The housing crisis: what next

It is not known what impact the Mayor of Eurobodalla's letter to the 8,500 non-resident ratepayers made to increasing the number of rental properties in the shire. While there might well be 8,500 non resident ratepayers to be approached the number of "holiday" homes which might be considered "vacant" is only 1600. The detail is in the numbers, being the recent publication of the Census 2021. The Census 2021 tells us that there were 16,603 Occupied private dwellings and 6226 Unoccupied private dwellings (total 22,829) Of those 22,829 properties it now appears from Council's revelation that 8,500 are owned by non resident ratepayers. One could easily jump to the conclusion that these second homes are vacant as the Mayor is appealing to non-resident ratepayers to rent their properties. "Eurobodalla Mayor Mathew Hatcher is asking ratepayers with a second home in the shire to consider placing their property into the local rental market". But the assumption that all of these properties are available for rental falls short when the Census advises that 6226 Unoccupied private dwellings. The numbers infer that 2,274 non-resident ratepayers are currently renting their properties. Via the AIRDNA website that tracks short term rentals we learn that there are 1114 Active Short Term Rentals in the Eurobodalla. One might then assume from these figures that the residue are "holiday houses" that are left furnished so they can be used, at will, by the owner, owners family and friends. In all 5,112 potential houses where a non-resident ratepayer might "consider placing their property into the local rental market". There is little doubt that the Short Term owners will come on board. The returns for short term renting are good, there is a continued demand and the tax breaks also help. Most are owned outright and most represent either part, or whole, of an investment portfolio. So the focus turns to the 5,112 holiday houses. The Census 2021 revealed that of the 16,602 responses to Tenure Type 49.3% of our occupied homes were Owned outright, 23.8% Owned with a mortgage, 4.4% were other and 22.5% were rented. 3,375 houses rented in the Eurobodalla. The above are the known. What is unknown is just how many are homeless in our homeless crisis? All we have in the public domain presently is a media release from the Council on June 10th, 2022 saying: “This is a crisis,” Mayor Hatcher said. “The shire’s homelessness services are providing all the right supports to people, but there’s simply no housing. That’s the issue none of us can address.” He (Mayor Hatcher) said he was hearing loud and clear the community’s cries to support people living in tents, particularly at the Council-owned North Head campground at Moruya where around 50 families are currently living. It appears that there are two possible solutions. Create more social housing stock in the short and long term or focus on holiday home owners to rent. Creating more social housing stock is the responsibility of the State and Federal Government. It was identified by Labor as a major issue in 2017 when they said they would target foreign home buyers, vacant properties and self-managed super funds, swearing to make force the Liberal Government of the day to provide solutions around affordable housing. Labor's ideas were to limit negative gearing tax breaks for property investors and tightening the capital gains tax discount, double the foreign investment application fees for residential purchases and tax on investors who leave properties vacant.

To back that up NSW Labor proposed a comprehensive affordable housing policy that would generate new affordable housing properties to rent and purchase for those on very low, low and moderate incomes and promised to provide affordable housing on 25 per cent of any government-owned land being developed, and 15 per cent on privately developed land. The reality though is that nothing has been done and the crisis that was looming in 2017 has been allowed to fester, add to by sea-changers, life-changers and the subsequent spikes in housing prices. The message, delivered quite pointedly by Council on June 22nd, 2022, to the subset of 5,112 holiday home owners who choose to leave their homes "vacant" was: The Mayor says some councils around the country, like Brisbane and Byron Bay, are using the regulations available to them to push holiday rentals onto the rental market by reducing the days they can available for holiday stays, but he wants the NSW Government to take the lead.

“We appreciate investors have a right to their holiday rental income, but until the state and federal governments invest in social and affordable housing these are the options available to councils trying to support their communities.

