QLD Land Tax Changes Will Spur the Rental Crisis? Really?

Since Queensland?s Treasurer Cameron Dick moved to close one of the loopholes many property investors use to dodge hefty land tax bills — that is, using the land tax thresholds in each state and territory to keep assessments low — he?s received a torrent of abuse.

Numerous real estate analysts, mainstream news channels, and well-known economists have come out to bash the move.

Headlines such as ?Queensland?s new land tax a renters tax?, ?Messy Queensland Rule to Hit Landlords Hard??and so forth, have hit the press daily.

NSW Premier?Dominic Perrottet is reportedly seeking to block information sharing between the two states to ?protect? NSW property investors being levied a higher tax rate on their Queensland investments!

Still, it?s to no avail.

Dick recently said the government has ?no intention? of backing down on the new measures that were legislated months ago.

As any economist will readily admit, a consequence of higher taxation on land influences both price and demand.

The more tax levied, the less an investor will be prepared to pay for real estate.

The calculation will reduce an investor?s budget and, therefore, borrowing power.

The result is lower land prices with potentially more supply on the market as investors hit hardest, will sell.

Is that a bad thing?

If you believe the headlines — then apparently it is.

After all, despite pundits screaming on an annual basis that real estate prices are too high and ?we need to do something about it? — it seems no one really wants affordable property.  

At least, not if it means land prices going backwards.

It doesn?t sit well in an economy that is bent toward speculation.

Interstate investors seeking to maximise capital gains will be less inclined to put their dollars into Queensland?s real estate market. 

They?ll divert investment elsewhere.

And I already know quite a few that are selling up due to what will be a marked increase in their annual land tax bill.

That?s generated a few more scary headlines such as this one from the?Australian Financial Review:??Residential rental listings plunge as landlords sell up!?.?

The above claim is based on a poll by PIPA (Property Investment Professionals of Australia) showing that that nearly one in five of the investors they asked, are ?planning to sell a property or more in the next 12 months, with many doing so to avoid Queensland?s new land tax rule?.

Still, it?s not just Queensland investors selling up.

According to CoreLogic there?s been a jump in the number of residential ex-rental listings Australia wide. Jumping by 34.1% to 12,131 — accounting for a 31.2% annual increase.

Some of this is undoubtedly spurred by fear over higher interest rates and the potential for median market prices to diminish further.

For some, it?s better to cash in rather than ride it out.

Thing is…

Land tax, in itself, is not a bad tax.

On the contrary, it?s the only tax that carries no deadweight cost to the economy.

Unlike taxes on income and productivity that discourage work, investment, and supply — land tax encourages land into use.

A consequence is potentially higher building activity with eventual lower rents and prices with an increase to supply. 

Reason is there?s little gain in holding land vacant if a larger proportion of the capital gains are going to be taxed away. 

But let?s not forget that the tax doesn?t affect QLD property investors. 

And it still stands that most ?mum and dad? investors prefer to invest in their own backyard — where they can keep an eye on their property holdings and the management thereof.

For these investors I?d imagine, lower property prices, more stock on market — in an atmosphere of sharply rising rents is a prime opportunity to step in.

Not to mention the benefit to first homebuyers.

Although notably, the number of first home buyers is at its lowest level since 2019. Buyer demand from all cohorts generally drops in a downturn.

Seems no one wants to buy into a market with the prospect of falling property prices.   

Bottom line here is that the tax system has rewarded large land holders for decades.

Allowing them to pocket the larger proportion of capital gains from their investments and offset high-income taxes with negative gearing and depreciation benefits. 

Consequently, we levy most taxation from labour and productivity — discriminating against workers that don?t own real estate.

It?s not great for the economy.

This is why Henry George?s 1897 magnum opus was called?Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth.

No matter how much progress we have, whilst the owners of land are allowed to reap the gains, poverty will always exist, he reasoned.

Still…

Land tax is the most hated tax

You can?t avoid it, hide from it, write it off, or ship it overseas.

As such, lobbying will continue on the QLD Government until they either backflip — or are voted out.

If they don?t succeed in their plans — no other state will follow suit.

Still, in my opinion, any market consequence will be short-lived. 

If the government see any significant drop in property prices, likely they?ll push through a home buyer grant or two to rev up the market again.

Property prices are never allowed to suffer for long in our speculative economy.

Not forgetting, the Olympics in 2032 is going to require a huge investment in infrastructure from the state government.

Never forget surrounding landowners benefit most from the gains of infrastructure investment.

It?s not over for Quotelands? speculative property cycle. 

Not yet…

Best wishes,

Catherine Cashmore Signature

Catherine Cashmore,
Editor, The Daily Reckoning Australia

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