Housing crisis enters dangerous new stage and government needs to act

Hi Tom Leahey. After you wrote your post, did you re-read it to notice that it is simply wrong?

Landlords do not supply housing, they purchase supplied housing to rent, including where they fund the construction.

As examples, Molonglo Valley and Gininderry are a couple of expanding areas where the government and developers are generating new housing stock (fabled ‘mum and dad’ investors are not land developers). A block is available in such a location. It could be purchased by a homeowner, to build a home in which to live, or it could be purchased by an investor to build a home to rent out. Notice that the available housing did not change with one event or the other, only the status (owner-occupier or investor-landlord) changed, and either event negates the other in a zero-sum game.

Given that total housing stock does not change with the buyer, and total demand is also unchanged, what does your proposal to reduce costs for landlords do? It increases available profits. Demand is unchanged so available ROI has increased, so the investor can sensibly pay more, crowding out the potential owner-occupier.

While I disagree with some aspects of changes to rental legislation, the taxation position is not a particular problem. To increase housing stock takes more land release or, more likely, greater housing density, not freebies to landlords driving up landlord profits and potential-owner costs.

There are many fallacies and inaccuracies in your post Tom. The revolving door of neoliberal Australian governments in recent decades has chosen to rely increasingly on the private sector to own, develop and build housing supply. It hasn’t turned out well as the land market is in fact monopolistic and uncompetitive, characterised by rent seeking, land banking, and financied by credit driven property valuations (debt ponzi scheme) that indebts the economy at large for paper wealth gains that only benefit a select few. The proven real world solutions are not-for-profit rentals, supply made available exculsively for first home buyers at cost, and rebalancing the tax base on to land and away from labor. What country has solved a housing crisis this way? Singpore where despite a population of 6 million people on 10% of Sydney’s land area, new apartments are sold by government developer HDB to qualfying buyers for close to half the price of equivalent privately developed apartments in Canberra. Singapore’s homelessness rate is over 30 times lower, homeownership is 90%, and the direct annual cost of HDB to government is about 2.5% of GDP. Singpore’s GDP per capita growth has doubled Australia’s performance over the last 40 years.

Well said, Tom. The simple truth is that the ACT government has not provided enough social housing for low-income people in Canberra. The cost of social housing is very expensive for the ACT government to provide; not just to buy up the land and build the houses (or apartments), but also all the associated and very high costs that go along with it like maintenance, repairs etc. It is not cost effective. The cost of public housing is astronomical, so the ACT government actually wants private landlords to take over the responsibility. If there was enough public housing provided by the ACT govt, low income tenants would have roofs over their head without having to be homeless or forced to enter the private market. Time to stop blaming private landlords for the abysmal failings of the ACT government.

That is odd, jorie1. Nowhere did Tom Leahey talk about social housing whereas you talked about it entirely, so why are you relating your response, possibly meant for assiduous, to Tom Leahey’s erroneous post?

Phydeaux, my post was clearly addressed to Tom, not to you (your comment is quite rude and irrelevant). Tom’s opening paragraph clearly stated ‘Governments cannot afford to supply sufficient properties, so they rely on private investment.’ Not sure why you, Phydeaux, refuse to understand that governments are supposed to supply public/social housing to people, and if they don’t, the burden is shifted onto private landlords. I was agreeing with Tom’s comment (and responding to him which I am allowed to do) and highlighting the failure of the ACT government to supply social housing. Your comments are rude and uncalled for, and the only ‘odd’ thing is your ongoing uneducated comments. Please find someone else to troll.

Jorie1, I had not noticed that you had wasted your time replying, until now. I am happy to catch up.

The sentence you quote from Tom (not to mention the rest of his post) says zero about social housing. It is rather a whinge about insufficient (in his view) private profits ladled with a sauce of silliness over providers of rental housing. You, however, added social housing as the topic, probably in reaction to assiduous as I noted.

The burden of social housing does not shift to private landlords except to the extent the government imposes rental conditions which preclude investment flexibility, or private landlords make a personal decision to invest in this space, or the government provides specific incentives for it. I understand this. Do you?

Phydeaux you should try reading the article. It references urban infill. Fundamentally this involves private investors buying land that is zoned for subdivision, demolishing single houses that are past their economic life, and replacing them with new and energy efficient homes. So new supply is not just developers on newly released land.

These houses are then either rented out or sold, in either case adding to the aggregate supply.

What is certain, however, is that the ACT government, with its regulatory delay, taxes and anti-landlord policies, is discouraging private investors from stepping in to fill the gap they have left.

Gosh devils_advocate, you are right that infill was mentioned, in the final paragraph thus: “[The ACT government] should also review the 70:30 infill/greenfield mix to provide more choice of homes”.
Fundamentally, it involves builders and developers reclaiming land to build, as you say, some dual houses, some townhouses and some apartments. That is part of the existing housing supply strategy.

The majority of private residential home investors do not commonly engage in even the first of those activities let alone the rest, as indicated by the fact that 71.5% own only one property. Making that two properties covers 90% of such investors. How many of the extra 18% do you imagine to be new subdivisions? Data please?

