The Landlord Exodus in Victoria: Implications for the State Budget

The real estate landscape in Victoria is undergoing a significant transformation, raising alarms about the potential impact on the state’s budget. As landlords increasingly sell their properties, concerns are mounting that the upcoming state budget, set to be unveiled by the Allan government, may face a substantial shortfall in property tax revenue.

The Current State of the Market

Recent data from the Real Estate Institute of Victoria (REIV) reveals a paradox: while there has been a notable increase of 10,000 homes sold in the past year, the exodus of landlords is creating a property investor-shaped hole in the market. Industry experts warn that this trend could severely limit the cash inflow to state coffers, particularly from crucial sources like stamp duty and land tax.

State Treasury forecasts indicate that the government is expecting approximately $8.08 million in land transfer duty, commonly known as stamp duty, for the current financial year. However, with many landlords opting to sell, the anticipated revenue may not materialize as expected.

The Landlord Exodus: Causes and Consequences

The REIV has highlighted that the supply of rental homes in Victoria has plummeted by over 24,700 units in the past year, a trend that has persisted since the introduction of higher land taxes for investment properties. Premier Jacinta Allan’s government implemented these tax hikes to help pay off debts incurred during the COVID-19 pandemic. However, the unintended consequence appears to be a significant reduction in the number of rental properties available, as many landlords choose to exit the market.

Kelly Ryan, the chief executive of the REIV, attributes this trend to over 130 rental reforms introduced since 2019, which have made it increasingly challenging for landlords to operate profitably. The cumulative effect of these reforms, combined with rising land taxes, has led many investors to sell their properties, further exacerbating the rental crisis in the state.

Impact on State Revenue

The shift from property investors to first-home buyers is particularly concerning for the state’s budget. Data suggests that first-home buyers, who are exempt from paying stamp duty, have outpaced investors in recent months. Ben Kingsley, a board director at the Property Investors Council of Australia, argues that the state could have collected significantly more tax revenue if landlords had remained active in the market.

“The government would collect more overall revenue if they had more activity from investors,” Kingsley stated. He emphasized that the current turnover is migrating from investors to first-home buyers, which means the government is not receiving the full tax revenue it could have collected.

Auction Trends and Market Dynamics

Auction figures from Ray White, Australia’s largest real estate agency, reveal that Victoria has a higher percentage of landlords selling compared to the national average. Over 28% of the 5,008 auctions conducted in Victoria over the past year involved landlords selling their properties, compared to 23% nationally. This trend underscores the urgency of addressing the factors driving landlords out of the market.

Moreover, the proposed new property tax aimed at replacing the Fire Services Property Levy, which is expected to raise over $2 billion for emergency services, further indicates that the Allan government is grappling with a budget shortfall that needs immediate attention.

The Future of Property Investment in Victoria

As the state grapples with these challenges, the implications for the property market are profound. The latest quarterly sales data from the REIV shows that Melbourne’s median house price has fallen by 2% over the past year, now sitting at $911,000. While the number of sales has increased, the shift towards first-home buyers means that the state is likely to see reduced revenue from property transactions.

In the 2023-2024 financial year, the government collected $7.463 billion from property transactions, a significant drop from the $8.737 billion collected in the previous year. This decline is attributed to the increasing proportion of first-home buyers, who accounted for 40.7% of home loans, compared to just 37.3% in the previous year.

Rethinking the Tax System

Industry experts, including buyer’s advocate Cate Bakos, are calling for a reevaluation of the state’s tax system. Bakos argues that relying on property investors to repay COVID-related debts is not sustainable and that a broader approach to taxation is necessary.

As the landscape continues to evolve, the Victorian government faces a critical juncture. The decisions made in the upcoming budget will not only shape the future of property investment in the state but also determine the overall health of its economy.

Conclusion

The ongoing landlord exodus in Victoria poses significant challenges for the state’s budget and property market. As the Allan government prepares for its upcoming budget, it must carefully consider the implications of its policies on property investors. The balance between generating revenue and fostering a sustainable rental market will be crucial in navigating this complex landscape. The future of Victoria’s property market hangs in the balance, and the decisions made today will resonate for years to come.