From Bloomberg comes an interesting report on Australia’s vacant apartment buildings and the futile plans for a vacancy tax:
On a wet, midweek evening when most Australians are home cooking dinner, less than a third of the lights are on in the apartments in Melbourne’s Docklands. Most shops and restaurants are closed. The only people passing through seem to be on their way elsewhere.
These “ghost towers,” as the high-end residential property with three-bedroom apartments costing almost $1 million have been dubbed, are popular with Chinese investors who mostly live abroad…
Now, policy makers are seizing on public resentment and hitting foreign buyers with more taxes… controversially, both the conservative federal government and the left-leaning one in Victoria state that includes Melbourne this year imposed additional taxes on properties deemed to be empty for six months or more.
Figuring out if a home is vacant is a vexing subject for public officials. Those in Victoria have said they plan to ask owners to self-declare, and also intend to monitor electricity and water usage to find cheaters. The Australian Taxation Office suggests the government investigate tips from informants. Other potential sources could include postal data or tax returns, said Catherine Cashmore, president of land tax reform group Prosper…
But real estate professionals say it’s easy enough to hire someone to come in and turn on switches and taps, making a place appear lived-in…
“What next?” said Monika Tu, the Sydney-based director of Black Diamondz, which specializes in high end property sales to mainly Chinese buyers. “Shall we tax people who buy new shoes and don’t wear them?’’.
Australia’s moves are part of a growing global trend, primarily in response to the massive amounts of capital that have poured out of China and into real estate around the world. Additional taxes targeting vacant homes are already in place in Vancouver and some London boroughs, with Toronto and Dublin mulling similar moves…
An analysis of Australian census data by the City Futures Research Centre found more than one in 10 homes unoccupied on the night of the count last year, with empty properties having risen 19 percent in Melbourne and 15 percent in Sydney since the last census five years previously.
Foreigners, mainly from China, purchased 25 percent and 16 percent of the new housing supply in New South Wales and Victoria, respectively, in the year through September 2016, according to a Credit Suisse Group AG examination of state tax receipts…
The idea of taking prime real estate out of the housing supply and leaving it vacant has become a focus of anger as homelessness has risen and hundreds of people have been camping in the rough out outside places like the Reserve Bank of Australia.
“It’s just absurd,” said Tony Keenan, chief executive officer of affordability advocacy group Launch Housing, referring to the fact that Australia’s long period of uninterrupted growth should have ensured homes for everyone instead of “record levels of homeless and massive construction with empty properties at the end”…
We know from the Prosper Australia Speculative Vacancies Survey that almost 20% of Melbourne’s investor homes were being kept vacant.
We also know that foreign investors have been a major source of demand for new dwellings in Melbourne (see below chart), most of which are located in the areas in and around the Melbourne CBD, and that many buyers from China, in particular, prefer to keep their homes empty rather than renting them out.
While I despise that homes are being left vacant, like the article I agree that a vacancy tax is likely to suffer from significant implementation issues and could easily be gamed by owners.
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.