None of that alters my final paragraph above (8:15 pm 15 Oct). There is no evidence at all that private investors would suddenly be inspired to provide social housing if land taxes were reduced as you fervently desire. A reduction would to go to additional profit while the market is tight, and you know it.

Besides, according to your own previous arguments why might a private investor even contemplate low return social housing when they can simply amp up the rent on existing properties to their heart’s content and everyone will dutifully pay up, with no market consequences?

Phydeaux I won’t bother responding to all the factual errors you have made so will just pick out a couple of the more obvious ones:
-i referred to “investors” not developers.
-Evidence of privately funded urban infill and densificiation is available all through the inner south and publicly notified on the EPSDD website for you to look at.
-in addition to approval times that have now blown out to 2 years for multi-unit housing developments under the merit track, the local council masquerading as a government has decided to increase LVC firstly to $7k, then subsequently to $30k per unit. The LVC charges information is publicly available. Again, a tax wedge and regulatory burden that removes otherwise profitable transactions from the market.

In summary, the fact that you are not familiar with the evidence doesn’t mean it doesn’t exist.

devils_advocate, you are not responding to my “factual errors” as you put it, because you cannot find any. There is no contextualised statement of mine that you have claimed to be wrong; at least, not unless you have now changed your more absurd views on markets in which case you may demur from my last paragraph above on that basis.

Your ‘points’ offer no disagreement with any statement of mine. I hope you enjoyed talking about things that Tom Leahey, assiduous, jorie1 (those three on my reading) and I, did not. You have the warmth of irrelevance. I am aware of other facts that are not pertinent to the discussion just like I know the universe is expanding and it is illegal to smoke in a cafe which is open. Just because you haven’t realised you are wrong does not mean you are not wrong.

If within your remarkable perpendicular departure you wish to make sense, start by defining “investors”. All developers are by definition investors whereas 90% of private landlords of rental property (the proverbial ‘mum and dads’ entirely the topic in this particular thread) are investors but not developers. Whose cause are you seeking to address? Try staying on this thread topic while defining your terms. Not to do so makes it look like you are running.

Phydeaux I posted a point about the increasing costs being imposed for investors engaging in urban infill. You requested evidence, and I stated where that evidence could be found.

Your glaring lack of knowledge on this topic has now been exposed.

You can try and move the goalposts as much as you like but it doesn’t mean I need to take a punt.

It does however inform me of how seriously I should take your posts (I.e. not very)

Devils Advocate,
forgetting your inability to get that there is a clear difference between the investor subset of developers and the wider group of property investors, let’s look at the exact example of increased “costs” that you’ve referenced, the Lease Variation Charge (LVC)

You do know that the LVC is to account for changes in lease conditions that dramatically increase the value of property that developers may have purchased right?

What you’re calling a cost is in fact a tax on windfall gains that are received through changes in government land zoning and planning regulations in those areas.

The community, through the LVC, rightly deserve to receive the lions share of those benefits as the developer is not responsible for or the cause of the increased asset value they would otherwise receive.

But considering your previous comments, it’s hardly surprising to see you support further rent seeking and community subsidy for developers and other investors.

@chewy14
1) I am not questioning the existence of the LVC, I am questioning why it is justified to increase it by a factor of more than 4, as well as significantly increase the regulatory burden and therefore time cost for developers.
2) I’m not seeking any particular rent. The ACT local council can increase its taxes as much as it likes and the market will do its thing. I’m merely pointing out the hypocrisy in wringing one’s hands over the rental crises (which is legitimate) while simultaneously raising the costs significantly for bringing an important category of new housing supply to the market (and as you refer to, my previous comments on continually ratcheting up the cost based for those landlords who have already made the investment decision).

1.The increase in the LVC is justified due to the massive windfall gains involved. Your complaint is really that the government is now not allowing developers to keep profits that they never should have been getting in the first place.

Developers shouldn’t be profiting (much) from changes in land uses, zonings or planning restrictions. They purchased the land knowing the specific uses allowed on that land.

As for the regulatory burden and delays caused by government, you’ll get no arguments from me that they are woeful in this regard and cause significant inefficiencies. But it’s also not really close to the biggest problem with housing, although could definitely help with the supply chain if it was improved.

And as for 2, the rental crisis isn’t predominantly caused by these taxes or costs on developers or landlords, so there’s no real hypocrisy involved.

The LVC is not for change of use. While it is true that developers purchase RZ2, 3 or 4 blocks knowing the use they can be put to (ie subdivision) that is already included in the market price. I’m not referring to rezoning here (although that needs to happen)

The LVC is a fee to change the permitted number of dwellings and is arbitrarily imposed based on the wording of the specific crown lease. Again it’s not a “windfall” because this is known before the property is purchased and therefore baked into the purchase price.

However, the sheer magnitude of the tax impost prevents otherwise desirable and commercially viable developments going ahead, particularly in inner suburbs where such infill is most useful (and technically viable due to block size). I personally know of a number of developments put on hold following the 2016/17 change in LVC.

Devils Advocate,
It isn’t arbitrarily imposed and yes I know how and why it is applied.

