Property tax reforms crucial to government meeting its new home target

Opinion article published in the Herald Sun 12/03/2024 - "Don't Tax Housing Ambitions"
Jacob Caine, REIV President

In order to meet its objective of delivering 800,000 new homes in the next decade, the Victorian Government will need to consider modernising its property taxation strategy to one that both retains and attracts private investment.

As Victoria’s house prices continue to soar and renters face unprecedented competition for rental homes, the Government has recognised the vital importance of stimulating housing supply to give more Victorians a roof over their heads. 80,000 new homes annually across the state is a bold and ambitious target. However, the introduction and expansion of property-related taxes, such as a land tax levy, serves as a disincentive to investment into rental property.

In Victoria, “mum and dad” investors supply homes for nine-in-ten renters. Almost three-quarters of these landlords own only one property. These are regular Victorians who have been fortunate enough to purchase an investment property in the hope of securing their financial future - an aspiration held by so many across our country. For most, this investment requires significant sacrifice in order to maintain - there is a fine line between being able to keep it and the need to sell it. Expanded property taxes often move that line, making it financially impossible to retain the property while simultaneously discouraging potential new property investors from entering into the space.

On the eve of the 2024-25 Victorian State Budget, now is the perfect opportunity for the Allan Labor Government to align its housing objectives with its taxation policies. Genuine policies designed to retain and grow investment in our state’s property sector will be critical to help ensure the state reaches its ambitious housing target.

The Real Estate Institute of Victoria’s (REIV) 2024-25 Victorian State Budget submission outlines three key recommendations for making this happen.

Our first recommendation is to adopt measures that reward Victorian property owners for supplying long-term rental stock to the market. As a practical example, the Government could consider a land tax concession for property owners who keep their property on the rental market for an agreed consecutive term, such as five or ten years. This simple but effective measure will give Victorian property investors the capacity to remain in the rental market while ensuring long-term rental homes are available for Victorians seeking secure rental accommodation.

Secondly, we’re joining other industry and political voices in calling for an extensive review of stamp duty, including consideration of its removal. While we acknowledge the heavy lifting stamp duty does, contributing 27 per cent to Victoria’s tax revenues, the unabated rise in property prices has made it a burdensome and archaic tax that prevents Victoria from effectively utilising its existing housing.

Innovative and progressive thinking is required to find alternative revenue streams for the Government. For instance, a very slight increase in GST (0.45%) is an option that would adequately cover any lost revenues from the abolition of multiple property-related taxes, like stamp duty. Whilst ultimately a federal decision, State Governments would enjoy the benefits of increased economic activity stemming from a simplified tax system, that encourages rather than discourages development and innovation.

Tax experts have modelled a reduction in stamp duty costs, demonstrating it would, in fact, deliver much more significant economic activity, in turn providing the economic boost Victoria greatly desires while ensuring Victorians can also move house; first home buyers can get a foothold, downsizers can downsize, growing families can upsize, and job-seekers and relocators are able to move to Victoria for employment.

Negative gearing has, whether you like it or not, become an intrinsic part of the housing ecosystem. Like any healthy ecosystem, interfering with or removing it could be catastrophic for the entire system. Many of those “mum and dad investors” referenced above rely on this mechanism to cling onto their investment property when the holding costs become too onerous. Changes to negative gearing would almost certainly increase housing instability and diminish available rental homes. Unless wholesale changes to Australia’s taxation system are on the table that support our housing system, the REIV strongly opposes any changes to negative gearing.

A great opportunity lies ahead for the Allan Labor Government to build 800,000 new residential properties in the coming decade. Achieving this involves extraordinary planning and construction efforts but also ensuring the state is positioned as a competitive place to invest. We need a tax regime that supports this aspiration. While its recent commercial and industrial property policy efforts are welcome, more must be done in residential property to bolster housing supply.
 

Victorian State Budget Submission by the Real Estate Institute of Victoria (REIV)