Media Release

Housing Shortage in Inner City a Myth

2,317 properties have been found empty in central Melbourne during Australia’s worst ever housing crisis.

Read the Full Report (PDF 432kb)

“The 2008 I Want to Live Here report has found a 7% genuine vacancy rate in the inner city as compared to the much publicised 0.9% vacancy rate. The reported rate is a shocking one tenth of the genuine vacancy rate that speculators withhold from the market” said report author Tohm Curtis.

“At least $1 billion in vacant property exists in the inner city, and over $10 billion in Greater Melbourne.”

“The suburb of Carlton alone has sufficient vacancies to house all 220 reported homeless students at Melbourne Uni” said Mr Curtis.

“Last week the Housing Industry Association tried to claim that land supply is the cause of rising housing prices. Yet the 90,000 blocks opened up by Brumby earlier this year, on top of the 38,000 existing empty blocks of land held by Australia’s 6 biggest developers, have done nothing to curb rising land prices. Obviously there is another factor at play and our report demonstrates that it is speculation.” stated Project Coordinator Karl Fitzgerald.

“Brumby’s 2030 expansion is nothing more than a handout to property speculators. What he should focus on is tax reform to ensure that existing housing is used for living rather than the ‘laughing all the way to the bank mentality’ that land speculation enables.”

“Council budgets are stressed by further infrastructure expansions when existing residentially zoned land should be further utilised.”

“The least we should be doing to tackle climate change is to ensure that people are living as close to their places of employment as possible. It makes no sense for packed suburban trains and busy roads to be driving past vacant property after vacant property when there is space for people to live close enough to walk and cycle to work and school.” said Mr Fitzgerald.

“These speculative vacancies are unacknowledged by economists and politicians despite being reported in the Census as recently as 2006. Government should rely on its own reliable sources of information instead of using figures provided by the real estate industry. The REIV and Australian Property Monitors regularly report vacancies of 0.7-0.9%, based on those properties up for rent.” claimed Mr Curtis.

“These speculative vacancies exist because government policy reinforces this speculative behaviour. Policy at all levels of government have been designed to keep the housing bubble inflated” said Mr Curtis.

The I Want To Live Here report calls for genuine tax reform as the only means to ensure long term housing affordability and ensure future Boom Bust cycles are avoided. Higher and flatter holding taxes on land should be implemented to balance out the advantage that property speculation has over all other forms of business.

Key Findings:

* 2,317 vacant properties in inner Melbourne.
* 18,070 vacant properties in CityWest Water’s client base of Greater Melbourne.
* $1,044,967,000 worth of vacant property in the inner city.
* If 44 of the 2,317 vacant properties were leased or sold per week it would take over a year to clear the backlog.
* If this extra supply of housing was to hit the market the price of housing would become more affordable.
* Government policies of all levels are critiqued and fall short on many levels.

Read the Full Report (PDF 432kb)

Appendix 1 - CWW vacancy findings

Read the 2007 report

For questions or comments please contact:
Tohm Curtis, Researcher, Report Author, 0416 313 273, tohm@earthsharing.org.au
Karl Fitzgerald, Project Coordinator, (03) 9670 2754, k2@earthsharing.org.au

• Vacant land and housing in Bluestone Ward, City of Maribyrnong could see 1058 people living within 430 properties in the locality.
• This would add 11.7% to the population in the municipality, greatly benefiting local business.
• The extra supply of 430 properties to the market would limit if not reduce rampant property price inflation in the area.
• Local, state and federal governments implicitly encourage such wastage with the tax system supporting speculative profiteering at the expense of productive land use.

Purpose:

To demonstrate that the vacancy rate advertised by the Real Estate Institute of Victoria does not represent the true state of the property market.

Introduction:

The real estate industry is calling for land release as a solution to the housing affordability crisis. This report demonstrates that the private supply of land held by speculators is the primary issue that needs to be addressed.

