Should we charge land for vagrancy?

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ScreenHunter_18 Apr. 24 18.14

Cross-posted from David Collyer at Prosper

The Melbourne City Council has been urged to apply differential rates “to sites defined as vacant or derelict” by its Future of Melbourne committee.

They name to shame the Savoy Tavern on Spencer Street, the Argus building on Latrobe Street and bare land at 567 Collins Street as examples of developer-owned blight.

Councillors loathe these freeloaders, and you should too. Vacant or derelict sites diminish civic activity and amenity. Rather than put them to their best and highest use, the landowners prefer to leave them unused in the hope of rezoning or better times ahead.

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This landowner abuse isn’t academic – it kills people. Three young people died on 28 March 2013 when a poorly supported wall on Grocon’s long vacant land at Victoria and Swanston Streets collapsed onto the footpath.

The Age thundered: “The loss of three lives has raised questions about how a prized city site could have been left to wither over almost thirty years – and about the dangers that come with such neglect.”

Local government is pressured to give in to developer demands by the obvious neglect and neighboring properties are tainted by adjoining carelessness.

The MCC already charges differential rates: 3.9 per cent of the Net Annual Valuation of residential property and 4.6 per cent on non-residential. The key element is the NAV. This is five per cent of the capital value of residential properties and the annual rent of commercial properties.

The unused Savoy, the asbestos-riddled Argus and vacant 567 Collins Street would be deemed to generate minimal rent and pay very little in rates, hence the councillor anger.

There is a better way – Site Value Rating, which is based on the market value of the land. The Savoy and the Argus would pay as much in rates as the 30 story building next door. Their civic blight would simply vanish as the owner scrambled to put them to good use. Too late for the three dead students. The removal of similar hazards elsewhere cannot happen soon enough.

Everyone is diminished by landowners leaving valuable land unused while they agitate for rezoning profits.

The Age’s Bruce Guthrie hopped into the discussion for a hand-wringing but offered no solution.

The problem would be reduced by council using its rating power properly – moving from basing rates on the value of land and buildings to the land only.

There is another player in this derelict taxing equation: the Victorian Government.

Between 2004 and 2009, under the Bracks and Brumby ALP governments, State Land Taxes were cut firmly. In 2004, the top rate was 5 per cent on total land holdings over $2.7 million.

By 2009, the rates had been more than halved to 2.25 per cent on total landholdings over $3 million. The changes saved commercial and industrial property owners $1,000 million over five years.

“There has been a significant escalation in property prices, probably more than we expected or any government could have expected. The majority (of people paying land tax) are at the low end (of the scale) . . . but there is a problem as some people have moved through the rates and also the valuation of their property or their investment enterprise has gone up.” Premier Bracks said in 2004.

How anyone owning over $2.7 million in taxable land – remember, principal place of residence is exempt – and enjoying significant capital gains could be regarded as deserving charity escapes me.

2,300 land tax payers benefited from this deeply compassionate gesture by Premiers Bracks and Brumby. The rest of Victoria’s 5.6 million people now have to pay more in tax or endure lesser services.

Students of the history of the Australian Labor Party would know the angry, steely determination of earlier labor leaders to ensure rentiers and major landowners paid their fair share of the cost of government, through eminently fair and economically efficient land taxation.

Premier Napthine’s Treasurer Michael O’Brien is looking for quality revenue sources to plug the black hole in the state’s budget. Here is one. And he could drive the development of these awful eyesores.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.