State Laws Make It Worse

When you have a major national crisis caused by the shortage of a key product, you take steps to facilitate an increase in the provision of the thing that’s in short supply. Right?

And that would logically involve providing incentives to the people who supply the commodity that’s scarce - or otherwise creating conditions that make it easier for them to create more of that commodity.

You would, wouldn’t you?

Well, you would think so in a sensible world, but that’s not what happens in Australia.

Not in the housing market, where the opposite happens. Federal, state and local governments keep making decisions that make the rental shortage worse and the general under-supply of new dwellings worse.

In the housing market, there are two things that have a serious under-supply: there’s a shortage of new homes being built and there’s a shortage of properties available for rental.

Many people think it’s the same thing – that you fix the rental shortage by building more homes, but that’s NOT the solution. 

They are two separate (although related) issues and both problems are getting more and more serious because politicians keep making them worse.

We need to build a certain number of new dwellings each year in Australia to keep up with population growth, fuelled in part by overseas migration, and the formation of new households.

In recent years, Australia has fallen well SHORT of the numbers of new dwellings needed, for a host of reasons.

The Federal Government has an ambitious target of 1.2 million new homes in five years but there is no chance of this being achieved.

One of the key reasons that we WON’T build enough new homes is because state and local politicians keep making it harder and more costly to create new dwellings.

We already have a situation where UP TO HALF of the cost of creating a new house-and-land package is government taxes, fees and charges. 

Studies have shown that the taxation component of a new house ranges from 35% in cities like Brisbane and Melbourne, up to 50% in Sydney.

Politicians keep tinkering with the design of new dwellings – in theory, to make them safer, or more accessible, or more environmentally friendly – but every time they change the rules affecting the construction of new homes, they make them more expensive.

That’s the affordability problem in a nutshell. All levels of government using the housing industry as a cash cow and milk it for revenue through a range of taxes, fees and charges. And they keep making dwellings more expensive with supposedly well-intentioned new rules.

They also contribute to the shortage of new homes and the higher cost of new homes by taking people resources out of the home building industry to build headline-grabbing new infrastructure projects.

Many big real estate projects, such as high-rise apartment developments across Australia, have been scrapped because the developers can’t get the tradespeople they need or the materials they need, and because the costs are SO HIGH that building those projects is not financially viable.

In the ACT, the Territory Government has introduced new rules for the personal liability of directors of dwelling providing entities, including not-for-profit organisations like community housing providers.

These rules are so severe that it is likely to cause a mass exodus of builders and community organisations from the ACT, thereby worsening the housing shortage there.

Here’s one of the consequences of these poorly drafted laws: if you join a board of a community housing provider today, and they have a house that was built five years ago and it has defects, you can now be held personally liable for the costs even though you were not on the board when it was built.

This has come about in Canberra because the Greens, the most destructive force in Australian politics, have a share of power in the ACT government and they regard anyone involved in the housing industry as the enemy.

Make no mistake, if you own a business or if you are an owner of investment real estate, the Greens regard you as something close to a criminal who needs to be squashed.

They are obsessed with the notion that property investors are all rich bastards who own 10 or 20 properties and are monstering their tenants and ripping off the tax system.

This is patently and blatantly false, but the Greens are not interested in hearing any alternative viewpoints.

They are the petulant brats of Australian politics.

And I’m pleased to observe that, despite all their posturing and grandstanding, the Greens failed to have any impact on the election for the Brisbane City Council, the biggest LGA in the nation, or on the two state government by-elections held in Queensland at the same time.

There’s no doubt that the serious and unprecedented shortage of rental properties across Australia has been caused by political decisions that have made investment ownership less and less attractive.

Vacancy rates have been falling steadily for the past five years to the current unprecedented low levels – and you can chart the decline in the number of available rental properties with a series of state government decisions which have made ownership onerous and caused more and more investor owners to sell up and get out.

Australia’s best real estate analyst, Simon Pressley of Propertyology, confirms that there have been 20 major state government legislations in recent years, all of them detrimental to the owners of investment properties.

He points out that the Australian population has increased by 3 million in the past eight years – but, in that time, the number of homes available for rental has DECREASED 58%, and the number of homes listed for sale has DECREASED by 36%.

Those are incredible numbers which explain, in simple terms, the seriousness of the shortage crisis.

And the politicians – mostly state governments – who have caused this dire situation are still doing it. They continue to make decisions and pass laws which make it worse.

They keep slamming the people who are the source of the product that’s in short supply.

Investors who own in Victoria are selling up and getting out in large numbers, because Victoria is by far the most unfriendly state in Australia for property investors.

They have increased existing taxes on owners and they have introduced new taxes on the people who supply the product that’s in short supply.

There are big increases in land tax, a new absentee owner surcharge, a new short-stay accommodation levy and a new vacant residential land tax on empty homes.

There’s also a new construction code which increases the costs of new dwellings and there are restrictions of rental increases.

James Kirby, wealth columnist for The Australian newspaper, commented on 15 March that the taxation nightmare imposed by the State Government was the reason why Melbourne is the worst-performing residential property market in the nation.

As a result of these measures, in just one month, the vacancy rate in Melbourne dropped from 1.5% to 1.0%, a huge change in such a short time frame. And, believe me, it will get worse.

But it’s not just Victoria. Every state and territory has made changes that shift the power balance to tenants and/or increase the costs of owners, causing more and more investors to sell.

South Australia has recently launched changes to its tenancy laws. 

The political statement says: “New rental laws have been passed by the Parliament of South Australia to improve protections for tenants WHILE BALANCING THE RIGHTS OF LANDLORDS.”

That’s the political rhetoric. Here’s the reality:  there are 17 major changes, all shifting the balance to tenants.

For example, reduced rental bonds, a ban on rental bidding, restrictions on what you can ask tenants when they applying to rent your property, limits on rent increases, new rights to tenants to sub-let, new penalties on landlords for various breaches (but none for tenants), restrictions on ending tenancies, more rights to tenants in disputes, the notice period to end tenancies increased from 28 to 60 days, a limit on inspections by your property manager, you can’t refuse pets, and new rights to tenants to make modifications to your property.

And the measures which balance the rights of the property owners?

Well, there are none.

And that, in simple terms, is why we have a chronic rental shortage which has no end in sight.

It keeps getting worse, because state governments keep making it so.