News / Property
Higher rates for property investors are dead and buried
Differential rates proposal would be unlawful and leave a hole in council’s budget
Mark Phillips
MERRI-BEK Council has abandoned any plans to charge property investors higher rates than owner-occupiers on the grounds it would be unlawful — but will not make available to the public the legal advice it relied upon for its decision.
In a move that has been welcomed by the property industry, all councillors bar one voted on Wednesday night not to pursue the differential rates system because it would not only exceed the council’s powers, but would create a massive hole in its revenue.
Additionally, a differential rates system could drive up the costs of rents and deter future investment in new housing in Merri-bek, according to advice to the council.
The differential system had been proposed by former councillor James Conlan earlier this year as a solution to the housing affordability crisis.
Under the scheme, rates for property investors would have doubled, while those for owner-occupiers would have halved. It would have replaced the current system where all residential property owners are charged a uniform rate, regardless of whether they are an investor or owner-occupier.
Conlan claimed the changes would have eased cost-of-living pressures for homeowners and made more housing available to first home buyers by making Merri-bek less attractive to investors.
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The council narrowly voted in June to further examine the proposal at a cost of $5000, with the results of that investigation reported back at Wednesday’s meeting.
The 13-page report, authored by the council’s Director of Business Transformation, Sue Vujcevic, recommended not to proceed any further with a differential rate because it was highly unlikely to be lawful and would have other significant adverse consequences.
According to advice that the council says it will not release to the public because it relates to legal priveleged information, declaring a differential rate for either owner-occupied or investment properties would exceed the council’s power under the Local Government Act.
The report also used financial modelling to show that a differential rates system could leave the council with a revenue shortfall of $250 million over 10 years as the property ownership mix in Merri-bek shifted from investors to owner-occupiers who would pay lower rates.
To offset the lost revenue, the council would be forced to cut jobs, discontinue services, and reduce funding of key initiatives and major projects.
A further issue highlighted in the report to councillors was the impact a differential rates system would have of potentially decreasing rental supply and new residential development. The report also outlined several unintended consequences of a differential rates system, including penalising people who own more than one property in Merri-bek for a relative to live in and increasing rents if investors pass on the cost of the higher rates to tenants.
At Wednesday’s meeting, Councillor Oscar Yildiz described the differential rates proposal as a “ridiculous” plan that had brought unwelcome national media attention upon the council.
“It was going to punish hard working mums and dads who have invested in this community and probably even drive people away,” he said.
Deputy Mayor Lambros Tapinos said the proposal had been divisive, was unworkable and would have hurt renters.
“It was just silly to begin with,” he said.
Read more:
Council to investigate differential rates system
But Councillor Angelica Panopoulos — who voted along with others not to proceed with differential rates — said even though there were problems with the proposal, the investigation had been a useful exercise during the housing affordability crisis.
“I really do believe it is incumbent upon us to be as informed as possible when we’re making decisions on new and novel ideas that get presented to us,” she said.
The recommendation not to proceed any further was approved by nine of the 10 councillors, with Councillor Sue Bolton abstaining.
Brunswick resident Colin Aslin, whose research underpinned the differential rates proposal, said councillors had sided with landlords by adopting a “hopelessly flawed” report that had contained fundamental errors within its assumptions.
“Mortgage stress is through the roof, while property investors are making off with enormous capital gains,” he said.
“People need this relief … There are no silver bullets in the housing crisis, but this one measure really would be a serious step in the right direction.
“People understand that the last 30 years of property speculation, fuelled by billions of dollars’ worth of tax concessions provided to landlords by the federal government, simply can’t continue.
“This community has a right to push that needle in the other direction – just as the state government has already done with their 2023 reforms to land tax.”
Aslin also questioned the use of privilege to prevent the council’s legal advice being made public.
But the council’s decision was welcomed by the Real Estate Institute of Victoria’s chief executive officer, Kelly Ryan.
“Rental providers play a crucial role in our state’s rental ecosystem and contribute 35% of Merri-bek’s housing supply,” she said.
“As the state faces an acute housing crisis, proposals that seek to penalise investors are likely to result in higher costs for renters and a reduction in housing supply.”
Prior to the council meeting on Wednesday, James Conlan, who resigned as a councillor last month, said on on the social media platform X that he hoped Greens and Socialist councillors would vote with renters and first home buyers rather than property investors.
“The officer report reads like it was written by the Real Estate Institute of Victoria,” he posted.
“It fundamentally misunderstands my proposal and is filled with arguments straight from the property lobby’s key talking points.”
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