Vacant dwellings, rife in Melbourne?

Glenn - The Census Expert

Glenn is our resident Census expert. After ten years working at the ABS, Glenn's deep knowledge of the Census has been a crucial input in the development of our community profiles. These tools help everyday people uncover the rich and important stories about our communities that are often hidden deep in the Census data. Glenn is also our most prolific blogger - if you're reading this, you've just finished reading one of his blogs. Take a quick look at the front page of our blog and you'll no doubt find more of Glenn's latest work. As a client manager, Glenn travels the country giving sought-after briefings to councils and communities (these are also great opportunities for Glenn to tend to his rankings in Geolocation games such as Munzee and Geocaching).

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6 Responses

  1. Some valid points there, Glenn, but I believe you underrate the stimulatory effect an all-in land tax or higher municipal rates could have on those people holding untenanted residential properties off the market for eventual capital gain, no matter how low their number. We are told the bubble in land prices is explained by a shortage of supply, yet holding costs are ludicrously low for those who are speculating on a rise in the capital value of their property. Shortage of supply was also held to explain rapidly escalating land prices in Southern California to 2007 for what in the event proved be enormous residential over-development. Many people miss the point that high land prices mainly reflect the excessive private capture and capitalisation of publicly-generated land rent. The last forty years has seen a winding back of municipal and State charges on land relative to other taxes, so it’s little wonder people see property as an excellent investment in view of the tax breaks (including the Whitlam government undertaking to pay half municipal revenue, more recently, the 50% of marginal tax rates on capital gains, negative gearing of real estate investment, the amount of self-funded superannuation going into property investment, etc.) The case Prosper Australia puts for greater land-based revenue, especially if it allows the abolition of stamp duty on property conveyancing, is pretty strong in these circumstances.

    • Thanks Bryan,

      I don’t really see the value in holding an untenanted property like that, when you could be getting rent from it. The only way I could see it happening is perhaps if someone inherited a place and delayed selling. If you’re getting a mortgage surely the holding costs would be too high? As I said I also don’t think a 4.8% empty rate is all that high given the myriad ways that could be made up, including holiday homes.

      I agree with the argument for land-based taxes in place of stamp duty, as it broadens the tax base and encourages more labour mobility. I just think that getting that conclusion from this data is a stretch.

      The 50% discount on capital gains is often quoted, but what’s not usually mentioned is that for long-term investors it’s often worse, as the ability to index gains to CPI and only pay CGT on “real” after inflation gains has been removed. As for negative gearing, I think a few people do get sucked into paying too much for property in some cases – you just have to look at the rental yields. It’s worth remembering that if it’s negative geared it’s losing money, and future capital gain can’t keep going forever to pay for that, as it would require continually declining yield. But owner-occupiers are just as guilty of over-paying for property at times, as they are less likely to see it as a purely business proposition, and more likely to have an emotional attachment.

      Glenn

    • And as I mentioned, negative gearing doesn’t apply to dwellings left vacant if they’re not actually available to rent. None of the costs can be deducted.

  2. Yup – rental yields currently as low as 2% gross in parts of Melbourne (i.e. only 1%+ net) is confirmation a bubble in residential prices exists, and that prices and yields must revert to long term averages at some point. That has to entail financial and social strife, again – sooo repetitive!

  3. Hi Glenn,

    I just discovered this blog. Excellent.

    Did you see this piece in the SMH? http://www.smh.com.au/nsw/thousands-of-empty-homes-adding-to-sydneys-housing-crisis-experts-say-20160323-gnpc52.html

    In your opinion, is there a big “overhang” of empty properties that could be dumped in a downturn, crashing home prices?

    rgds,
    rory

    • Yes, I saw that piece in the SMH. In many ways it’s not as well researched as the Melbourne one I commented on in the blog. They are primarily using Census data as an indicator of unoccupied dwellings, and that’s fraught with problems – Census is one night, and in 2011 many people were overseas on Census night, particularly from well-off areas – the Australian dollar was over $1.00 US at the time (ah, the memories…). So they aren’t vacant long term, just on Census night. Also in affluent areas of inner Sydney, many well-off people maintain a “city pad” and a regional property, and keep it vacant, when they are not there, adding to the numbers. Many of these have been owned outright for a long time. Also the insinuation (mainly in the comments) that negative gearing is to blame is completely false – you can’t negative gear an empty property unless you’re actively trying to rent it out at market rates.

      On balance, no, I don’t think there is a big overhang of dwellings that are likely to be dumped in a downturn. That’s not to say there may not be some short-term oversupply, with a lot of apartments currently under construction. Nor that house prices couldn’t fall a bit. They could, but without a very big increase in unemployment, and interest rates simultaneously, I don’t see an across-the-board crash happening any time soon. Australians will just hold on to property if the price goes down a bit and wait out any downturn.

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