A councillor in Melbourne’s inner north has proposed doubling rates for landlords and slashing them in half for owner-occupiers and businesses, in a move that has drawn mixed reviews from economists.
Independent councillor James Conlan is set to move a motion on Wednesday night asking Merri-bek council to investigate how it could introduce a new “differential rate” for property investors in an effort to “make more homes available to first-home buyers”.
The average rates bill for a typical home in Merri-bek – which takes in suburbs such as Brunswick, Coburg, Fakwner and Pascoe Vale – is $1,800 a year, and about $2,700 for non-residential properties such as shops, warehouses and industrial sites.
But under Conlan’s proposal, investors who lease out a property in the municipality would have to pay an average of $3,600 per property, while owner-occupiers and small businesses would pay an average of $900 a year.
Conlan told Guardian Australia the goal of his proposal was to make investing in the area “less attractive”.
“Isn’t it a part of our national myth that everyone wants to own their own home? Well, here are the types of policies we need to do that,” he said.
“The idea is that slowly over time we would be able to change the composition of ownership from an investor environment to more owner-occupiers, which I think is what everybody wants.”
Conlan’s motion claims the “vast majority” of people who own two or more properties had a “greater capacity to pay” increased rates.
“Unlike owner-occupiers and renters, investors can sell at least one residential property without making themselves homeless. Ratepayers unable to keep up with expenses associated with maintaining an investment property may sell their investment properties,” the motion says.
It likens the proposal to the state government’s increase in land taxes in last year’s budget, which Conlan said had not led to an increase in rents.
If the motion succeeds, a report will be prepared by the council and presented to a council meeting by September.
Another vote would then have to occur to make it council policy.
While local government is able to set differential rates, a Merri-bek officer’s response to the motion cast doubt on whether it would be possible to introduce Conlan’s proposal.
“It is very unlikely that it is feasible to apply a differential rate for property investors who have more than one residential property in Merri-bek, given the legislative framework and guidelines that apply to local government,” the officer said.
David Hayward, an emeritus professor of public policy and the social economy at RMIT University, said the plan was a “terrific” idea but questioned how much of an effect it would have on the market.
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“There are so many variables – you could end up with a landlord that’s willing to pay and then claim it at tax time, another could sell but then another landlord could buy it up,” he said.
“But you would definitely see at least some sort of redistribution of existing supply. It would inevitably make it a bit more of an even playing field for first-home buyers.”
Despite his reservations, Hayward praised Conlan for thinking outside of the box.
But Peter Tulip, the chief economist at the Centre for Independent Studies, said the proposal was a “bad idea” as it rested on the assumption renters were in a position to buy a home.
“The average Melbourne property is about a million dollars and deposit on that is about $200,000. I’m sure renters with $200,000 in the bank will happily go off and buy a house if this were to happen,” he said
“But unfortunately there are many renters that don’t have $200,000 sitting in the bank and they’re going to be screwed.”
He said the policy would make the rental crisis in Merri-bek “much, much worse” as investors would sell off their properties in the municipality and opt for other suburbs nearby.
It is a view shared by the Victorian director of the Property Council, Cath Evans, who said the proposal was “a solid candidate for the worst policy initiative of the year” and would drive up costs for renters.
She said that as of 2021, there were more than 26,000 households renting within Merri-bek, making up 37% of all households in the municipality – well above the Melbourne average of 29%.
“These numbers will have only grown in the last three years, meaning an even greater proportion of the council’s residents are dependent on investors to provide affordable homes for them.”
