It’s not just apartment investors that are being stung by the Victorian Government’s array of property taxes. They are also punishing apartment tenants who have been hit hard financially by both government taxes and cost of living. It has been a prolonged campaign against investors and renters for many years.
The Victorian Government’s property taxes have long been a point of contention among property owners and renters alike. While touted as protecting local property buyers and bolstering state revenue, they do neither. They have unintended consequences that ripple through the housing market, affecting both investors and tenants.
Owners and Renters help each other
In November 2023, I penned an article titled Owners and Renters Help Each Other, emphasising the symbiotic relationship between property investors and tenants. The crux of the argument is that by dismantling barriers to property investment, we can stimulate the creation of more rental accommodation and help stabilise rental affordability. An efficiently operating property market naturally balances supply and demand, benefiting all stakeholders.
Recent Research – FPAD & AOS
Fast forward to this week, The Property Council of Australia’s Victorian Division unveiled a research paper that delves into a decade worth of data. The findings are startling: Victoria’s tax on international capital since 2015, has led to the forfeiture of approximately 81,000 homes. This independent research, conducted by the Australian Education Assessment Services (AEAS), sheds light on the profound impact of the Foreign Purchasers Additional Duty (FPAD) and the Absentee Owner Surcharge (AOS).
Key findings from the research include:
- Loss of New Homes: Victoria missed out on 81,598 new homes, valued at an estimated $63.9 billion.
- Decline in Revenue: The state experienced a $194 million shortfall in stamp duty and land tax revenues.
- Job Losses: Between 55,397 and 90,951 jobs were lost in Victoria, a significant blow to the local economy.
- Economic Downturn: The overall economic impact ranges from a net loss of $57 billion to $93 billion.
These figures underscore the consequences of policies that might feel good to voters at the time but have stymied investment and exacerbated housing shortages. We need a government to do what is right longer term.
In December 2024, the Property Council reaffirmed its stance through a pre-budget submission to the Victorian Government. This submission outlined a strategic pathway to rejuvenate investment in both apartments and houses, aiming to benefit buyers and renters alike. The recommendations included stripping back uncompetitive foreign investor tax, extending off-the-plan concessions, enhancing the First Homeowner Grant, plus others to help restore confidence in the housing sector.
Government Housing Plan
The Victorian Government’s own housing plan, unveiled in September 2023, set an ambitious target: the construction of 800,000 homes over the next decade. This equates to 80,000 homes annually. After 12 months it sat at 60,000. The current trajectory, influenced by deterrent taxes on international investors, casts doubt on the feasibility of this target.
The rationale behind taxes like FPAD and AOS is often rooted in the desire to prioritise local buyers and curb speculative investments. However, the AEAS research indicates that such taxes may inadvertently deter genuine investments that contribute to housing supply. By dissuading international capital, the state not only reduces the number of new homes but also misses out on significant economic benefits, including job creation and increased tax revenues.
It is imperative to recognise that property investors and renters are not adversaries; their fortunes are intertwined. Investors provide the capital necessary for developing rental properties, and renters supply the demand that makes these investments viable. Policies that hinder investment inevitably constrict supply, leading to increased competition for available rentals and, consequently, higher rents.
The broader economic implications cannot be ignored either. The loss of over 80,000 potential homes translates to missed opportunities for thousands of families to secure a home. The associated job losses further strain the economy, reducing consumer spending and diminishing overall economic vitality.
Non-productive taxes
Short-sighted policies targeting revenue from foreigners at the expense of long-term growth is bad policy. A tax regime that results in the loss of tens of thousands of homes and billions in economic value is counterproductive, especially when juxtaposed against the government’s own housing targets.
It is essential for the Victorian Government to reassess its approach to property taxation. By fostering an environment that encourages both domestic and international investment, the state can address housing shortages, stabilise rent prices, and stimulate economic growth. A collaborative approach, where the government works in tandem with industry stakeholders, will pave the way for a more prosperous and equitable housing market for all Victorians.
