Several experts have warned that Scott Morrison’s proposed tax on vacant dwellings would be difficult and costly to administer and might not do a lot to boost residential housing supply. From The AFR:
“They [taxes] have some impact but they are expensive to administer, especially the exemptions for people with particular issues (such as working away from home),” University of Sydney Urban and Regional Planning and Policy chairman Professor Peter Phibbs said.
“Taxes relative to the very rich, are very small. Investors who can leave their properties vacant will continue to do so.
“The impact of [a vacancy tax] is marginal….especially with investors who don’t think about yields but about large capital gains”…
…[There are] significant difficulties in accurately quantifying the numbers such as “illegal” Airbnb subletting, census “numeration issues” and unit block shared water usage…
Both [UNSW’s City Futures Research Centre’s Bill] Randolph and Prosper’s Catherine Cashmore said… the cost of administration could outweigh the benefits of having only a few more dwellings released into the market.
“I am not sure it will solve the affordability issue,” Ms Cashmore said.
“And with implementation, how will you draw the line? Are you going to audit a handful of houses…for example with fly in, fly out workers, people staying at hospitals, there are loopholes.”
I’d take a vacancy tax over nothing at all. But a vacancy tax is likely to suffer from significant implementation issues, the biggest of which is how to measure whether a home has been left vacant?
One option is to base it on water consumption, as Prosper Australia did in its Speculative Vacancies report. However, what’s to stop absentee home owners from setting sprinklers to run in a bid to mask that the home is vacant and avoid paying the tax?
The same applies for using electricity usage as the measuring stick. Again, the absentee home owner could set timers to turn on lights at night, again masking that the home is vacant.
A better solution that could not be avoided is to implement a broad-based (no exemptions) land tax in exchange for the reduction in other less efficient taxes.
Not only would this confer significant efficiency benefits on the economy, since land taxes are one of the most efficient sources of tax available and create positive welfare gains to the domestic population of $0.10 for each dollar raised (since non-resident home owners are also taxed):
But it would also encourage vacant landlords to put their properties to “work”, either by developing them or renting them out in order to cover the cost of the tax, thus boosting the effective supply of housing.
If land taxes replaced stamp duties, it would also encourage households to ‘right-size’ into properties that best suit their needs, thus resulting in more efficient usage of the housing stock and boosting effective supply.
