Tuesday, October 4, 2011

Tax Forum begins

The National Tax Forum begins today: let's hope housing is front and centre in the discussion. It certainly has been in the media, with some very good pieces on last night's 7:30 report, and today on 'The Drum', as well as in last week's Herald.


The Irvine piece on land tax, in particular, moved Brown Couch reader and legendary tenants advocate, Dr Robert Mowbray, to write to us and second our motion that it be made required reading for anyone interested in housing justice.

And as Robert points out, this is not just about affordability – land tax reform would also go a long way to helping achieve greater security for tenants. This is because security is not just of matter of what the law says about the termination of tenancies by landlords (and as N.C. has recently discussed, our laws still say landlords can give termination notices without disclosing any grounds for termination whatever); it is also a matter of the structure of the rental market and the investment strategies of landlords.

The structure of the Australian rental market is distinctive for absence of large institutional investors, and the dominance of individual landlords who own one property only. These are the so-called 'mum and dad investors' – or 'amateur speculators', as they are known around here. And because land tax is levied on the total value of land holdings above a certain threshold, it strongly favours these small-holding players above large-holding institutions.

And what are these small-holding players playing at? They're after capital gains, and this means being able to sell when it suits them, including into the market for owner-occupied housing. And this means being able to readily oust a tenant and regain vacant possession of the property.

Across Australia, residential tenancies legislation reflects the basic structure and strategy of the amateur speculator-dominated market. And it, in turn, reflects our tax system.

1 comment:

  1. Great stuff, Tenants’ Union …

    The tax review panel chaired by Ken Henry recommended abolishing stamp duty and replacing it with a broad based land tax. If such a tax was applied on a per house basis (not per cumulative-holdings basis, as currently is the case in NSW), it would encourage institutional investors, like superannuation funds with oodles of money, into the private rental housing market. Unlike ‘mum and dad’ landlords, they are likely to trade their rent housing stock as rental housing stock … without the need to evict their tenants.

    Current laws are unable to provide security of tenure precisely because ‘mum and dad’ landlords need to sell their investment house of flat with vacant possession, in order to maximise their capital gain. Tim Seelig, Terry Burke and Alan Morris (‘Motivations of investors in the private rental market’, Australian Housing and Urban Research Institute, May 2006, Positioning Paper, No. 87, p. 20) expand on this:

    'One of the central characteristics of Australian property exchange is that established dwellings for sale are often placed into an open market, where current and aspiring owner-occupiers, and potential investors, are in direct competition with each other. During the life of a property, it may be consumed as both owner occupied and as private rental, and this has major legal implications for both owners and occupants of private rental housing. As Burke (1999b: 8) suggests,

    "... this has required residential tenancy legislation in the various states to recognise the landlord’s right to make decisions as to whether the property is to be used for owner-occupation or rental ... the landlord must have the right to sell the property as they please, whether as a rental property with tenant intact or as a potential owner-occupied property without the tenant."

    The capacity of rental investors to sell a dwelling with vacant possession is therefore a significant component of private rental dwelling exchange processes (Mowbray, 1996: 272-3). Australia is not alone in this issue being of importance - Ball (1983: 102), and Whitehead and Kleinman (1986: 73) all refer to the advantages to rental investors in the UK that flow from selling dwellings with vacant possession onto an open market, with every prospect that an owner-occupier will purchase the dwelling. Hamnett and Randolph (1988) in particular point to demand from home-owners, and rising house prices, as factors that have encouraged rental investors to sell with vacant possession to prospective owner-occupiers in Britain.'

    Bring on tax reform.


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