Current Tax Settings Lead to Empty Houses!

At the last census there were nearly 120,000 empty dwellings in the greater Sydney region. When combined with under-utilised dwellings, such as those let out as short-term accommodation, the total number reaches 230,000 in Sydney, and 238,000 in Melbourne. These empty dwellings could more than account for the present supply shortfall in housing!

The question is why are these homes are being left vacant when they could command the highest prices or rents, given they are concentrated in central parts of all our metropolitan areas? The answer is that dominant driver of negative gearing is where the capital gain is the main objective rather than the rental yield. On the urban fringe, where there is less expectation of capital gains, there are much lower rates of empty dwellings.

The current tax settings are driving a mismatch between the supply of housing and housing need. This is exacerbating inequalities experienced in our major cities, driving unaffordability in central, well connected and serviced parts of the city. This is not the fault of the planning system, as property developers would have us believe. The situation is likely to have worsened since the last census in 2011 as more housing is being delivered precisely in the locations where there appears to be a concentration of homes standing empty, where supply is being driven by a desire for capital gain not rental yield.

Labor’s policy, addressing this crucial issue of housing affordability will make speculative investment to obtain capital gains less lucrative by reducing the capital gains tax concession from 50% to 25% for all assets purchased after 1 July 2017. This will stem the speculative investment in property that has raised house prices and lowered more productive investment. Negative gearing and capital gains tax exemptions for investors have been a dead weight on the ability to create more housing affordability.

 
Despite the strong economic arguments behind this reform the Liberal Government has chosen to embark on a scare campaign embracing a Chicken Little approach. A far cry from Malcolm Turnbull saying in his 2005 tax paper, that the capital gains tax discount along with negative gearing was a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”.