The proximity of Footscray to the CBD and its price differential sees it as prime territory for speculation. Speculative pressures are the dominant force impeding housing affordability.

New supply of federal land will mean little, as it will be snapped up by speculators rather than first homeowners. Families and young people are handicapped in the property market by a range of tax advantages that assist those who own land to own even more.

Low capital gains and negative gearing are regularly discussed as limiting affordability. However, the 1996 Kennett changes to CIV council rates has seen the family household with its capital improvements pay higher rates than the wealthy vacant landowner.

This has also lead to a reduction in rental housing stock, as it is cheaper for the landlord to let property fall into disrepair than fix it. It is even cheaper for them to demolish the property to reduce their share of the rating burden. State governments have also contributed to the demise of housing affordability by sending constant signals to the property sector that Land Tax will be reduced.

A holding charge on land is essential to curtail the influence of ‘speculative vacancies’ on housing affordability.

The benefits to the community are considerable. If 1058 people were added to the Bluestone Wards’ population of 9000 people, local business would enjoy a considerable fillip with the demand for goods and services required by an additional 11.7% of people.

First homebuyers would benefit too. If the 430 properties were encouraged onto the market with a holding charge on land, this would considerably add to the amount of land up for auction. With a conservative estimate of 35 auctions (www.homepriceguide.com.au) taking place in the ward each month, adding 430 properties over 12 months would virtually double the supply of auctions.

This would help level the playing field, creating a buyers market power for people who want to use land for housing rather than speculation.

Melbourne 2030 is being threatened by a dysfunctional tax policy that encourages ‘doughnut’ development.

Photographic Evidence: (vacancies in red)

Bluestone Ward West

Bluestone Ward North (pink – vacancies outside the ward)

Bluestone Ward Central

Bluestone Ward South

Method:

The Bluestone Ward was surveyed from the ground via bicycle. Vacancies were recorded via digital camera and then onto spreadsheets.

Google Earth was used with its bird’s eye view to estimate the number of dwellings per vacant site ie a comparison of the number of neighbouring dwellings that would fit on that land.

Conservative estimations were maintained in estimating all dwellings on vacant land. Ie a quarter acre block saw 1 dwelling, not the 2-3 houses as per modern development trends. No multi-story apartments were included in our calculations.

The average number of occupants per dwelling is 2.46 in the City of Maribyrnong.

Findings:

• Vacant land sites – 399
• Vacant buildings – 31
• Total – 430 Vacant Properties
• Vacant land accounted for 982 people
• Vacant houses accounted for 76 people
• Total - 1058 people

Period:

All calculations were made on Fri Sept 21st, 2007.

Genuine Vacancies:

The present 1.4% vacancy rate (REIV) only includes rental properties in the rental market. We propose that there is a much higher rate of vacant land if we include ‘speculative vacancies’ – those properties withheld from the market to manufacture additional capital gains. Vacant land is the dominant marker of this trend.

We advocate the need for a ‘genuine vacancy’ rate – one that includes both ‘rental vacancies’ and ‘speculative vacancies’.

Such a calculation would give the general public a better understanding of the inefficiencies within the land market. From this we could evolve to a fairer land policy that encourages reward for effort over reward for speculation.

The I Want to Live Here survey covered the significant land holdings of the former Pacific Dunlop site, Cross St, Footscray West (as seen in the Bluestone Ward Central photo). This nine-acre site has been vacant since 2001, greatly reducing the supply of land in the region, pushing up prices in surrounding areas. Once the ‘Banbury Village’ development is built the dwellings will no doubt be drip-fed to the market to maximise profits, meaning that land may have remained vacant on the site for over a decade.

It must be noted that if speculative vacancies from apartments were included, the 1058 figure would be substantially higher.

Why does the Reserve Bank allow the Real Estate Industry to be the sole supplier of figures for which they have a vested interest in publishing?

