No Enforcement
In Melbourne, middle-class families are finding themselves priced out after a two-decade-long housing boom. And across Australia, the number of low-income households in rental stress has more than doubled in that time.

Melbourne’s tax, like others proposed across the globe, is meant to increase for-sale and rental inventory. In addition, foreign owners of empty homes also face a national tax. 

But few have had to pony up. In the year before the pandemic, Melbourne taxed 587 properties raising A$6.2 million ($4.5 million). The original projections were for A$80 million over four years.

That’s a huge disappointment to advocates like Karl Fitzgerald, director of research at Prosper Australia, a nonprofit focused on tax reform. In 2019, he estimates, there were 24,042 properties in Melbourne that consumed zero liters of water a day, meaning they couldn’t have been occupied. Prior to the tax’s introduction, real estate professionals pointed out it was easy enough to hire someone to come in and turn on the lights to make a place appear lived in.

“If Vancouver is the best-functioning vacancy tax then Melbourne is the worst,” Fitzgerald said. “There is just no enforcement.”

Fitzgerald now believes that a beefed-up land levy, where both land and property is taxed regardless of use each year, might be a simpler way to discourage speculative buying and encourage developers and owners to make more properties available for use.

The state of Victoria relies primarily on self-reporting from owners, and those who intentionally disregard the law face penalty tax rates of up to 90%. Fitzgerald says he has not found evidence of a single fine being issued for noncompliance.

By contrast, Vancouver, which fines up to C$10,000 a day for false declarations, conducted 9,310 audits from November 2019 to November 2020, raising C$18.2 million in revenue, according to city figures.

In Melbourne, rental prices and inventory have remained largely static until the pandemic hit: In December 2019 the vacancy rate stood at 2.5% compared to 2.1% in December 2017, according to data from SQM Research. Average weekly apartment rents stood at A$409, little changed from A$396 two years earlier.

Like many other cities, the picture was upended by the pandemic as vacancy rates spiked and rents fell. Closed international borders meant demand fell from key groups like foreign students, while the widespread adoption of work-from-home policies saw tenants move farther out in search of better value.