It Was Bad For ACT Unit Owners Pre-COVID - Now It Is Bleak - ACT Government Needs To Hit Reset

Media Release - OCN

Stamp Duty is NOT the massive impediment to housing affordability and unit ownership in the ACT, as frequently espoused. It is OCN’s view - and that of thousands of unit owners in the ACT, both residential and commercial - that the burden of exorbitant rates and land tax is causing significant economic stress on the ACT community.

Coupled with the impact of COVID-19 this is a disaster.  It is time for the ACT Government to rethink and reset its policies to ensure that the ACT unit market is attractive to buyers, investors, developers and other stakeholders .It is imperative the reset is measured and proportionate and not a continuation of the current scenario.

The OCN has been calling on the ACT Government to review and revise its massive hike on rates and land tax placed on unit owners in the ACT since 2018.  Despite repeated requests, no satisfactory response has been received. We note ACT Government was to engage a Rates/Land Tax Consultancy which should provide extra support for the Government Reset. (see attached opinion piece of our President on this issue).

The importance of this consultancy is further highlighted by the recent Government stated initiative to force fuel retailers to address pricing. This may be reasonable but it should take account of the rates and land tax costs for these outlets which are reported by the Canberra Times as four times the amounts in adjacent state locations.

Pre COVID-19 Unit Owners were struggling significantly with the burden of rates and, for investors, land tax as well.

With COVID-19 the ACT Government has correctly said that everyone will be shouldering the economic impact, with little appreciation for the fact that it has not been a level playing field for quite some time.  ACT Government has stated that ACT landlords must share the burden and reduce rents - rents that even before any reduction don’t cover the impost of mortgage repayments, rates, land tax and other costs.

Banks may be offering a repayment pause – but they are capitalising the interest at the time it will fall due - no loss there.

The ACT Government – with rate payers’ money – is offering tenants of ACT Government property a rental waiver – and purporting to be a model landlord in doing so.  The ACT Government seems to be missing the point that every property owner in the ACT is its tenant, being a leasehold jurisdiction, and the ACT Government has an onus to assist its struggling tenants.  It also has the power to do so by applying a rates waiver and a land tax waiver to assist landlords to pass on these savings to their tenants.

All the ACT Government is offering is a delay in repayment of rates that were already unaffordable and a request that landlords “share the burden”.

The ACT Government’s piecemeal offering to reduce land tax (and no reduction on rates) up to $100.00 per week provided that a landlord imposes a minimum 25% rent reduction – has seen little uptake (96 applications as at 22.4.2020) because to reduce the rent impacts an already struggling landlord’s ability to cover the rates, land tax and mortgage repayments.  There are also insurance concerns that it would appear the ACT Government has not put its mind too.

ACT Government is also letting a tenant request a rent freeze – but a landlord is not permitted to charge interest on the outstanding rent – despite the fact the banks are doing just that with the paused mortgage repayments.  How is that sharing the burden?  As always – one rule for banks and a different rule for others.

A more palatable option and OCN recommendation to ease the burden on current tenants of rental properties who are impacted by COVID-19 would be for the ACT Government to permit the early release of the bond held by the ACT Office of Rental Bonds, to be applied proportionally across the rent due by way of a partial rent reduction, for the bond to then be topped up, when the tenant is in a position to do so.

This will have the effect of the landlord not losing out and the tenant not racking up significant arrears.

Finally, we note that there will be tenants that seek to take advantage on the moratorium against evictions.  How will the ACT Government ensure that landlords are not left in the lurch with tenants not communicating and simply stopping the rent?  If there is a freeze on any penalties and a freeze on evictions, what relief is the ACT Government going to provide in terms of waiver of rates and land tax for landlords?  Why should the landlord wear all of the risk and cost associated with such measures?

The OCN will be hosting an online education forum for impacted Owners Corporations in the weeks to come.

Government Rates Surge

We Need a Credible Consultant’s Review

The ACT Government is seeking consultants to analyse the impacts of its tax reform program on Canberra residents and the property market, including rents.  Chief Minister Andrew Barr has consistently rejected the claims that the rate rises are harming many sections of the community, driving homebuyers into New South Wales and increasing rents. Rather, he argues that ratepayers have benefited from reductions in stamp duty and other taxes and charges. 

