Victoria

Anyone who wants to understand why we have a shortage of housing, with rising prices and in particular rising rents, should make a study of the state of Victoria.   While all states and territories have contributed to the discouragement of new home building and especially to investors who provide the bulk of the rental housing, nowhere has been more prolific and emphatic in telling investors to stay away than Victoria.   Dictator Daniel Andrews was in a class of his own when it comes to discouragement investment in housing – and, having created a mess including a state debt crisis and the international embarrassment of cancelling the Commonwealth Games, he quit in September and left it to others to sort out the debacle.   The evidence so far is that the new regime is intent on making a bad situation worse.   Columnist in The Australian James Kirby noted in an article on 7 November the series of taxation hits taken by property investors in Victoria recently.   Kirby wrote: The Victorian government kicked off the property tax changes in its budget in May, and then widened the tax net to include more investors when a vacant residential land tax was extended beyond the inner city to include the entire state. The tax will impact investors and holiday-home-owners from next January.   In recent times the Victorian government has also introduced a windfall gains tax for property developers and doubled the tax on absentee buyers from 2 per cent to 4 per cent, along with hitting the short-term rental market with a tax of 7.5 per cent on annual revenue.   Kirby quoted Irina Tan of Pitcher Partners: “It is no exaggeration to describe the proposed changes to Victoria’s land tax regime as a seismic shift in the way the system currently operates, that will impact anyone who buys or sells land.”   But it is the unexpected expansion of the vacant land tax that appears to have triggered widespread frustration across the property sector.   Under the terms of the plan, all owners of a second property beyond the family home in Victoria will face a tax of $975 plus 0.1 per cent.   The tax must be paid unless the owner has lived in the property for a minimum of four weeks each year or leased the house for at least six months.   Here are some of details which have turned investors, builders and developers away from Victoria:-   Long lead-up times for new homes: Construction times for all types of homes in Victoria have blown out massively in recent years.   Victorians looking to build an apartment can expect to wait more than two years before they can actually move in, with the average time from planning approval to completion blowing out to almost 30 months - in other words, two and a half years.   Those building new townhouses will be forced wait more than 15 months before they can shift in furniture, while Victorians building freestanding houses will typically wait almost 11 months.   Denita Wawn of Master Builders Australia says the delivery of new homes has “been obstructed by the combination of labour shortages and broken supply chains, on top of planning delays, insufficient land release and red tape.   She says: “These unnecessary delays to construction ultimately drive up the cost of building.”   New vacancy tax: Holiday homes across Victoria will be hit by the state government’s new vacancy tax, despite earlier assurances from the State Treasurer Tim Pallas that they are exempt.   The property industry was left reeling by the new Allan Government’s surprise plans to change the Windfall Gains Tax, the Land Tax Act and the vacancy tax, revealed in October just two weeks after striking a housing partnership with the sector.   The vacancy tax currently applies only to houses in Melbourne’s inner and middle-ring suburbs that have been unoccupied for more than six months, but will expand to include the whole state from January 2025.   One of the big forces behind this change is the Greens, who seem to regard real estate ownership as a criminal activity and to believe it’s okay to force people to do things with their properties that they don’t want to do. And they also want to rent controls.   So they want to force people to allow strangers to live in their properties and then dictate how much rent they can charge.   New tax on Airbnb properties: In September the State Government announced a new tax on property owners who use short-term letting systems like Airbnb. The tax will be 7.5% of annual revenue.   According to the Opposition, this was the 50th new or increased tax by the Labor State Government since coming to power in 2014.   Independent analysis shows Victoria is by far the highest-taxing state in the nation.   More infrastructure levies:   More developers would be slugged with a levy to help pay for local infrastructure under a plan the State Government is considering.   But the industry says the plan to worsen housing affordability, arguing more developers could be forced to pass on the costs of the Growth Areas Infrastructure Contribution to consumers at a time of high interest rates, expensive building materials and key worker shortages.   The one-off charge currently applies to developments in seven local government areas around Melbourne’s fringe: Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham.   But the State Government plans to broad the levy to include all of Melbourne or even the entire state to fund incoming housing reforms.    Growing state debt:   Why is the State Government of Victoria slugging the housing industry with new or increased taxes?   Because Victoria is drowning in debt thanks to nine years of financial mismanagement by the Daniel Andrews Government.   Victoria is sitting on debt totalling about $120 billion, making it the nation’s most indebted state:   According to independent economist Saul Eslake. the increase in debt has been driven by the government’s decision to “embark on very big, largely debt-funded infrastructure spending programs”.   In August, Moody’s projected that Victoria’s debt would reach $226 billion by 2026, endangering the state’s credit rating, which is already the lowest in the country. According to Moody’s, Victoria’s debt will have increased by 85% in five years.   It hasn’t been helped by a massive blowout in construction costs for infrastructure projects. In 2016, the North East Link was to cost $10 billion. Its price tag is now $16.5 billion.    The West Gate Tunnel ballooned from $5.5 billion to $10 billion. The Metro Tunnel’s 2015 business case said it would cost $7.5 billion, but it will cost $12 billion. And the Suburban Rail Loop was to cost $50 billion. Its first stage, covering a third of the total plan, is budgeted at $34.5 billion.   Investors are selling: Analysis in August by PropTrack found that Victorian landlords evicting themselves from the state’s property market – and have racked up the highest share of home sales since 2018.   PropTrack figures show about 29% of sales across the state in June were landlords getting out, while the state’s biggest real estate agency has revealed the Melbourne exodus is so extreme that less than half the homes sold by investors are being replaced by new investments.   The Real Institute Of Victoria reports that one in four Melbourne rental providers have sold their properties over the past 12 months.   Quentin Kilian, the CEO of the Real Estate Institute of Victoria, said:   “Investors are fleeing and looking at other states. Each time a new tax or a new regulation is introduced it beats confidence out of one of the state’s most important economic contributors,” he said. Two years ago, Melbourne’s vacancy rate was 3.5%, the highest among the capital cities.   Now it’s just 1.2% and falling steadily. And that means higher rents for tenants.