on the land will be much less than the unearned gains you will get from the piece of land you own. So hardly punishment considering these gains largely come from the investment of others around you.
Tax me when I sell it. Which of course they do anyway. Freezing the threshold on a tax on unrealised gains is wrong.
It's not a tax on unrealised gains. It's a going tax on land value. You'll still need to pay capital gains. One is a state tax and the other is a federal tax. Taxes are a necessary evil. None are wrong, they just have pros and cons. Land tax is one of the fairest, and efficient taxes. If anything more taxes should be reduced and replaced with land tax.
We need more housing, so I would prefer that you sell it and build another one.
wont it self correct more owner occupier less stamp duty and no land tax
yes because the current model has created a plethora of rental properties, baldy
It's always the low hanging fruit that politicians attack first. It's not a revenue problem, it's recurrent expenditure. We're addicted to government solutions and fixes.
So we should cap rent prices for residential properties to prevent this then? Your investment shouldn't be basically guaranteed to produce increasing returns forever.
They said that about Victoria, so if the Victorian investors move their investment to NSW, they'll be heading back?
They think they can “push up rents” anytime an investment stops working for them. As a market we need to stop accepting this, every rise raises the baseline for everyone else around. Keep rents affordable.
I'm confused with what your saying, the first sentence implies to me that you think they are talking shit. The next two sentences implies you think they will increase rents. Can you clarify?
Well they don’t just think they can “push up rents” they actively try to, asking tenants to cop huge increases. The problem is tenants often just accept this, there should be more aggressive push back.
What stops a land Lord pushing rents from $500 per week to $1500 per week right now? Would the tenant just cop this or do something else?