The ACT Government Response (number 6), to the Legislative Assembly Rates Inquiry Recommendation for a Public Review of the ACT System for Rates and Land Tax, stated that analysis will be publicly available so it can be scrutinised and discussed by ratepayers and the broader Canberra community. To honour this commitment and to ensure the review report’s credibility, the consultants need to publicly engage during the process and review much of the evidence included in the earlier Assembly Inquiry. In addition to considering this evidence the consultants should be asked to consider the original 2012 ACT Taxation Review and the Government’s Response to it and how the implementation is consistent with these recommendations. I also understand the consultants haven’t been asked to look at whether the changes to the way rates are calculated for individual units within a strata complex have resulted in unreasonably excessive increases over the past few years; and to consider the suitability of incorporating market/capital value components into the approach. Omission of this analysis would make credibility of the consultancy suspect.

Over recent years the ACT Government’s record on public consultation has not been strong. Often requests to meet with Ministers by executives of responsible associations with an interest in supporting the community on a variety of issues, or to assist in addressing serious issues within our community, have been ignored. Many months ago the Presidents of the Owners Corporation Network (ACT) and the Strata Community Australia (ACT) met with a senior member of the Treasurer’s Office and during this meeting an offer to assist with the Review now being arranged was discussed and welcomed. No more was heard of this.

The Assembly Inquiry provided a comprehensive opportunity to collect evidence of the personal impact on residents’ cost of living and health and welfare, and on comparing rating fairness and equity between units in various complexes, and between standalone housing and apartments/townhouses. Gross disparity was evident and on the house versus unit comparison several examples showed a house and a unit with almost identical sale or rental value and the house using as much as four times the amount of land yet paying over 10% less in rates.  For credibility the consultancy will need to address these issues and suggest changes to remove the inequities.

The 2012 Review and Response emphasised Revenue Neutrality, yet several respected past government treasury executives and a former Labor Chief Minister disputes this has happened. Many senior residents accepted the Government’s encouragement to downsize, paid the full stamp duty (in place at the time) and have now had the double hit of very high rates. This double hit was not a clear objective of the Review although it did recognise this was a possible outcome in one of the options put forward. The impact was to be mitigated through a range of complementary policies on housing affordability, rates being commensurate with the consumption of land, and concessions for those on low to moderate incomes.  The consultancy should review the success of the approach taken.

In the Response (number 4) to the Assembly Inquiry the Government emphasised unimproved values are the basis for general rates and using this basis avoids undesirable outcomes such as disincentives for improvements and does not distort decisions regarding the use of land. In the strata sector one undesirable consequence could be avoidance of essential common property maintenance. With the change in method for calculating the rates in the strata sector, the Government is going against its own stated principle. The rates calculation method now used takes the Entitlement Points (the measure of the market or capital value of each unit within the complex) not the land value (unimproved value) as the basis for their share of rates calculated for the complete complex. This aspect of rating together with how the overall method has created massive increases for unit owners (some well in excess of 100% over a few years), needs to be considered by the consultants. The consultants should also consider that these massive increases will reduce the willingness of senior people to downsize, move to in-fill locations and so reduce pressure on land usage in the ACT.

Recently the Chief Minister has said the ‘heavy lifting’ relating to rates increases is over, yet at the same time saying increases will now only be 8% per year (units an average of 11%). This is still a massive increase for the next few years and would certainly see the prediction of a tripling of rates come true. Unit prices in Canberra have already dropped significantly with off plan purchase prices not being achieved in resales and some of these are forced because of various reasons including rates and land tax escalation and defect rectification costs.  Rental prices for units have now topped all capital cities in the country and this was predicted over a year ago as the rates and land tax hit their high levels. Affordability is well above our nearby NSW neighbours. The consultants have much to consider and report on if the review is to be credible.

Gary Petherbridge

President Owners Corporation Network ACT

9th December 2019.