The great housing giveaway: $11b windfall up for grabs
While Australian taxpayers miss out on billions of dollars a year, wealthy landowners could be making out like bandits amid efforts to tackle housing affordability.
The Albanian government’s fifth budget sought to reshape Australia’s tax settings in favor of property owners rather than property investors.
But it has neglected to address the “profound injustice” at the heart of the country’s housing policy, according to a report by think tank Prosper Australia published on Wednesday.
In recent years, state and territory governments have been relaxing zoning laws, such as raising maximum building height limits, in a bid to increase housing supply and ease affordability pressures.
While zoning has been widely praised by economists as an effective measure to increase supply, report authors Tim Helm and Henry Williams estimate that it also provides property owners with an $11 billion annual windfall.
Dr Helm argues that a government raising the height limit on what a property owner can build on his or her own land is essentially giving away a public asset – the airspace above the land – for free.
This results in an undeserved increase in the owner’s wealth.
For example, a 2016 report by Sydney Inner West Council found that converting a block of land from industrial to eight-storey apartments increased the land value from $2 million to $10.7 million.
“We think that development rights are legally and ethically owned by the community, and when we give them away by planning improvements without charging a fair market price, that is a transfer of wealth to private landowners,” Dr Helm told AAP.
He called on state governments to impose a 75 per cent tax on the increase in land value created by development rights, building on the ACT’s lease variation charge, which has been in place for more than 50 years.
He said the extra income could be used to scrap stamp duty for every first home buyer or build almost 200,000 new social homes.
Dr Helm said the charge would not hinder new supply.
By applying the fee only to the excess profit generated by the zoning expansion, the landowner retains a windfall of 25 percent of the development right as well as all revenue from the development of the property.
Despite the tax, the ACT has built more homes per capita than any other jurisdiction in the last 15 years; It built 12.2 homes per 1,000 people, compared to the national average of 8.2.
But this accusation has long been a bete noire of the ACT real estate industry.
Property Council ACT executive director Ashlee Berry said in practice, the tax increased developers’ feasibility challenges and limited new supply.
“At the end of the day, the developer buys a land, makes the investment, puts in the capital and ultimately takes the risk to deliver homes to other people,” he said.
“We don’t agree that there should be some kind of windfall tax on this, because they’re already paying too much tax across the board.”
Ms Berry highlighted a housing development in Canberra’s Dairy Road area; this project was bogged down by lengthy court proceedings after the ACT government imposed a $101 million lease change fee on the proposal, which would have made the proposal unsustainable.
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