Why Albanese should tax vacant houses

The first tranche of 2021 census data, released last week, revealed almost one in 10 Australian houses were vacant on census night — that’s more than one million homes.

Multiple media outlets have raised alarm about this as if it were new, but it’s actually a persistent problem. The 2016 census found 950,712 vacant properties, which then represented a slightly higher 11% of total private dwellings.

This time around, some vacancies may have been explained by lockdowns keeping owners or Airbnb guests away from holiday homes. But our persistently high vacancy rate also suggests a large proportion of dust-gathering investment properties.

Owners of vacant properties are forgoing a potentially lucrative source of passive income. Yet for many, it appears eye-watering capital gains render finding suitable tenants and maintaining a liveable property not worth the extra effort. Others are keeping their options open in case they’d like to quickly sell.

This vast housing inequality looks particularly cruel from the perspective of the homeless. The 2016 census found more than 116,000 Australians were homeless (we’ll get the updated figure in 2023, but it’s unlikely to have fallen much). So Australia has approximately nine vacant houses for every homeless person — more than enough to end homelessness if merely a fraction was put to use.

Yet in last week’s coverage, few examined the tailor-made policy response — vacant property taxes.

Rent out or pay up

Victoria has already imposed such a tax. The Andrews government introduced it in 2017, taking 1% of capital improved value (CIV) from properties left unoccupied for six months in 16 high-demand Melbourne areas. It was waived during lockdowns, when owners may have struggled to secure tenants, but resumes operation this year. The Victorian government also charges an additional 2% land tax surcharge for absentee owners.

The idea is sound, but Victoria’s iteration is too small to have the desired effect of prodding owners to rent or sell. Home vacancies kept rising in the three years after the tax was introduced. As the Grattan Institute’s John Daley and Brendan Coates wrote: “How much will these investors care? They are already leaving 2% of the value of the property on the table each year by not renting it out.”

Vancouver, which also introduced an empty home tax of 1% CIV in 2017, has since increased its rate to 3% CIV. It’s time Spring Street did the same. A city report found Vancouver’s tax has now decreased vacancy rates by roughly a quarter.

Relying on owners to self-report also increases the risk of evasion, even when rule-breakers risk a fine. Looking at water usage data, as housing research centre Prosper Australia do, would give a more accurate picture.

Victoria must urgently fix these holes in its well-intentioned policy if it is to put underutilised housing to better use.

Albanese could lead

While traditionally a city-based tax, the new federal government could also lead on housing vacancy by pioneering a national approach. Indeed, federal Labor committed to doing so in 2017, but has since gone quiet about whether it still intends to pursue the policy.

If it was to pursue it, it could use the federal government’s vacancy tax for foreign owners as a starting point. Again, this fee is too low to be effective (only $5500 per year for homes under $1 million), but it gives the Australian Tax Office something to work from if fees were raised and eligibility expanded. As Victoria does, location-based carveouts could be made for holiday homes in regional areas.

Real estate economist Cameron Murray estimated a national vacancy tax could lower the price of housing by 1%-2%, as well as bring thousands more properties into the rental market. These aren’t groundbreaking results, but it’s a low-hanging policy option that would modestly contribute to a fairer system.

Related efforts include switching from stamp duty to land taxes as the ACT and NSW are doing (which will help encourage retirees to downsize so empty rooms are utilised), raising property taxes on multiple properties regardless of whether they’re empty.

Anthony Albanese, having dumped his best housing reforms in negative gearing and capital gains tax, shouldn’t abandon demand-side efforts and focus solely on supply. Building more homes, especially public ones, is vital, but pulling idle investors out of the market remains imperative too.

With so much dire need unmet, there is no room for wasted space.