Speculative Prowess:

Any prospective first home owner valiantly searching for a place would be shocked to realise that 1058 people could live in Bluestone Ward if a fairer land policy was adopted. This finding is significant in an environment where we are constantly told that vacancies are at a record low.

Furthermore, the current peak in the property cycle typically finds that much vacant land has already been sold off with the profit maximising motif in mind. Thus if we were to look back at the mid point of this property cycle, the 1058 figure understates the typical inefficiencies in the property market.

The Urban Development Institute of Australia releases a Land Price Index, which monitors the number of sites sold and the prices attained for land. Any rational property developer would utilise such information to ensure the supply of land is limited to maximise prices.

The Issue:

At present an average vacant site in Footscray goes for approximately $220,000. This sees a Land Tax on only $20,000 over the $200,000 threshold. This would cost just $240 p.a. Add council rates of $800 onto this and the holding charge is barely $1000. With property increasing by 30% in Footscray over the last 12 months, such a holding charge is dwarfed by the profits to be made in this paper-shuffling industry.

A site value of $220,000 is typical of the median $330,000 house. Thus the constant bickering over Land Tax equates to just $240 for speculators to pay on the properties first homebuyers are trying to purchase. Such minimal charges encourage land hoarding to maximise prices.

Conclusion:

The hidden supply of land withheld from the market by private speculators can be addressed using market forces. A reformed Land Tax, in the form of a Site Rental, should be implemented along the lines of the Victorian Government’s 2001 Harvey Report recommendations.

A higher Site Rental rate, set at a flat percentage rate could easily fund the abolition of stamp duties and payroll tax, and pay for a reduction in the regressive sales tax.

With the political difficulties inherent in a democratic system where vested interests dominate political campaign donations, the administering of such a sensitive policy should be handed to the apolitical Reserve Bank.

The 430 vacant sites found in just one small ward in the City of Maribyrnong contribute greatly to affordability pressures. If a Site Rental was implemented at a responsible level (upwards of 1.5%), these properties would soon find their way onto the market. This added supply would limit if not reverse the drastic land price inflation we are seeing. The benefits would see small business encouraged, local employment improved and wages increase.

Why then are governments so unwilling to address this issue?

“I do not deny that all taxes, with the exception of those on economic rent and inherited wealth, have some employment and economic growth effects.”John Howard, 10/12/1991 – p15 AFR

Is there perhaps another reason that vested interests talk so loudly on this topic? A Site Rental is a levy that can’t be evaded. Speculative vacancies are a national trend that must be addressed.

Author: Karl Fitzgerald, B.Ec, Project Coordinator, Earthsharing Australia

Researcher: Kellie Gee

Contact: (03) 9670 2754 k2@earthsharing.org.auPDF Version IW2LH report (PDF 3.5MB)

I Want to Live Here report by Karl Fitzgerald is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 Australia License.

Appendix 1

Definitions:

• Vacant land – any property that was unused, as demonstrated by an empty lot. This does not include parkland.
• Vacant dwellings – property that is boarded up and/or unkept.
• The survey focused on detached and semi detached buildings. A number of retail premises available for lease for a significant period of time (6 months or longer) were also included in the study.

It’s called vacant land. It can sit there all by itself whilst the world goes whizzing by it, with new houses being built and small business struggling to make ends meet. It looks innocent enough. Infact it is such a subtle part of the community that most don’t even see it. This meek little piece of the planet can outdo them all though, growing in value by triple the average wage increase.

What an amazing effort! Triple what the average wage grows and just one block making as much in lump sums as many small businesses do in a year. How does it do it? It sits back and waits for everyone else to work away, improving the schools and roads. Don’t worry, someone else’s taxes pay for it. It does nothing, but people flock to the area, wanting to live there, pushing its value higher and higher.

Poor Maxxy, stuck in front of his Nintendo Xbox after quitting his latest telemarketing job, decides to take a break. Walking to the video shop he stops to take a leak. Pissing through the fence he realises he’s hardly noticed this place. A giant block of vacant land, with grass that cows would lick their lips for.

