Solving Victoria’s housing crisis

This week, Premier Daniel Andrews announced the Victorian Housing Statement (VHS).

For those a little too busy to peruse the entire 44-page document, I can attest it’s actually a worthy and impressive document. It is chock-full of good ideas and good intensions! If half of them are implemented, we might actually see some long-needed improvement in housing supply. The document essentially is intended to increase supply in all sectors of residential dwellings, rental markets, private and public housing.

The plan is very ambitious; to build 800,000 new homes in a decade, representing 80,000 per year from 2024. The statement goes onto to say that Victoria needs to build 2.24 million new homes by 2051, with 462,500 of these to be built in regional Victoria (20 per cent). Although the statement is silent on how many homes in the initial 800,000 are to be in regional Victoria, if the 20 per cent figure is applied, this represents 160,000 new dwellings.

The March ABS reports that construction commencements rose by 14 per cent with 46,546 dwellings across Victoria in the 12 months to March 2023. The VHS indicates we are on track to build 540,000 homes in the next decade, and this initiative will add 260,000 more homes to the current trend. Are we talking an increase of some 32 per cent annually?

If regional Victoria is to shoulder 20 per cent of the target, that represents 16,000 new dwellings per annum. To give context to that number, Geelong has approximately 120,825 private dwellings, Ballarat 50,345 and Bendigo 53,173. It is an ambitious number, we are talking about building Geelong and Ballarat from scratch in 10 years!

On a public housing basis, statistics released from the Department of Families, Fairness and Housing (DFFH) indicate Victoria has only added 74 properties to the net letting pool in public housing since June 2018. This suggests that although the “Big Housing Build” is constructing new public dwellings, the rate of decommissioning of older homes is almost outstripping the supply coming on. The VHS is silent on the decommissioning factor.

Some of the VHS pros:

• Reforming Victoria Planning system
• Clearing backlog
• Introduction of the Red Tape commissioner
• Reforms and perhaps rewriting our dated Planning Act
• More powers to VCAT to speed things up
• Quicker service connections such as water and electricity
• Opening-up government land via leaseback arrangements for construction of affordable homes, using institutional investors, and
• Lastly and perhaps controversially, I am in favor of the Short Stay Levy. I anticipate this will be passed on in some degree, but if it goes some way to lower the number of Airbnbs and put immediate stock into the market, that’s a great outcome.

Some of the VHS ideas that I don’t love:

• Converting commercial office buildings to residential, with current building legislation, floor heights to get in services, access to natural lighting etc. I just don’t think this space will yield enough bang for buck
• Changes to the Residential Tenancies Act will restrict rent increases between successive fixed-term leases. The idea is to stop landlord evicting tenants to purely relist and put up the rent. Under the changes, if you evict a tenant after one fixed term, you will be forced to relist it at the same price for the next 12 months. This takes away all the negotiating power of the agent/landlord, and in my view, every investor has a right to ask for a current market rent, and
• Ban on rental bidding. Laws were introduced in 2021 to prevent agents/landlords from soliciting higher offers than the advertised rental price. Now the government will stop potential tenants from being able to make a higher offer or to pay further in advance etc. In my view this type of legislation doesn’t allow for natural market conditions to occur. It will distort the rental market greatly and disincentivise residential investment.

The biggest hold up for developers right now is that many of the projects just don’t stack up financially. As a valuer, I regularly undertake feasibility studies for developers, and the increase in construction costs over the past two to three years has made most projects unviable. Something has to give. And the most obvious something is stamp duty. Remove stamp duty and many of these projects will begin to make sense.

The statement also ignores some recent taxation laws aimed at developers, such as the Windfall Gains Tax, where developers will have to pay 50 per cent to 62.5 per cent as tax when the property is rezoned. This is on top of Development Contributions, Land Tax, GST etc. About 47 per cent of a new land allotments costs are in tax!

For the most part, the VHS is a good document, and seems to capture a lot of the essence of what property industries have been saying for some time. However the statement itself seems to fly in the face of recent taxation changes which target development and prohibit the ability of developers to get on with the job. Can we have our cake and eat it too?