Why are so many homes being left vacant by owners?

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Even though there’s an acute housing shortage in many of Australia’s fastest-growing cities, a considerable number of homes throughout the country are left vacant by their owners, states new research from Prosper Australia.

The non-government organisation, which provides insights into land and taxation issues, has been trying to figure out how many of the country’s 9.8 million homes are left vacant. Its major finding is that of the 1.7 million homes in greater Melbourne alone, approximately 82,000 are left vacant (or 4.8% of homes).

This large number was probably a key reason for the Victorian government’s adoption of a vacant housing tax, which as the name implies, levies a tax on properties left vacant by their owners.

Why are so many residential properties left vacant?

The economist Cameron Murray, who specialises in property markets and environmental economics, attempted to analyse this issue in an article for the Domain Group.

“Very few people understand the economic rationality behind leaving homes vacant, as the common sense view is that a vacant home is always costly since it is forgoing rental income for its owner,” he said.

According to Murray, by keeping their properties free of occupants, owners gain the option of selling their investment at some point in the future and earning a higher price. For example, if you have a property that could sell for $500,000 with a sitting tenant, or $520,000 if left vacant, this means the option to sell vacant is worth an additional $20,000.

“If you are considering selling in the near future because you want to time your exit from the market, then you may want to forgo rent in order to keep your option of selling vacant open. If the annual rent is $19,000, it might be worthwhile to forgo a whole year’s rent because it is less than the value of the option of selling vacant,” said Murray.

Some investors aren’t in the housing market because they want to become long-term suppliers of rental housing, but because they want to time their exit and cash in on their capital gains. Murray argues that such a set-up causes the housing market to fail in its primary social function of supplying secure housing to people.

Making a ballpark estimate

Prosper Australia attempted to find out how many homes throughout the country were being left vacant to fulfil a primarily speculative motive by assessing water metre data.

The organisation quantified the homes that used virtually no water over a 12-month period (25,000 dwellings), and those that used less than 50L per day over a 12-month period (82,000 dwellings).

“To answer how many vacant dwellings there are nationwide we can make a ballpark estimate by scaling up the results of Prosper’s research to other capital cities based purely on the relative size of the dwelling stocks,” Murray said. “This method relies on the assumption that if it is logical for owners in Melbourne to keep that share of dwellings vacant, it is equally logical for owners in other states.”

As a ballpark estimate, about 300,000 of Australia’s 9.8 million dwellings are likely to be left vacant annually (or about 3% of homes). For the last five years, about 153,000 new dwellings have entered the market each year. Hence, these vacant homes represent about two years of new supply.

With so many cities struggling with limited housing supply and growing populations, this huge glut of dwellings sitting empty is an acute symptom of bad housing policy, argues Murray.

“By restricting speculative lending into the housing market in the first place … like by banning interest-only loans … with stable prices, only investor buyers looking to earn an income from renting will be likely to invest,” he said.

Related stories:
Uninhabited dwellings exacerbating housing affordability crisis
Are foreign investors really to blame for Sydney’s house prices?


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  • Dean collins says on 05/04/2017 10:11:08 PM

    Pure BS.the water study was flawed.

  • says on 04/12/2017 04:37:11 AM

    Conclusion flawed and illogical! Housing/lending policy should not be pitched at the statistical outliers of the market, such as this example. There is a place for interest-only loans, for investors!

  • George says on 09/12/2017 06:42:52 PM

    The real problem is a global bubble fuelled by low interest rates if you really wanted to stop speculation you'd either take property away as an investible asset altogether or raise interest rates to stop people borrowing for nothing just to speculate

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