Innovative Vacant Housing measure - Speculative Vacancies 2013

!Why is it important? !! Affordability crisis ! “Housing Shortage” ! Dilapidated houses (over-flowing mailboxes, un-kept lawns. Rusted industrial sites vacant shops, vandalism..)

! Land unemployment rate

How do you tell if a property is vacant? !! Published Vacancy Rates (REIV, SQM Research) ! Census Data ! Neighbourhood Watch and Community-Planning Groups ! Analysis of Electricity Use (Paris) ! Council Data (UK)

!! Is there a way to measure the rate of, and number of long-term vacant residential and commercial properties in Melbourne? !

! Follows on from Speculative Vacancy reports from previous years. !

! Now into the 7th year.

!! Conservatively low water consumption is a proxy measure to

identify un-derutilised residential and commercial property stock.

!! Data is un-fragmented and nearly complete – metropolitan

households cannot change their water retailer as they enjoy a monopoly status.

!! For the 2nd year, data is sourced from all three retailers: City

West Water, South East Water & Yarra Valley Water. !

!! Data provided 1,475,771 residential properties in 393 suburbs. !! 94.4% of total residential dwellings in the greater metropolitan area. !! Also covers 126,529 commercial properties across 399 of Melbourne’s suburbs.

!! Conservative measure of 50 litres per day (LpD) per property used. (Shower – 12-15 litres per minute. Single flush of toilet – 12 litres.) !

! Per capita consumption was 161LpD in 2012/13. Average daily usage for a two-person household 320LpD. Average daily use for a sole person 157LpD (2013.) !

! Only 3% of households use less than 50LpD.

!! Vacant properties with leaks ◦ Slowly dripping tap: 20-50LpD ◦ Fast dripping tap: 230LpD ◦ Full flow (tap on full): 28,800LpD !

! Apartment/unit blocks serviced with single water meter. (All newly constructed buildings are now required to install individual water meters)

! Untenanted investment properties for sale. !

! Demolished properties waiting for approval/renovation. !

! Long period between old and new tenants. !

! Serviced apartments (same reason as above). !

! Water Tanks

! Escalating capital values outweigh net rental income, providing an incentive for vacant properties

! The tax systems encourages investors to speculate – state land tax is low, capital gains are taxed at a discounted rate, and land price escalation is rapid.

! May be easier to let properties remain vacant (Landlord Costs).

! Cost of Renovation/Diseased Estates etc. ! Foreign Ownership

• UNITS - More than 7 in 10 investors - inner city suburbs (Kingsville, Docklands, Carlton, and North Melbourne) !

• HOUSES – More than 3 in every 10 properties on the western fringes of the state. (Point Cook, Tarneit and Truganina at 41.9%, 40.9% and 39.8% respectively !!!

!! Typical investor budget = $450,000-$650,000. ! State Land Tax (SLT), with a zero rate levied below an assessed value of $250,000.

! $450,000 = $675 per/yr SLT + $900 per/yr council rates. !

$1600 total – vs - $30,000 ‘capital gains’

Owners Selling their homes in the June quarter of 2014 after an average hold period of around 10 years !•Boorondara - $519,000 •Whitehorse - $380,000 •Melton - $95,250 •Wyndham - $91,000 !Gains Over Sep Qtr 2014 !•Balwyn = 16.3% •Thornbury = 16.7% •Mount Waverley = 12.5% !

! Fewer Australians owning their homes outright (41-31% 1996/2011) ! A rising percentage of long-term tenants renting for a period of 10

years or more (1/3 tenants “long term” 10yrs or more). ! A decrease in the number of low income buyers obtaining ownership,

particularly families with children (49% to 33% - 1982/2008). ! A drop in the number of affordable rental dwellings with a marked

increase in the number of households in rental stress. (Over 60% of lower-income rental households in Aus in rental stress)

! Greater requirements for public housing. (28% increased demand projected by 2023).

! A rise in homeless percentages and those who drift in and out of secure rental accommodation – with ongoing intergenerational effects. (1996-2011 8% = 89,728 to 105,237)

! There were 14,659 residential properties with no water usage throughout 2013 (1%), while 64,386 (4.4%) used no more than 50LpD.

! Melbourne’s official vacancy rate is 2.5 per cent (SQM Research) If combined with number of SVs it more than doubles to 6.9 per cent.

! 105,520 transacted residential over the course of 2013 and 92,709 in 2012.

! Only marginally more than the total number of potential residential and commercial SVs at 93,743. !A figure almost equal to year’s supply of housing turnover lays

dormant during a housing supply crisis.

!! Dataset and methodology not publicly available. !

! Analysis done in-house, no oversight. !

! Not audited by independent third party. !

! REIV ultimately represents agents, not vendors, buyers or public in general.

! There were 6,207 commercial (non-residential) properties with no water usage throughout 2013 (4.9%), while 29,357 (23.2%) used

no more than 50LpD. !! In addition to speculation, large retail chains land-bank to prevent

competitors increasing market share. !! Unused commercial sites also stem from demolition, renovation,

industrial zoning constraints, and weak tenant demand.

Commercial/Industrial  Vacancies

!! The State government has gifted landowners with reduced land tax

liabilities – the marginal tax rate is only 2.25% for properties valued at $3million+.

!! This encourages land and dwellings to be withheld, raising the SV

rate. !

! There is a direct link between the housing affordability crisis for renters/homebuyers and tax expenditures, concessions and exemptions.

!! #1: An improved State Land Tax (SLT) is levied on a low flat-

rate, no-threshold basis, replacing the current progressive land tax schedule.

!! #2: Transfer taxes such as conveyancing stamp duties are

replaced with a comprehensive SLT. !! #3: New estate infrastructure is financed by a bond system –

costs are recouped from residents over an extended period, not folded into up-front housing prices.

!! #1: Governments must perform extensive analysis of the

property market to determine reasons for vacancy. !

! #2 Enhanced SLT - a low flat-rate no threshold SLT should replace the progressive land tax scale

! #3: ABS takes lead in analysis and reporting of rental vacancy rates (and all property data), not REIV/A or RE firms.

!! Many properties potentially and demonstrably vacant that could be placed on the rental market. !

! High vacancy rate for commercial property. !

! Property underutilisation or vacancy akin to labour unemployment, generates inefficiencies. !

! No apparent shortage of houses.