‘Ill-fated’ land tax reforms dealt major blow to Queensland’s rental market: report

MCG Quantity Surveyors’ new research indicates the Queensland government’s failed attempt to alter land tax calculations has “dealt serious, long-term damage” to the state’s stock of rental properties.

Announced in December 2021, the Palaszczuk government planned to charge land tax in the state based on the total value of Australia-wide property, as opposed to just those owned in the Sunshine State.

Under the proposed amendments, which was originally to be enforced on 1 July 2023, an individual who owned $300,000 of Queensland property would be exempt from land tax.

However, had the updated laws come into effect — and that same individual was to own $1 million worth of property in another city, they would then be considered to own $1.3 million of taxable property and taxed as such.

Notably, the proposed overhaul to the state’s tax regime received much conjecture from many real estate stakeholders.

Perhaps the most fervent objection to the law came from the Real Estate Institute of Queensland (REIQ), which initially labelled it as a “slap in the face” and a sign of the government utilising the property industry as a “cash cow”.

In September, the institute pushed for the legislation to be repealed, with REIQ chief executive officer Antonia Mercorella calling it “as unique as it is illogical”, before adding that “instead of a carrot, the government has yet again used the stick, in yet another desperate money grab from the property sector”.

Then NSW premier Dominic Perrottet joined the criticism of the tax, labelling it a “lazy policy to simply increase tax” that his state would not be complicit with. Building on this, Elinor Kasapidis, CPA Australia senior manager of tax policy, called it “an example of double taxation”.

The concerted campaign against the changes saw the Queensland government scrap the changes on 30 September and consequently abolish the planned overhaul in November.

But Mike Mortlock, managing director of MCG Quantity Surveyors, said the firm’s latest analysis showed that despite the tax changes ultimately being shelved, their announcement triggered an exodus of investors from the market.

“We studied our client’s national investment property transactions to determine where investors were buying prior, during and after the Queensland government’s ill-fated changes to land tax were announced last year.

He said that while there is a general belief that no damage was done during that 98-day period when the changes were a reality, the firm’s research shows otherwise.

The firm crunched the numbers on the Queensland investment property purchases as a percentage of all Australian sales contracted prior to, during and after those 98 days.

“Prior to the changes, Queensland was the nation’s top destination for investors with 40.9 per cent of all investment transactions among our investor cohort — a proportion that had been rising throughout the pandemic.

“As soon as the changes were confirmed, that figure dropped to 33.6 per cent of transactions, which is a 7.3 basis point fall or a drop of 17.8 per cent on the pre-legislation proportion,” he revealed.

Notably, property investment expert James Fitzgerald from Custodian had previously cautioned that the changes to Queensland’s land tax laws will only add more strain to the state’s already-struggling rental market.

He explained then that the proposed changes will deter investors from entering the region’s market.

“I am certain that some investors will decide to offload their Queensland properties and put their dollars in different states. That will result in fewer properties being available for rent at a time when vacancy rates are already at an all-time low,” he forecast.

In light of the recent data, Mr Mortlock said, “the outcome should have every renter fuming at the government”.

Interestingly, one state benefited from the Queensland investor exodus.

“Our analysis shows Western Australia was the big beneficiary of Queensland’s land tax legislation debacle.

“Our numbers suggest the proportion of Aussie investors buying in WA almost doubled when the legislation changes were a reality — and they’ve only retreated slightly since the changes were shelved,” he stated.

Mr Mortlock said there are several reasons investors were able to quickly exit the market.

“Our research shows investors are embracing long-distance investing — so they’ll happily invest elsewhere when legislative changes are piled against them,” he stated.

For the year to February 2023, data revealed the average distance between where landlords live and where they invest has reached 857 kilometres.

The figures are up from 559 kilometres in the year to November 2021 and 294 kilometres in the pre-pandemic period to January 2020.

“The data shows investors have become highly mobile and more discerning about where they buy. If one jurisdiction takes an anti-investor stance, they will simply choose to put their money elsewhere,” he stated.

He added investors are also “disturbed by anti-investor law changes that are so readily implemented by governments”.

“As such, I expect jurisdictions like Queensland which seem so ready to introduce anti-landlord/pro-tenant/high-tax legislation to feel the sting of further reduced investor participation.

“These regions should be looking to entice more investment, not discourage it through anti-investor rhetoric and ongoing restrictions that favour tenants over landlords.”

On that note, Mr Mortlock said the blame “falls squarely at the feet of the Queensland government”.

“Anyone who believes that there’s no long-term damage caused by announcing poor policy to gauge the voting public’s response needs to rethink their position.

“An ongoing campaign — including threats of higher taxes, more restrictive anti-landlord legislation and even rent freezes — are decimating housing supply and amplifying homelessness,” he stated.

Mr Mortlock cited the Queensland Council of Social Service (QCOSS) report released in March, which showed the number of homeless people in Queensland had jumped more than 20 per cent in five years — almost triple the increase nationally.

Meanwhile, Brisbane’s rental vacancy rate continues to hover around historic lows of approximately 1 per cent.

“This sort of ‘policy on the run’ has done irreparable damage to the state’s rental supply, with tenants hurt most by their actions,” he stated.

Moving forward, Mr Mortlock called on all government levels to engage with landlords to find mutually beneficial solutions to the housing crisis.

“If they continue to pander only to special interest tenant groups who appear to have no understanding of the demand/supply equation, then I see no end in sight for this rental crisis,” he cautioned.