photo credit: ChicagoGeek

Dr Gavin Putland

As Monash City Council tries to manufacture consent to tax buildings through council rates, the same idea looks set to be dumped in Tasmania and has just been pilloried in the local press in WA.

Strictly speaking, the systems under attack in Tasmania and WA are based on the rental value of the property, including the land and building(s); this is called the “assessed annual value” (AAV) in Tasmania and the “gross rental value” (GRV) in WA. The system proposed in Monash uses the “capital-improved value” (CIV), which is a purchase price rather than a rental value. But the difference is of no consequence; in all cases the rates bill is proportional to the value of the property, including the building(s), and in all cases the proportionality factor (the “rate in the dollar”) is determined by working backwards from the required total budget.

In contrast, the existing system in Monash levies rates on the “site value”, which is the value of the land alone (including airspace and building rights attached thereto, but excluding actual buildings).

“TASMANIAN home owners can expect a more equitable council rates system to be operating by next year,” said the Sunday Examiner on August 16. “It is understood that state and local government heavyweights have held top-level talks and agreed to throw out the much-criticised Assessed Annual Value system that has led to wild variances in rates caused by the property boom.”

Eh? Wasn’t it because of those wild variances in rates that Monash allegedly had to adopt CIV? Yes, it was.

And what system is Tasmania proposing to adopt? The Examiner continues: “It is expected that Tasmania will redraft the Local Government Act and that council rates from next financial year will be flattened and based on land value…”

But isn’t the Monash system based on the land value? Yes. With a flat rate? Yes. And doesn’t Monash regard the opportunity to have “differential rates”, instead of a flat rate, as one of the attractions of CIV? Yes. Indeed, didn’t the Victorian Parliament allow such differentials only for CIV in a blatant attempt to induce Councils to adopt CIV? Yes.

Could I make this up? No!

The Tasmanian experience indicates that if wild variations in rates bills are the problem, CIV is a less-than-satisfactory solution.

Admittedly, CIV tends to reduce the percentage changes in bills in so far as the volatile land values are diluted by the addition of the more stable values of existing buildings. But CIV also introduces another source of variability, namely sudden increases in bills due to construction, extension and renovation.

That’s the issue in WA, where the local press reports that a mother in Cottesloe was hit with a 150% rates increase for rebuilding her house (‘Wrong’ rates ping home builder, POST, Aug.15, p.7). That doesn’t happen in Monash — yet. But it will happen if CIV comes in.

Monash is the last remaining Victorian municipality that uses site-value rating. If it goes to CIV, will it become known as a late adopter of a discredited idea?

(See also “ Rates on Site Values don’t punish home builders”.)

The article, entitled Empty Homes for All to See, is an indictment on the inaccuracy of vacancy figures collected by a group with a vested interest in skewing the results their way.

We pointed out in the I Want to Live Here report that the published vacancy figures of the Real Estate Industry of Victoria are inaccurate. They only list those properties on the market at present, those advertised through Real Estate Agents. This excludes:

• those that are being held off the market because the capital gains of 15% per annum are at least double the annual rental income – why bother renting them out?
• all those properties that are being privately advertised
• those that are used only once per year (ie owners fly in when Melbourne Racing Carnival is on or Sydney Fireworks)

The overstated scarcity of land and property encourages an atmosphere of desperation in the buying market. A genuine vacancy rate would include all vacant property, especially vacant land, which constituted 93% of the vacancies in the I Want to Live Here report.

Beyond the troubles associated with negative gearing in the housing affordability quagmire, the real cause is the lack of holding charges on land. If Council Rates were reformed in Victoria by moving charges off buildings (CIV) and onto land (Site Rental rating), land banking would no longer be economic. When Land Taxes are reformed into a flat Site Rental (because locations naturally reflect higher values in areas where richer people live, thus superseeding the role that progressive levels of taxation presently address) and raised, then vacancies will no longer will be economic.

Adding to the motivation for property speculation is the knowledge by those in the know that working class taxes fund the roads and schools that add services and thus value to the surrounding land. A well reformed Site Rental would naturally capture this increase in value, recycling the public’s efforts back into the public funding system rather than into the deep pockets of the nations wealthiest industry.

This is the wholesale tax change needed to re-balance the playing field away from the speculative activity the tax system encourages and towards a productive role for entrepreneurs.

We are looking for volunteers to engage in a survey of the Melbourne CBD to shoot down this continuing farce. Gen X & Y are getting the raw deal on all fronts…