If you always do what you’ve always done…

Or – An object lesson in how to stuff the rental housing market

One thing I encourage my consulting clients to do when we hit an obstacle is to not repeat the same thinking on the problem, but to find a different way of looking at the issue to resolve it – advice I think that the Victorian government could be well advised to listen to as, once again, their narrow focus by meddling and purely increasing costs looks like adding fuel to the fire when it comes to housing, this time by way of increasing their land tax income by penalising those who are keeping the pressure off (and media attention away from…) the failure by government to provide public housing which would have taken the pressure off the private housing market and rising rents.

First let’s look at some ABS stats, the last census showed that the average owner occupied property houses 1.8 people, whereas the average rental property houses 2.8,effectively 1 person more lives in each rental property than in owner occupied property.

Mortgage costs have risen at a rate well above rents, so the extra cost is not being passed on in full, making a much higher number of investment properties less and less viable, the additional land tax adds another $1300 annually to this bill so a majority of investors will either well to offset these increases by lifting rents, or quit an unviable investment.

Should they quit the investment and it’s bought by an owner occupier, the equation I started with will take 1.8 people out of the rental market but push 1 additional person per property back into the rental market where another property has been removed from it – that’s known as increased demand.

Ask an economist what happens when demand is increased but supply diminishes (refer example above) and they’ll tell you that prices rise.

Add to this the sense from a lot of landlords in Victoria that they have no control over their housing investment and that there are other, more controllable forms of investing and you’re diminishing the attraction of property as a means of building wealth for their retirement, further limiting supply. To this point, there was a study published by Longview Property Group in conjunction with Pexa recently that indicated that there were better gains to be made with lesser risk by taking the funds a landlord would have contributed to their housing portfolio and placing it in their superannuation – so the flow of funds might well not end up in housing anywhere in the country; wonder what governments would then do about accommodating the population…

Mind you, the implication of some landlords quitting the market would only be good news for those who stayed, as the further constraining of supply would bring even greater increases in rental revenue, which gives rise to the suggestion that all options (ie; a rental cap/freeze as the Greens are now actively campaigning for) are on the table. This will only exacerbate things, and further control of what is effectively private property will only push landlords out of the state, or out of housing altogether as the fear is that other states will follow Victoria’s lead and try the same stunt.

Further, the sense of a lack of control over their properties in the long-term market, there has been a shift toward the short term, short stay environment through providers such as Airbnb as any property which is leased for less than a 60-day term does not come under the jurisdiction of the Residential Tenancies Act, so owners are opting for a different approach. This then deprives the long-term market of supply, something which caused government to now look to try to regulate this short term market either through the imposition of further increases in costs, or limitations on the number of days these properties can be let out.

To also say that costs are deductible against your tax, well Premier, I’d suggest you talk to your federal government colleagues about this – it’s a nonsense argument, you’re playing the shell game, pushing off a state tax cost for a federal tax write off in the medium term rather than looking at the immediate impact of the impost on supply.

No one likes high rents, it contributes to inflation and higher cost of living is never a good thing as it has a knock on effect with things like increasing interest rates and a dampening of economic activity. But the solution is not further and even more restrictive regulation, it’s increased supply and therefore increased competition for whatever demand is in the marketplace – rental controls will not fix the problem, not even in the short term, we only need to look to the lessons of Ireland and Berlin to see the abysmal failure of government interference at that level, and we need to look at alternative ways of dealing with the issue as I said in my opening remarks.

If the government truly wants to help renters, and not just give lip service to it, they and we need to build more housing, as the central issue here isn’t the landlord/property investor, it’s the supply chain and government inaction; they could at least manage the government/social housing stock they have more effectively in terms of its maintenance and the approval timelines and processes for getting into public housing, and take the pressure off the private sector as the proxy for the lack of decent government housing; this would free up some of what’s still left in the private market.

Or, and here’s a novel idea; how about providing incentives for landlords to lease their properties out in the long-term market – if you want to bring more properties back to the market, find ways of making it more appealing to do so, rather than more punitive – this is core to the problem – land tax concessions, discounts on council rates, supplementing the compliance check costs would all be a pragmatic starting point for discussions – as too would fixing the imbalance in the legislation and especially in VCAT, my views on this are already Very well known…

Also, increase the future capacity by taking planning roadblocks out of the current system of approvals at an LGA level, and looking at how land use within established suburbs is determined by modifying the zoning and planning requirements to more efficiently bring more people into areas where infrastructure is already in place (that’s going to upset the establishment!) and take the blinkers off the current way of thinking – open the conversation up to all stakeholders, not just the loudest voices.

All I see this as is the Andrews government posturing and pandering to a small part of the electorate. Many private investors in the state are not in agreement with further increases in their outgoings, and this will certainly have a flow on effect that doesn’t benefit renters.

So I’m calling you out for the blinkered view Premier, time to get into the real world.

Quit the vilification and punitive approach to the problem you and previous governments have created, and start to include some commercial thinking into your solutions, because the other way clearly hasn’t worked.

As I said in my intro, it’s time to be thinking differently.


*note – this article was researched and written without AI