News / Property
Double rates for property investors, says councillor
It is claimed a differential rating system would benefit first home buyers in Merri-bek
Mark Phillips
RESIDENTIAL property investors in the City of Merri-bek would be slugged with rate bills up to four times higher than owner-occupiers under a proposal from a Brunswick-based councillor.
Under the plan for a differential rating system put forward by South ward councillor James Conlan, the amount landlords pay in rates would double, while it would be halved for owner-occupiers and local businesses. It would replace the uniform rating system that is currently in place in Merri-bek.
If his proposal was adopted by the council, Conlan said it could ease housing affordability for first home buyers by discouraging property investment. But critics say it would worsen a housing crisis which has seen the number of properties available for rent in Merri-bek fall by 4.1% over the past 12 months.
“Property investors continue to outbid first home buyers thanks to federal tax incentives like negative gearing and capital gains discounts [which] can make property investment a lucrative wealth creation scheme – all at the expense of renters and first home buyers,” says a notice of motion prepared by Conlan for this Wednesday’s council meeting.
“Local residents and small businesses in Merri-bek desperately need some financial help.”
But Victoria’s peak real estate body says it would reduce the rental stock in Merri-bek, making it even more difficult for tenants to find affordable places to rent.
Have your say: is a differential rate a good idea?
Conlan has lodged a notice of motion ahead of this Wednesday’s council meeting for staff to investigate if a differential rate for investors who have more than one residential property in Merri-bek is possible, and whether that could allow a reduction in the rates paid by residential homeowner occupiers and local businesses.
Conlan said the aim of a differential rate would be to discourage property investors who are outbidding first home buyers, while also easing cost-of-living pressures for owner-occupiers.
Currently, about 35% of residential properties in Merri-bek are owned by investors (up from 25% in 2001), compared to the national average of 31% at the time of the 2021 Census.
“The primary purpose is to make it less attractive to own an investment property in Merri-bek by charging much higher council rates,” Conlan said.
“If it’s less attractive for investors, they will leave the muncipality and those homes will be more likely to be taken up by owner-occupiers and first home buyers, which would change the ownership structure [in the municipality] slightly.
“The specific model we’re trying to pursue is to double rates for investors and halve them for owner-occupiers and local businesses, so it keeps the same amount of rates revenue, but changes the composition of how that is collected.”
If Conlan’s motion is successful, council staff would be required to provide a report back by September.
“Right now, there’s an opportunity for Merri-bek Council to show leadership by investigating if cost-of-living relief to local residents and businesses is possible through a new, differential rate.”
Councillor James Conlan
Rates in Merri-bek – like most councils around Victoria – are imposed on a uniform way based on the capital improved value of the property.
This means that if a property is worth $500,000, its owner would be charged the same rates, regardless of whether it is commercial, industrial or residential – or the primary place of residence or an investment.
Differential rates are allowed under Victorian legislation, although Conlan admits there is ambiguity whether they can be introduced for investment properties.
Conlan’s notice of motion is underpinned by research by a Brunswick resident and member of the Renters and Housing Union, Colin Aslin who has calculated the average rates paid for a typical $800,000 dwelling in Merri-bek are $1800 per year, while they are about $2700 for non-residential properties like shops, warehouses and industrial sites.
Under the differential rates proposal, average rates paid by residential owner-occupiers would fall to $900, while they would increase to about $3600 for investors. For commercial and business properties, average rates would fall to about $1350.
A small number of councils have introduced differential rates for certain property classes. For instance, Maribyrnong Council charges higher rates for vacant residential, commercial and industrial properties than for occupied ones, while it charges a lower rate for cultural and recreational properties. Several councils have also begun rating holiday properties differently than those that are a residence all year round.
Conlan has drawn a precedent from the Victorian government’s introduction of a Covid Debt Levy which increased land tax charges to property investors on each investment property that is not their principal place of residence.
According to Australian Bureau of Statistics data, this has led to an exodus of property investors from Victoria while boosting first home buyers. It has also anecdotally been a reason behind the stabilisation of house prices in Victoria over the past year.
Conlan says there have been no substantiated reports that the Covid Debt Levy has been passed on by landlords to tenants as increased rents.
How the differential rates system could work
The Real Estate Institute of Victoria says Conlan’s proposal would make Merri-bek less affordable for renters by reducing the overall stock of housing available for rent.
“Rental providers play a crucial role in our state’s rental ecosystem, and in Merri-bek, supply rental accommodation to 35 per cent of residents,” said REIV president Jacob Caine.
“With these providers already under financial pressure, Councillor Conlan’s notice of motion to penalise them in order to ease cost-of-living pressures for others could have the opposite of its intended effect.
“Many rental providers will be unable to absorb these costs and will likely sell their property, leaving renters in a rental market that is even more competitive and less affordable.”
Caine said the REIV supported taxation measures that encouraged both investment in property and the supply of long-term rental accommodation.
Merri-bek Council staff also say it is “very unlikely that it is feasible” given the legislative framework and requirements that apply to local government in Victoria.
In advice provided to councillors ahead of this week’s meeting, they say councils may not be allowed to raise differential rates on investment properties under Victorian legislation.
A council can raise differential rates “if it considers that the differential rate will contribute to the equitable and efficient carrying out of its functions”, the advice says. But uniform rating “ensures all ratepayer groups are treated equally, as differential rating may be seen as unfair and excessive towards certain ratepayer groups”.
There could also be unintended consequences from a differential rate, such as an elderly resident living in a retirement village could be hit with a higher rates bill if they rented out their old home.
Conlan, an independent councillor who was first elected as a Green in 2020 before quitting the party last year, says he is still undecided whether to run for another term at elections later this year.
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