Before considering any regulatory action, however, the Council is writing to the shire’s 8,500 non-resident ratepayers this week, asking owners to consider putting their holiday home into the local rental market for the next 12 to 24 months “while the government’s longer-term solutions have time to work.” "Before considering any regulatory action,...... ??? " Possibly , before Council considers any regulatory action they might try to understand why holiday home owners are unwilling to rent. The average holiday home has been enjoyed for generations. It is filled with family memories, family furniture and all the goods and chattels required to make it feel like a home away from home. The house represents a freedom to spontaneously pack ones bags and take a drive. The houses are generally well cared for and maintained. There is a pride of place. The only way that a holiday house might become a permanent rental is if the costs of having the property become too high. But for a holiday house to become a permanent rental there are costs beyond the removal of access. Furniture needs to be stored, the house made bare and prepared, an agent found, advertising fees, agent fees, insurances still met including landlord insurance. On a rental of $500 per week the return might look like $26,000 but now take out rates of $3000, insurances of $2000, 8.8% agents fees ($2,288) and that returns ($18,712) $359 per week. Now pay tax on that at 32.5 cents for each $1 (assuming the own earns more than $45,000) That just cost $5,987. Leaving the "holiday house" owner with less than half of the rent charged ($244), no access to the property, storage fees of the the furniture and most likely a bill to pay at the end because of wear and tear (and feared most of all - wilful damage). So what regulatory action might Council consider if non-resident ratepayers ignore the plea to give up their holiday house to full time rental knowing that the end result will see them "gain" just $244 ($12,724 pa) for considerable effort, removal of access to a loved annex of a family home and also being exposed to possible issues with tenants due to rental defaults, wilful damage or even refusal to vacate on request. Consider, for arguments sake, if Council suggested applying a penalty - maybe as high as $12,724 per year. The choice would then be - put the house out to permanent rental or pay the fee. I believe that most would either pay the fee as the easier option thereby retaining the use of the holiday house. But Council wouldn't charge that much. Or would they? Maybe the might look at the Victorian Model for a starting point? Vacant residential land tax applies to homes in inner and middle Melbourne that were vacant for more than six months in the preceding calendar year. The vacant residential land tax is assessed by calendar year (1 January to 31 December) and the six months of occupancy do not need to be continuous. This annual tax is set at 1% of the capital improved value (CIV) of taxable land. For example, if a vacant home has a CIV of $1,000,000, the tax will be $10,000. But wait - Eurobodalla doesn't have a Capital Improved Value. We are rated on our Unimproved Land Value. A bit of History that might explain why ex-Mayor Lindsay Brown was so keen to go to a Capital Improvement Value for Eurobodalla properties: On August 17th, 2015 Mayor Lindsay Brown indicated in his submission to the the NSW Legislative Council’s inquiry into local government his interest in considering a move away from land rates based on unimproved value to capital improved value, which refers to the total market value of the land and improved value of the property and that rate exemptions such as pensioner rebates should be reviewed for sustainability and equity. In his statement Cr Brown, among other things, argued that there is a “need for more equitable rate calculation methods with a shift from land value to capital improved value as the basis for rating. Capital improved value or CIV refers to the total market value of the land plus the improved value of the property including the house, other buildings and landscaping. A CIV calculation is significantly different when compared to a rating calculation based only on land value. Where did this idea for a CIV come from? In a letter to the editor Kerry Foster wrote: "Well a little bit of research and I found that Dr Catherine Dale, General Manager of Eurobodalla Shire Council was the former CEO of City of Boroondara, a municipality with some of Melbourne’s wealthier suburbs. The City of Boroondara elected to adopt the Capital Improvement Value method of valuation in 1997-1998, as “the most equitable way to distribute the rate burden among the community.” Perhaps Dr Dale’s depth of experience could be shared with the community so that we understand how this recommendation, if successful, would affect our hip pocket. Cr Brown also made a case to the Standing Committee that rate exemptions such as pensioner rebates should be reviewed for sustainability and equity. This statement contrasts Council’s strong claims to IPART about the equity and financial sustainability of the Eurobodalla’s rating strategy, and hardship policies. Both in its application for a Special Rate Variation, and in its Fit for the Future Improvement Plan". Victoria also has another little treasure it applies to absentee owners: If you own property in Victoria, you may have to pay land tax. From the 2020 land tax year, an absentee owner surcharge of 2% applies to Victorian land owned by an absentee owner. That value is based on the Unimproved value of the land. But before we begin considering what regulatory action Council might consider let's assess the potential impacts: We do not have Capital Improvement Values. It has been argued by NSW government that to begin the process and to fight the determinations (and they would be widely contested) the costs would be astronomical. So Council only knows of the Unimproved Capital Value that they could apply a penalty rate against. Might that be 1%? If so a vacant holiday house on land with an UCV of $300,000 might face a annual penalty of $3,000 per year. Why 1%? - that would most likely be the catalyst value to bring a reaction. The reaction being to sell, rent permanently, or absorb. Currently paying rates of $3000 and insurances (house and contents) of $2000 the average vacant holiday house is already paying $5000 for the privilege of having "a house at the coast". In addition to the outrage such a "regulatory action" might create introducing a penalty of $3,000 per year for a "permanent holiday house" might drive them to changing their status to a short term rental. Council would then need to consider broadening its "regulatory action" to include short term rentals owned by absentee landlords . Once again they might need to look at Victoria for guidance to ensure compliance: Failing to tell us that you are an absentee owner is a notification default under the Taxation Administration Act 1997. If this happens, you will be liable for penalty tax on the surcharge amount of land tax assessed in accordance with our revenue ruling on penalty tax and interest. This may be penalty tax of:

5% if you voluntarily tell us that you are an absentee owner before we start an investigation

20% if you tell us you are an absentee owner after we start an investigation

up to 90% if we believe that you intentionally disregarded the law and hindered our investigation. From the above it is clear that any regulatory action will result in a major reaction. And all for what? The Mayor says: “We can’t wait years for homes to be built,” he said. “We need to address the lack of rental properties in our community right now.”

“If there are more properties for rent we can support workers and families in the area, meaning people are less likely to become homeless.” "More than 50 people, including working families, are living at the campground because they can’t find affordable rental accommodation" The key word in the above is affordable.

As we know most "holiday houses" are located in favourable positions in close proximity to the best the coast has to offer. Unless it was a bush retreat your holiday houses and short term rentals are located in Prime Positions. The reality of this is that their rent, if they came on to the market, would be well above the current median weekly rentals. In Eurobodalla, according to the Census 2021, there were 40.7% Renter households with rent payments greater than 30% of household income. What might at first look like an overall housing crisis needs to be spelt out to be an "unaffordable rental crisis" where rentals, when available, are not affordable to those who are "homeless" due to not having the means to pay the rent requested, which, as can be seen above, is a reflection of the costs (and returns) to a landlord on a holiday or investment property. Some might suggest that vacant home owners have a moral obligation to consider renting their property. There is mounting disquiet on social media towards those who have investment properties on the short term rental market. This "backlash" is beginning to extend to those with an "unused holiday home". The above is hopefully a conversation starter should Council consider what "regulatory action" they might consider for those holiday home owners who choose not to hear the call.