Australia’s housing paradox: Plenty of vacancies but no homes

An estimated 100,000 homes are believed to be vacant in Melbourne despite renters and house-hunters struggling to find affordable homes in the wake of critical housing supply shortages. This paradox of empty dwellings amidst a housing crisis has reignited calls for sweeping tax reforms to free up supply of affordable housing.

  • Prosper Australia’s latest study estimates up to 100,000 homes left empty in Melbourne.
  • Water usage data reveals 5.2 per cent of homes vacant.
  • This equates to one in or one in 20 dwellings across the city were vacant.

by | 25 Jul, 2024

Row of suburban houses

Economic think tank Prosper Australia found more than 97,000 homes, or one in 20 dwellings across Melbourne, were vacant or under-used as rental prices have surged 32 per cent since 2019. Analysis of water meter data indicates about 5.2 per cent of homes in Melbourne were vacant in 2023, with an estimated 27,000 homes, or 1.5 per cent sat idle during the year. Another 70,453 (3.7 per cent were barely in use.

Using water usage data, Prosper identified 27,408 homes (1.5 per cent of all dwellings) were empty throughout 2023. From 2019 to 2021, an extra 35,000 homes, or 1.8 per cent of houses became vacant, says report author Tim Helm, Prosper’s research and policy director. For every five new homes built over this time, two additional homes were left idle, enough to house people on the social housing waitlist twice over, he calculates.

The economics of vacancy

Speculative investment strategies and the economics of “land banking”, that is holding undeveloped land in the hope of future price gains, are to blame. Low interest rates and tax policies favour capital gains over rental income, making it profitable to leave dwellings empty. Swift increases in property values boost the potential for capital gains to exceed rental yields.

“The decision to leave a home vacant depends on the trade-off between option value and cash returns,” the report says.

The speculative investment approach includes land development where landowners often profit more from rising land values than from construction.

“The pace of new housing construction results from this same economic trade-off,” the report says. “Developing land commits it to a specific use, but delaying banks that option for the future, which can be even more profitable.”

In 2018, Victoria introduced a Vacant Residential Land Tax of up to 3 per cent of a property’s value for long-term vacancies starting in 2025. From 2026, this tax will also apply to residential-zoned land in Melbourne left undeveloped for more than five years aimed at accelerating housing developments.

Prosper proposes:

  • Moving council rates to be solely based on site value rather than capital improved value;
  • Replacing stamp duties with annual land taxes; and
  • Reducing capital gains tax discounts favor speculation over rental income.

The report argues sweeping land taxes would be more effective than a vacancy tax to discourage speculative land banking, increase housing supply and “nudge empty homes into better use”.


Read next: Radical tax reform needed to address housing crisis: Prosper

Share This