'There's no rental shortage here' - calls for Canberra landlords to adjust expectations

Of you read what he’s saying in context, he’s actually pointing out the incongruity, I.e landlords not being willing to adjust their stubbornly high asking prices and instead letting the property sit on the market for weeks at a time (the reason for which is discussed below)

Conder is cheaper than Forrest, too. In fact, it is even cheaper than less southerly parts of Tuggeranong. All of those pay land tax on rental property so, maybe, there are other factors at work which might also be considered when wanting to compare Canberra with Queanbeyan.

From where would you propose revenue be collected to replace land tax? Are happy to have other local taxpayers subsidise landlords? Or do you have a magic pudding handy?

Under the current land tax regime, landlords are actually subsidising everybody else. It’s a cash grab by our local clown council so they can fund more irresponsible spending. The rates paid on a property should be the same whether it is owner occupied or rented out. It’s not like the rented house uses more public funded services than the owner occupied one.

spot on, an ever increasing Land Tax and Rates, all to fund a useless light rail and ignoring the true needs of the ACT an its people.

There are two issues here (ignoring ac155’s bleat): firstly what is tax and secondly what are fair and efficient taxes.
All differentiated government taxation revenue could be described as a subsidy of something by someone else. That contributes no useful knowledge. All collected revenue goes to consolidated revenue and then is disbursed by the government. Land tax is not payment for services but tax on imputed rents.
The second is what represents fair and efficient taxation. I think land tax is both. Ken M, you think it is not fair, at the least. The established positions from the Henry federal financial review in 2009 and a subsequent review in NSW support land tax. I will go with the preponderance of expert economic opinion.

Rental income is already taxed though. That makes land tax imposed by the local clown council a double dip.

“The established positions from the Henry federal financial review in 2009 and a subsequent review in NSW support land tax. I will go with the preponderance of expert economic opinion.”

Lmao

They proposed land taxes INSTEAD of stamp duties, not in addition to them. Also land tax is in addition to rates in the ACT.

The proposal was intended to increase flexibility in labour markets, encourage turnover in properties and provide a more consistent basis for state revenues. It spoke only to which type of tax was the lesser of two evils, not the extent of the tax gouge nor the effect on rent prices.

If you’re going to resort to an “appeal to authority” at least do it properly

Land tax in Henry’s review is different from its ugly reflection called ACT Land tax. What Henry meant was universal, far and proportional property tax which promotes economic activity as opposed to transactional stamp duty. General Rates is closer to what Henry meant. ACT Land tax is rent tax by nature. It is neither universal nor proportional because a multi-million dollar owner occupier property pays no land tax while tiny rental apartment does. It is highly unfair as it is tax on poor. If it is rent tax then it is arbitrarily applied as two rentals with the same rent pays different taxes. It inhibits investment activity which is clearly seen by fleeing landlords and relentless rent increases. A house owner occupier posted interstate will be discouraged to rent out their family house by insane land tax as residual rent isn’t worth the hassle.

Perhaps you would like to make a voluntary contribution to the ACT Government revenue Byline?

Land tax was supposed to replace stamp duty, but here we are 12 years later, investors still pay stamp duty and land tax. Rates have climbed considerably as well, as have mortgage rates.

But those costs have no input into the rental prices do they?

Ken M, I noted your comment elsewhere that
“the ACT Libs are so far to the left of my actual political position, that they might as well be on [Jack D’s] side”

Of course. You think like you do.

The 2012 target date for completion was 2032, but here we have devils_advocate’s logic:
Driving to Sydney, passing Mittagong on the highway, he would announce that they could not possibly be going to Sydney because they were not there yet.

It is intended to have the economic effects described. Neither those reviews nor I said it had anything to do with rents. In fact I wrote:
“Land tax is not payment for services but tax on imputed rents.”

https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2021-02/final_report_natsem_ttpi_2020.pdf

In reality devils_advocate disputes only the rate; the rest is distraction.

Incidental Tourist, the economic rationale is the same. In the ACT case it is also an incentive to effective land use. You do not mention that it is levied on unused property which is not owner-occupied. Secondly, the vacancy rate is 2.2% and rising, currently the highest in the country. Do you think that is a logical consequence of “investors fleeing”? It looks more like the contrary.