It’s also ironic that you say that the gains aren’t “windfall” because they’re baked in to the sales price with the assumption that the permitted number of dwellings can and will be altered.
ie. Developers know that they can get their own way in this space and so are willing to pay more because of it.

Whilst that is functionally true, it doesn’t remove the due diligence of developers to know that there are commercial risks involved and isn’t a guaranteed outcome. Along with the fact that they also know the LVC exists and is also included in that same market price when developers consider how much these blocks are worth to them.

@chewy14
1) it’s arbitrary in the sense that you could have 2 similar RZ2/3/4 blocks in two different suburbs and one would attract LVC due to the crown lease clause and one will not
2) “Along with the fact that they also know the LVC exists and is also included in that same market price when developers consider how much these blocks are worth to them.” Agreed. So in addition to the foregone value of the house and cost of demolition, the infill project will now (by virtue of the punitive LVC) only be viable if the sale cost can also recoup the additional $30k per unit. Which (significantly) reduces the number of infill projects that will end up being viable and therefore the aggregate supply.

1.By this definition, all taxes are arbitrary. It has a definition and its applied as such. If you’re saying there’s potential inconsistencies in how numerous taxes are designed and applied, I’m not going to argue.it.

2. Except that as you yourself have agreed, the LVC lowers the sales price in the first place, so the developer gets it cheaper. As that cost is already included in that market assessment, the impacts on supply are minimal and only really impact marginal projects anyway.

What you could argue is that when they increased the tax there would be a short term impact on supply as the market adjusts but that is the exact commercial risk that I mentioned above that developers must accept a level of uncertainty when they are attempting to exploit the planning system to extract profit. This is also one of the reasons why I don’t think the LVC should ever be set to 100% of the windfall gains available, there has to be a level or risk/profit sharing.

Imposing an LVC won’t automatically reduce the value of all subdivision blocks by $30k or even the incremental increase because there are competing land uses. However it does add $30k worth of cost to the developers bottom line, which is a tax wedge such that otherwise efficient transactions will not occur; and in addition to the viability constraint their is a capital constraint. Yes the effect is at the margins; all financial decisions are at the margins. I didn’t say all development would be unviable, but certainly fewer will proceed compared to a scenario where the deadweight cost was less.

^^^above is of course $30k per unit

Devils Advocate,
You’ll not that I said there could be short term impacts when the taxation settings change, but the market can and does factor in those costs into the value of the properties over time.

This also won’t necessarily equal the exact cost of the LVC either but neither does the LVC reflect the true potential profits that can be made from the land development either. As you say, there are other numerous factors that the market will consider.

But you can’t argue on the one hand that developers don’t gain windfall benefits in the use changes because the market factors it in but then turn around and claim the exact same thing doesn’t happen for the LVC.

The market does factor these in and adjusts accordingly.

I wrote “The majority of private residential home investors do not commonly engage in even the first of those activities let alone the rest, as indicated by the fact that 71.5% own only one property. Making that two properties covers 90% of such investors. How many of the extra 18% do you imagine to be new subdivisions? Data please?”

devils_advocate replied: “I posted a point about the increasing costs being imposed for investors engaging in urban infill. You requested evidence, and I stated where that evidence could be found.”

See my last sentences again. Data on the how many “investors engaging in urban infill” was requested, with the set of investors being the 18% owning two rental houses. You offered no answer, furiously avoiding the point by addressing something independent from the count, and immaterial to the general topic of land tax effects on the private rental property market, the 90+%.

This is not so much moving the goalposts by you as entirely avoiding the question.

I see you are now busy losing arguments against chewy14 instead, because we all know you don’t like taxes and will dream up anything to justify your self-interest.

Beyond the above bit of question-avoidance by you, I note also you had zero comeback against my invitation to find any error in my post. I can well understand why you might not want to read them.

We may note also that by dint of exiting the arguments after rebuttal here and elsewhere, devils_advocate has conceded in relation to ‘mum and dad’ property investors, the 90%+, that:
– Landlords are not in a position to raise rents arbitrarily to recover costs, specifically land rents. The market currently provides landlords with leverage, hence high relative rents in all capital cities.
– These investors are not principal suppliers of social housing nor will they be owing to taxation changes up or down (rent controls are another matter, but investors can still exit the market).

devils_advocate’s only attempted responses to various posts by me (chewy14 manages theirs) has been to avoid answering questions, talking about something else. Specifically, there have been no pertinent responses to any of:
– 8:52 pm 15 Oct, especially the final paragraph;
– 4:15 pm 25 Oct, last two or three paragraphs;
– 8:08 pm 25 Oct re possible factual errors in earlier posts.

When you stop bashing your head against walls of reality, devils_advocate, it could feel quite good, though self-interest may yet again prevent you.

Yeah sure! 1) how to regulate that?; 2) simplistic view of a complex issue; 3) the problem has resulted from 20 yrs of an ACT government that does not look after the needs of the entire population, but picks favourites to champion whilst leaving the rest behind. We need more money to be spent on public housing (including repairing and managing it well instead of neglecting it) rather than on trams and other vanity projects.