The key to housing wastage

Despite Melbourne's record-long housing affordability crisis, 64,386 empty homes were quantified in 2013. Vacancy hotspots surrounded the usual suspects of prime location, infrastructure, culture and education. This Housing Supply Crisis is aided and abetted by an ineffective taxation regime.

But you wouldn't know so many vacancies existed if you watched the published vacancy rates. The vacancy rates mentioned in the press do not include those properties held empty by speculative investors chasing capital gains. They only include those properties advertised 'for rent'.

Prosper Australia identifies empty homes by analysing abnormally low water consumption rates averaged over 12 months. We believes this trend of hidden vacancies is national and must be investigated the longer this housing crisis continues.

With investors now running at some 50% of all housing loans (up from 12% in the mid 80's), the effects are starting to add up. The divergence between rental income (median $18,000 per annum) and capital gains ($60,000) is accelerating. An increasing number of property investors are choosing to leave their properties empty. Some investors acknowledge that by leaving 10-20% of their growing property portfolio empty, they will enforce scarcity, pushing rents and prices upwards.

Seven out of ten inner Melbourne apartments are owned by investors. But according to the Housing Supply Crisis meme, this does not crowd out first home owners.

The re-zoning fervour Victorian Planning Minister Matthew Guy has enacted means little in an era where housing supply is subservient to property speculation. Despite record construction rates, vacancies in trendy Abbotsford have more than doubled to 18.3%. West Melbourne also doubled. Docklands has a shocking 31.6% of all property vacant. But still prices head upwards.

Victoria's leading export industry is tertiary education. International student interest in the Australian way of life is undermined by the welcoming mat property speculators leave out. In Carlton South students pay $2,300 per month for a one bedroom apartment but vacancies total nearly 15%.

In a poignant example of socialising the losses and privatising the gains, we have a Federal 'infrastructure government' promising to build more roads. Infrastructure is code for 'developer welfare'. Some may get to travel to work faster, but the vast majority of the gains are capitalised into ever higher land prices for those who own prime locations near the on/off ramp (or train station).

The new Williams Landing train station cost a whopping $110 million. But the thanks the public receives is a virtual tripling of the vacancy rate to 10.2%. Land prices have increased there by 18.5% since 2009.

Vacant land is akin to the unemployment rate for our most valuable resource. If a 10.2% unemployment rate existed, there would be an outcry and a series of investigations into this market failure.

Cedar Woods are the lucky developers who own the land surrounding Williams Landing. They also just happen to own much of the neighbouring land to the West Footscray train station development, where properties have been slowly drip fed to the market over the last five years, with signage proudly stating 'we've saved the best till last.'

Dennis Family homes is another developer to have done well out of publicly financed infrastructure. A website laced with corporate social responsibility buzzwords and Queen's Day honours does little for affordability. Two $50 million train stations have virtually been built for them. They are set to enjoy more than $100m in land value uplifts from the hundreds of acres they own surrounding the Wyndham Vale and Tarneit stations.

With increased public service in Tarneit comes an increased vacancy rate of 5.6%.

Developers for the last 20 years have cried out for more land supply. The recent Englobo report found developers have 14.9 years of land supply nationally. Their cries have been answered. But developers have figured out a scientific system of 'demand assessment' to justify 'staged releases' of their thousands of acres. Property is effectively drip fed to the market to ensure prices continue to head upwards. The ineffective vacancy rate ignores these speculative actions.

More land supply is code for re-zoning windfalls. The golden bureaucratic pen tick had property options spruiker Mark Rolston jumping for joy at his recent Melbourne seminar - 'I just can't believe how much money you can make out of re-zoning!'

The ACCC informs that there is no evidence of price manipulation from what developers call 'staged releases'. Real estate adverts gush at how grateful we should be that 'staged release 43 is now open', as if some fairy waved her wand and now there COULD be a place for you on this planet.

Dennis Family Homes is up to stage 128 at their Manor Lakes development and they have only just begun.

From the sprawl to the heart of Melbourne's famous cultural hotspots, housing wastage exists. Have you ever made a hipster shed tears into their latte? Mention the 2,422 vacant properties surrounding the coolio mecca of Brunswick and see how you go. Everyone wants to live there but investors have 23 advantages over and above the first home owner to leverage more credit from their friendly banker.

Compounding concerns, the Australia-China free trade agreement just announced a $1bn threshold for property investment, up from $250m. Many nations now enjoy such a threshold, ensuring the victory of mobile speculative capital is likely over local workers wanting a place to call home.

The best and fairest way to address the lack of sovereignty we face from the invisible hand of the speculative elite is to replace the $36,000 Stamp Duty impost with a holding charge on land. At present, Victorian holding charges (Land Taxes and Council rates) are barely $1,800 vs $18,000 in rent or $60,000 in capital gains. Such low holding charges encourage speculative vacancies.

Any politician serious about housing affordability must look at how this housing supply crisis is being held to ransom by property speculators. Vacant land and housing must be included in any vacancy finding to give a holistic analysis of where we stand as a community compared to the speculative elite. This important first step can then alert the locked out generations as to why holding charges are seen by economists as world's best practice for taxation, infrastructure financing and housing affordability.