Should they flee, then intending home-owners or other investors will take up the opportunities.

theguru, you look confused, but I can help.
Your first:
No.

Your second:
Firstly, 12 is not equal to 20.
Secondly, property rates and mortgage rates have climbed everywhere in Australia with complete disregard for the ACT government.

Your third:
Yes, all tax must be included in the seller’s (landlord’s in this instance) price calculations to make a profit, and the ACT has the highest vacancy rates in the country meaning an ample supply of current or wannabe landlords expecting to profit. Who said otherwise?

True that rental income is taxed as well as land tax but then again the taxpayer is funding buyers of rental properties by way of negative gearing.

Land tax is there to discourage ownership of investment properties. The idea being that less investors should mean lower house prices which in turn means more people can afford to buy instead of rent.

Not saying that I agree with land tax especially given that no one in the ACT actually owns land.

Personally I’d like to see a cap on the amount and value of properties that someone can negative gear.

If someone is negative gearing multiple properties then the taxpayer is subsidising the rich.

Taxpayers are not subsidising loss-making landlords

It is negatively geared landlords that are subsidising their tenants using their other (e.g. PAYG) income

They may do this in the hopes of achieving a capital gain

If they don’t get that capital gain the tenant wins

If they do get the capital gain both the tenant and the ATO wins as the capital gain is taxed (the rate depending on the taxpayers marginal income tax rate)

Misinformative tripe.

A walkthrough of this risible rubbish from devils_advocate.

– No part of the landlord’s income goes to subsidising tenants; it goes to paying down landlord debts.
– The landlord can today obtain a tax concession on unrelated income where total property costs including debt interest exceed property income (‘negative gearing’).
– Tax concessions or benefits, are sourced from all taxpayers, a tax transfer to the landlord.
– If the landlord were miraculously to pass on 100% (unaudited) of that tax benefit to the renter then the cost to the landlord would be nil. They would not be out of pocket at all.
– Do you believe that any landlord would pass on 100% (unverified) of the tax transfer, not retain a trace of benefit for themselves? How would they even know? If they were not to exploit all the advantage, that would be quite by accident.

It is a subsidy from other taxpayers to the landlord. Like all subsidies, this will inflate prices rather than reduce them.

– Whether a landlord eventually makes (or manages not to make) a capital gain on sale has zero impact on the renter. Presenting any of that as a renter ‘win’ is fatuous. The landlord’s investment outcomes are entirely their own affair.
– The further tax transfer by the extravagant CGT concession is a still greater distortion on the market than is negative gearing. It is a key reason landlords can drive up prices to out-compete home buyers, and we know that 75% of investor mortgages are for existing housing stock, not new.

This has been covered before. Devils_advocate is as wrong here as they ever were, spreading disinformation.

Today’s exercise for students practising “Try to find the logic??”

“If there was no rent cap then … landlords would be more willing to offer discounts.”

although younger students might just choose a TLA possibly including letters “w”, “t” and “f”.

Landlords would rather have the property sit and wait for a higher weekly rent, than lower the rent and have that lower price locked in indefinitely, due to the anti-landlord rules capping rent increases and banning so-called “no-cause” evictions

What’s hard to grasp?

It’s right there at the beginning of the third paragraph… “Landlords can’t drop price as they can’t adjust them back to market price because of rent control.”
Technically, it’s not that they CAN’T reduce rents, but they are strongly discouraged from doing so by legislation that prevents them from being able to adjust them back again when the market would otherwise enable them to do so.

Illusory truth:
Repeat the idea that uncapped rent rises will lead to reduced rents and people might believe it more than they did, no matter that there is no evidence for it. It is a landlord’s invaluable opinion.

Rents react to the market. Leaving a property vacant to gain a bit more is a trade-off against the significant loss of operating income with no guarantee that will be recovered in the term of the current tenant, after which rent can be raised again anyway.

“after which rent can be raised again”

Nope. There is a cap on rental increases and ban on “no-cause” evictions.

Together these severely limit the extent to which landlords can price to the market.

Rent caps also have other harmful side effects too but people who don’t understand these are generally incapable of being convinced so better to sit back and watch it unfold in real time.

