It’s not hard to argue that the extra costs and the added onus to adhere to new rental laws are a disincentive to invest.
“Disincentives to landlords have built up over time for various reasons,” Domain head of research and economics Dr Nicola Powell said. “I’m concerned that this land tax will provide a further disincentive for investors to choose Melbourne,particularly because Victoria also provides low price growth.”
But what if that was the point?
“It could be that land tax reform has been a thing that’s helped to cool investor demand for loans in Victoria,” UNSW City Futures Research Centre senior research fellow Dr Chris Martin said. “But that’s not necessarily a bad thing. That’s more space in the housing market for owner occupiers,first home buyers,and there’s more room for other sorts of landlords.”
The other sort of landlords being those who can afford to maintain their investments. The value of negative gearing tax concessions has been rising along with interest rates,which reliably implies the number of unprofitable investments is also rising.
If the landlord of a profitable — or barely profitable — investment property couldn’t afford an extra few thousand dollars to pay their expanded land tax,it stands to reason they may have been unable to meet the costs of maintaining the investment otherwise. Even worse if they chose to pay the land tax over adding a working heater,for example,as isrequired by the minimum standards.
The question remains if the flight of those landlords is having a meaningful effect on the cost of rents in Melbourne. Economic theory maintains that any restriction of supply while demand is high will push prices higher. Finding out whether expanded taxes and stronger tenants’ rights has contributed to spiking rents is somewhat more difficult,though,and at this point is largely conjecture.
“It’s something that’s hard to prove unless you were doing some primary research and surveying investors on their intentions,” CoreLogic research director Tim Lawless said. “At the moment,it’s just putting the pieces of the puzzle together[but] it’s clearly a disincentive. You couldn’t think it would be a positive to investment demand.”
So,is the expanded tax a bad thing? For those landlords just hanging on,of course. For first home buyers snagging an ex-rental at bargain-bin prices? Absolutely not.
For tenants,it’s much harder to say. On one hand,by the end of the expanded tax’s 10-year lifespan,they could be reasonably confident that their landlord can afford the costs of maintaining their home.
But if the tax is found to have contributed to their rent going up in a cost-of-living crisis,it may leave a bitter taste in their mouth.