One of New South Wales’ major real estate industry groups has called for an overhaul of land tax in the state, including hitting some investors with a higher tax bill.

As a part of a submission calling for an “urgent review” of land tax in the state, the Real Estate of New South Wales believes owners of vacant property should fax higher land tax payments.

“REINSW also suggests that people who purchase property for land banking purposes, whereby a premises is left vacant intentionally, should pay additional land tax as a penalty for not providing the property for the benefit of the community,” REINSW president John Cunningham said.

The REINSW isn’t the only one to propose such an idea, Bloomberg this week reported that Gregor Robertson, mayor of the Canadian city of Vancouver, is also considering a similar idea.

"We’re looking at new regulation and a carrot-and-stick approach to making sure that houses aren’t empty in Vancouver," Robertson said.

"If you’re not using your property -- either living in it or renting it out -- then you have to pay more tax. Because effectively it’s a business holding, and should be taxed accordingly,” he said.

Todd Hunter, founder of buyer’s agency wHeregroup, said he could see the benefit of the idea, but he said it may have some unintended tax consequences in Australia.

“It’s probably not a bad idea,” Hunter said.

“But if your property’s vacant and you’re not leasing it out then you can’t claim negative gearing and the tax benefits.

"If you hit them with more land tax to attract them to rent the property out and they rent it out even on a holiday or short term letting arrangement over a certain period of the year then they’ll qualify for negative gearing and the tax benefits.”

Research from University of New South Wales academics earlier this year suggested that up 90,000 properties currently sit vacant in Sydney as investors are content to take advantage of strong capital growth recently seen in the city, while seperate research last year claimed as many as 80,000 homes may be vacant in Melbourne.

While the proposal from the REINSW may see some of tjhose vacant properties opened up, Hunter said many in Sydney and Melbourne in particular may remain vacant.

“Would it make a difference to the Chinese who have got their units vacant? Probably not, they’d probably just pay it anyway.

“When you’re talking about Sydney and Melbourne, I would say yes [that it’s foreign owners who are leaving properties vacant] and the might be a bit in Brisbane or on the Gold Coast, around the rest of the country it might just be holiday homes and that sort of thing.

While he believes with some more research the REINSW’s proposal could be viable, he also said the market itself may soon solve the problem.

“If you look at logically and you have interest rates at 4% then people would be reliant on capital growth being above 4%. Say if it’s a high rise unit you have to factor in strata and everything else then those owners would be needing growth closer to 6% or 7% each year.

“That’s a considerable amount for ongoing years. In a good rising market you could see that happening for two or three years, but over a 10-year period it would be unlikely. If interest rates go up then people with mortgages would certainly be more open to renting them out.”

While Cunningham and the REINSW would have those owners pay additional land tax each year, they believe the government should offer some relief to owners of occupied property who are facing higher tax bills due to price growth.

“REINSW believes that some pegging mechanism needs to be considered during the current market,” Cunningham said.

“With property values rising, many property owners and tenants have been presented with land tax assessments that make their business ventures unviable. In effect the state government is compelling people to sell property because they have rezoned it and are taxing it for unrealised potential.”

The REINSW’s calls for an overhaul to land tax in NSW follow similar ones it has made recently for the state’s stamp duty arrangements to be altered to improve housing affordability.