Scenario 1. No rent increase cap.
2.9% vacancy is balanced market. A property may require 4-5 more inspections to rent which will take a couple of weeks longer. Two weeks loss of rent is 2/52 = 3.8% annual rent. If you want to rent a couple of weeks faster then landlord may pass the same rent discount (approx $20 p.w.) to tenant. Without rent cap the rent will bounce back to the market value next year. Passing proportional saving to tenant in return for shorter vacancy is fair and good to both parties. Free market ignites competition and good tenants may shop for even better discount every year. I personally had rent freeze for 3 years even without legislative rent freeze by paying rent on time and looking well after property.

Scenario 2. rent cap linked to CPI.
Next year the rent cannot bounce back to the market value. Any rent discount becomes permanent for whole tenancy and such tenancy may last longer because tenant is discouraged to move. Average tenancy lasts 3-4 years and discounted one may last say 5 years. So if landlord gives 3.8% rent discount then it would be equivalent to 3.8% x 5 = 19% annual rent loss. Leaving property on a market for extra fortnight costs much less. Any incentive to negotiate on rent disappears for landlords. Next year the lousy CPI rent increase for every tenancy is as sure as the change of seasons or annual price indexation under communist regime. Therefore CPI cap means no market competition, less mobility, higher rent to tenants and longer vacancies to landlords.

devils_advocate, it appears my comment was ambiguous so I will clarify. Of course there is a cap within rental, just like there is a cost in not renting. My intended meaning was that there is no impediment to setting a new asking rent after departure of the current tenant, albeit I have seen the idea of “rate continuity” floated, which would certainly keep me out of such a market. Tenants do move on of their own volition, and it has been stated by a claimed landlord here recently that there are ways around no-cause eviction. Withholding from the market for any meaningful period is a cost most landlords seem unable or unwilling to bear. Incidental Tourist appears to be discussing some figures below so I will read and reply to them.

Incidental Tourist, you make a series of input assumptions then string together assumed events and timings to make a wholly assumed case. Other sets are available.. Any serious analysis requires verifiable data sources for probabilistic inputs to a model, which must then take account of personal parameters for each landlord. An alternative is to do it by wet finger then complain in the Riotact about communists.

There is high amusement from you positioning 2.9% vacancy rate as representing a balanced market (whether it is or not). I recall within the last couple of years when vacancy rates were below 1% that claimed landlords here declared they could raise rents by whatever taxes were imposed, that an extraordinarily tight market had nothing at all to do with it. I doubt many will be pleased if we continue from 2.2% to 3% and beyond.

CPI rules are a crimp on rental increases when times are tight for renters, meaning landlords need to be more imaginative about how to recover their position when the market is more favourable for themselves, or what tradeoffs they think viable for themselves now. I expect that at least half will make not particularly good decisions. In the end you are in market with certain parameters. The blunt form of the answer to that is to deal with it or get out. Your existence as a landlord is a commercial fact, not a favour to anyone else.

That assumes the rent cap applies to the lease, not the property.
I’d have to check ACT legislation, but some state governments were applying it to the property, so even if the tenant moves out you can’t adjust rent to market, only whatever increase the goervernment will permit from previous lease.

Bill, yes, as I said that is a potential issue if implemented. Are you aware of any jurisdiction where it has and can cite it?

In the ACT Tenancy Act Section 64B refers to the term of “a residential tenancy agreement”, not the term of a property being available for rent.

Byline & Bill,

I believe that Queensland has attached tenancy rental increase to the property.

https://www.rta.qld.gov.au/forms-resources/rental-law-changes/rent-increase-frequency-changes

Byline – real estate market is often counter intuitive and contradictory because it has many market niches. One numeric vacancy rate does not reflect its diversity. If you are advertising quality well positioned “missing middle” property it’s quite common to receive several strong applications in any market. Also these homes appeal to home buyers and their supply is tight. Good medium to low density property will always rent well and they need no discount.

The market is different for high density apartments. Check any tower and there is always several apartments available to rent any day. They compete to each other only on price as there is nothing else different between them. Many tenants never rent them even at a discount. New apartments are expensive to buy and own. The cold reality is that half of landlords quit investing within 5 years. Perhaps these days in Canberra such turnover has to accelerate especially among those who bought off the plan apartments when the interest was low.

Similar, I think, though not quite a full limitation. On my reading it says that you are unable to raise rent more than once in any 12 month interval for a given property, regardless of change of tenancy. I see no constraint on amount except “unreasonable”.