It used to be a Socks factory. Then it was vacant. It got sold. It got sold again. It got sold again again. Then someone knocked it down. Then it got sold another few times.

All along, nobody did anything useful with it. It was wasted.

So was the hope of Maxxy and his mates. How could he afford a roof over his head when people can waste something that others so desperately need? Shooting away on his gamebox, he wondered whether his people had been excluded from the game of life.

The next few times he walked past he started thinking about this block more and more. Then he happened to roll past during an auction. He stopped and watched as a crowd of serious looking men and women huddled around the auctioneer. Some nodded and the auctioneer winked. Others waved a hand whilst a few held mobile phones out for listeners to listen. It all wound up with someone smiling and someone in the background smiling even more.

Chatting to his mate Billy in the aisles of the video shop, Maxxy heard that the vacant block went for $900.000. ‘Yeah they made $140,000 in 9 months’.
Doing what?
‘Oh nothing, just waiting round, you know, sitting on it until the time is right.’
“Gee that sounds a bit rich! How do I get a job for doing nothing?”

Maxxy started checking this game out. He read an article by a guy from the Institute of Public Affairs, a renowned right wing think tank, where it was stated ‘The value of a block of raw land is only a few thousand dollars but the government restricts the use of land for housing.’

“Well that’s not what I’ve seen” boiled Maxxy. $900.000 for a $140,000 profit sounds like it’s actually worth quite a bit. Maybe this dude should have a look at rich people wasting the supply of land! For all those years Maxxy had walked by the old Socks factory and never smelt a whiff of what’s curbing his chance to get his own place.

Maxxy’s brother heard about his new interest. As a successful businessman he invited Maxxy along to a “Tax Minimisation for Lawyers” seminar he’d heard a few whispers about. Situated at the top end of Collins St, the room was packed with the sorts of people Maxxy saw at the Socks factory auction. Long trench coats and silver spoons were the flavour of the day. Just like in the movies, the little guy running the show had all the legal books behind him, the pretty blond assistant with the attitude and the hands moving like a conductor.

But he was conducting a different sort of show to what Maxxy had seen before. The projector had facts and figures coming from all angles. Cash at 5%, International sharemarkets at 8.7%, Oz shares at 12.2%. Then the property graph hit him with a 15.5% growth rate over the last decade in Melbourne. Anyone could understand that this was the game to be involved in. And the conductor didn’t let him forget it either.

“It’s your job to be out on Saturday mornings, looking for the trendy alternative types. Find the cool café and see who’s visiting. The locals and their prams, the hippy clothes and the cute dog. Keep an eye on them. That’s where you want to be investing. Even better, move to the next happening café, further out. If there’s a few coolio’s there, that’s where you want to buy up.”

“And the tax system is made for this. I can get you depreciation on concrete, as if it’s falling off the walls.” Snigger, snigger. “And then there’s negative gearing. Don’t forget I can save you on cap gains”. The list of tax evasion techniques continued.

All the time the conductor made no connection to the fact that the tenants these investors would be renting to were the ones who paid for the roads and schools with their tax. No, our trench coat mob wont be paying squat with an accountant like this guy. “$450 million at my fingertips”.

And to think some are saying it’s the councils and governments causing the housing troubles! “It’s that bloody boring tax law!” thought Maxxy. He left feeling like he’d been a spy in a secret battle, where the victims have no idea of the battle they’re in.

Maxxy saw Dr Internet that night, finding a report by the UN’s Special Rapporteur for Housing, ‘With Australia’s negative gearing policy, perhaps the most generous of all developed countries, and the tax benefit from capital gains, a subsidy of $21 billion is given to the high end market.’

Soon he found a few alternatives to make housing affordable. Instead of paying taxes, we should just pay one simple fee, a Site Rental, based on the land we own. Land would then be used efficiently. Why should workers and businessmen have to be super efficient, but landlords subsidised to be wasteful? The simple things often work the best, he thought.

