Between January and June 2008 in the midst of the “rental crisis”, 2,317 vacant properties were identified in the inner suburbs of Melbourne.
The genuine vacancies identified represent 7% of housing in inner Melbourne. Rental vacancies were reported by real estate research bodies as being less than 1%.
At least $1 billion worth of property is currently accommodating no one and generating no rental income.
Between the 2001 and 2006 census, Melbourne’s unoccupied dwellings increased by 18.14%.
Dwelling construction outpaced population growth by 1.81%. The identification of the surplus was available to the Australian public in 2007.
Despite the increased supply of housing, Melbourne experienced both a housing affordability crisis and a corresponding rental crisis.
The housing bubble is the result of speculation. It is a failure of the market to conform to the expectations of economic theory.
There is no housing shortage in Melbourne; instead there is a housing bubble. The rental crisis relates to a shortage of landlords willing to lease their properties.
Landlords holding these speculative vacancies did not make them available during the rental crisis despite the reported shortage and the inflation of rents. Taxation of property in Australia encourages speculative vacancies and discourages the transfer of property.
To clear the total properties identified in our area of study in a year would require 347 property sales or leasing per week for a year, with no new vacancies entering the market.
Government policy is based on the assumption that housing is being used efficiently and that there is a shortage of housing despite access to information that indicates the high proportion of genuine vacancies.
Government housing affordability policies have served to subsidise speculators and the real estate industry through the First Home Buyers Grant and the Commonwealth Land Supply Initiative.
A lack of investment in decentralised infrastructure by government allows Melbourne inner city landlords a monopoly over land with access to public infrastructure. This monopoly protects speculative properties from supply based solutions.
Speculation is viable due to the relatively negligible holding costs of owning property that accommodates no one. Property prices have historically outpaced rental income and wage growth. CIV rating systems on house and land prices also serve to encourage landlords to allow housing to fall into disrepair.
The transfer from speculative vacancies to occupied properties would result in more affordable housing and downward pressure on rents.
The simplest way to make the market efficient is to charge landlords a holding cost based on the best use of the location. Once holding costs are in place, transaction costs should be minimised through a reduction in Capital Gains Tax and Stamp Duty. This is the only efficient supply side solution.