Anthony Albanese could learn a big lesson from the Victorian experiment
Could it be that Premier Jacinta Allan has accidentally sent a very clear message to Prime Minister Anthony Albanese about the effectiveness of housing policies?
Perhaps surprisingly, Victoria’s controversial experiment in dramatically ramping up land taxes on investment properties to finance its COVID debt binge, has yielded some very interesting results.
A surprisingly large number of property investors appear to have sold out or repurposed their Victorian investment properties, resulting in more than 24,000 rental properties being withdrawn from the rental market.
That is both a good and a bad thing with fewer available properties restricting the availability of homes to rent while simultaneously also increasing the supply of properties available for first home buyers.
The 24,000 lost rental properties represented a hefty 3.6% of the state’s rental stock, with the number of active rental bonds falling from 674,462 in December 2023 to 649,978 in December 2024.
Fewer investors give first home buyers a chance
With fewer investors competing with first home buyers to buy entry level properties, property prices also moderated in Victoria with more first home buyers able to secure somewhere to live.
Australian Bureau of Statistics figures show that Victorian first home buyers were doing better than those in other states.
First home buyers made up a higher portion of lending volume in Victoria than any other state or territory in the fourth quarter of last year, hitting 28.9%.
Rent rises easing
While the lower number of available rental properties was speculated to lead to higher rentals, that hasn’t happened as yet, with Victorian rents up just 2.5% in the year to April – much lower than the previous year’s 8.6% rise.
This suggests there has been some reduction in rental demand, perhaps due to more renters becoming first home buyers.
It could also show that rents had risen so fast that they were becoming unaffordable, sending a strong market signal to landlords to slow down rent rises if they wanted to find tenants.
Despite this, Victoria’s rental market remains quite tight with fewer than 2% of rentals remaining vacant but it hasn’t worsened as much as you may have expected given the reduction in the number of properties available for rental.
The more stable rental prices could also represent a more balanced market after the very steep rental rises that happened in the years following the COVID lockdowns.
While the highly unpopular increase in land tax was certainly one contributing factor to the investor sell down, other factors included higher costs such as the requirement to certify gas and electrical systems every two years and of course much higher interest rates on property loans.
Metropolitan areas hit the hardest
As you would expect, the sell down of rental properties has been more pronounced in the more heavily populated metropolitan areas with rental stocks falling by more than 4% in 2024 compared to just 1.4% in regional areas.
The very strong message for Prime Minister Anthony Albanese is that he holds many more levers than had been assumed in controlling the direction of the property market.
Even small changes to the tax treatment of investment properties could enable national changes to the property market similar to those that have happened in Victoria.
Should housing become less of an investment class?
Anecdotally, there seems to be a growing consensus among many Australians of all ages that more needs to be done to make property less of an investment class and more about the provision of housing.
What the bold and doubtless accidental Victorian experiment with higher land taxes has shown is that there are ways governments both state and federal can control supply and demand of housing.
These levers are much broader than direct involvement in the market by stimulating supply and literally helping to build new dwellings and can include careful tinkering with taxation policies – not that Victoria’s debt fuelled tax binge neatly fits into that category.