He started to read a little faster as he learnt that inner city blocks then won’t be left idle for years. Owners will make them economic by renting them, starting a business or selling this unique asset. This hidden supply of vacant blocks and empty investor apartments would push down the price of land. “Yes” he thought, “that’s why there’s a few empty apartments over at Susie’s, mmm and I reckon there’s one or two at Reggie’s too”. Land is now 65% of the cost of a mortgage, reverse of the 70’s when it was only 35%.

One line brought a smile to Maxxy’s face. “Then no one could hide their money in tax havens.”

They even say this is what economists really want. Capturing land rents is the most efficient way for government to raise revenue. Prices to goods drop by 50% plus when you remove the fifteen plus taxes that contribute to the cost of each purchase. That’s how Hong Kong, South Korea and the East Asian Tigers have done so well. Maxxy read with amazement that 92% of people in Singapore own their own house.

The thoughts started flying through his head “Why pay someone to have a place on the earth? Isn’t finding a home the most important thing we do in life? The Great Australian Dream…anyone? It’s the government’s job to look after us all. Why help the rich get richer? Who cares if they donate money to the politician’s campaigns! We don’t need to sprawl any further, we need to use the land we’ve got more efficiently. Melbourne is already bigger than the City of Greater London.”

Maxxy trudged off thinking that this debate over land supply and building costs was a great diversion plan. ‘Keep the tax breaks rolling’ say the Collins St cruisers, ‘Let’s speculate on future generations un-affordability.’ Will their conscience ever awaken for a bruising? Or a car jacking?

Riding his bike later that week, Maxxy started a new trend. Every time he passed a vacant block of land or a derelict old house with the mailbox overflowing, he jumped off his bike and slammed a picketed sign hard into the ground – “I want to live here!”

Earthsharing Australia has released the first ‘I Want to Live Here’ Report, demonstrating the extent to which speculative vacancies are the hidden issue in the housing affordability debate.

The ‘I Want to Live Here’ report found that 1058 people could live on vacant sites within the Bluestone Ward (City of Maribyrnong). This Google Earth photo of Bluestone Ward West shows a snapshot of some of the many vacancies.

“Housing affordability debates focussed on government controlled land supply were today dispelled” stated Karl Fitzgerald, the report’s author.

“It is the privately controlled supply of land by speculative interests that is heating the market to record levels. It is also driving the argument for unlimited sprawl.”

“Even if Commonwealth Land was put onto the market, speculative interests would snap up the property and drip feed it to the market. History shows that land release only leads to more designer suburbs with a focus on ‘lifestyle’ living, not affordable housing. First home owners cannot compete with speculators under the current tax regime.”

The findings include:
* 1058 people could live in 430 vacant properties within this municipality.
* 93% of these were vacant blocks of land.
* The ‘official’ vacancy rate should include ’speculative vacancies’ to reflect the genuine vacancies in the land and property market.

The report’s findings on speculative vacancies were discovered by Earthsharing Australia in an extensive survey of the Bluestone Ward, covering parts of Footscray, Footscray West and Tottenham.

“Victoria’s much publicised Vacancy Rate of 1.4% radically understates the true situation in the land and property market. ‘Speculative vacancies’ are not included in this figure. Only properties on the rental market are included by the Real Estate Institute of Victoria in their vacancy statistics.”

“Young people are bidding for rental properties, paying months in advance to secure a place to live, yet they are surrounded by vacant land and housing that is shut off to them in the name of private profit. Neither political party is offering any solution to this issue.”

“The questions we must ask are ‘Why don’t either of the political parties promote the taxing of economic rents?’ and ‘Why are property developers the major beneficiaries of the ’solutions’ on offer?’”

Speculating on the Great Australian Dream should be deterred by a Federally implemented Site Rental charge on all land, replacing income taxes.

Read the full ‘I Want to Live Here’ Report