Thousands of tenants and families in NSW rely on rental housing which is imperilled by the NSW Government’s State Land Tax policies which adversely affect the economic viability of rental housing stock in the state. I wrote to NSW Parliament members to ask why.
Dear Members,
Regarding:
- NSW Government promoting Subsidised Rental Housing Schemes (SRHS)
- while imposing State Land Tax (SLT) on Exclusively Rental Apartment Buildings if Privately Owned (ERABPO).
I would appreciate your response as to why the NSW Government continues a long history of policies to discourage Exclusively Rental Apartment Buildings if Privately Owned (ERABPO). Rental housing on which thousands of tenants and families rely is imperilled in NSW by SLT stratagems which adversely affect the economic viability of this rental housing stock.
Injurious NSW policies affecting ERABPO commenced in 1948 with NSW State Rent Control, introduced because of the Second World War but continued for decades. State Rent Control was NSW’s first and most extensive ‘subsidised rental housing scheme’ and was compulsorily funded by rental housing providers such as ERABPO.
By the 1980s Rent Control was fading, replaced by State Land Tax (SLT) which was reintroduced in 1955. Subsequent governments evolved to impact private freehold land existing use, impacting the need of a residential freehold site for ERABPO. While SRHSs were being introduced, now, Taxpayers and Ratepayers funded.
The SLT agenda prevails while governments, MPs, social housing groups and so on support expanding SRHS, because of a rental housing crisis. However everyone has remained silent about SLT undermining the viability of ERABPO.
Which raises the following questions:
- Why is SLT imposed on residential freehold land, ERABPO requires to be ERABPO?
- Why is ERABPO housing allowed one SLT free threshold?
- How are SRHSs assisted by imposing SLT on ERABPO?
- Why is SLT imposed on ERABPO if a “rental housing crisis” exists?
Index of comment
- Politicisation of private and subsidised rental housing in NSW
- SEPP10 introduced to retain affordable rental housing
- State Land Tax (SLT) evolved into a ‘stealth planning weapon’
- How SLT exploits the Mass Valuation Methodology (MVM)
- Removing MVM’s transparency seriously damaged the processes’ integrity
- Carr Government imposed SLT on all NSW rental housing and business
- SLT tax-free threshold promotes Strata Development
- SLT revenue can and has been manipulated
- SLT exceeds local council residential land taxes (rates)
- SLT has evolved to fund NSW State Superannuation
1. Politicisation of private and subsidised rental housing in NSW
1916: Fair Rents Act 1916 was NSW first Rent Control, the genesis of political manipulation of private and, subsidised rental housing schemes.
1928: State election “Rent Control” was an issue which lead to the Fair Rents Bill and the Landlord and Tenant Act. 1932 which followed it (classic ‘them-and-us’ politics).
1938: Because of WW2, the Commonwealth prudently introduced measures, freezing rents at 1938 valuations.
1948: Rent Control (which the Commonwealth unsuccessfully attempted to retain) became NSW’s responsibility and, imposed for decades, caused housing gridlocks that gave impetus to the NSW Housing Commission’s programs of the 1950s, 60s and 70s.
From 1948 to 1980s and on
Rent control was NSW’s first Subsidised Affordable Rental Housing Scheme (SARHS), funded by the private providers of rental housing.
Numerous ERABPO developed during the inter-war period. All exclusively rental housing. All, from 1948, imperilled by NSW Rent Control, imposed for decades. It decreed ERABPO “Prescribed Premises” and rents based on 1938 valuations. ERABPO were and are prevalent in Sydney’s inner and mid-circle council areas, but the NSW Government and others constantly advise that the city suffers a rental housing crisis, that requires SEPP10 and various SRHS.
Today these apartment buildings, originally ERABPO, have been converted to Strata or Company Title because of NSW Rent Control, followed by SLT stratagems that removed existing use as “exclusively rental housing“ ironically exacerbating a rental crises, and the need for SARH.
In the 1980s rent control faded, weakened by
- 1964 17A agreements.
- 1965–75 Change of Government. Repealed non-residential. Wealthy tenants .etc
- 1975 SLT evolving to impact ERABPO viability, following years of rent controls.
- 1979 Environmental and Planning Act used to promote SARH.
- 1984 SEPP10 introduced to retain ERABPO of 15 Apartments or less.
- 1985 No new protected tenancies could be created.
- 1992 SEPP10 withdrawn replaced by AHSEPP’s to address affordability crises
Why are NSW MPs and SARH groups silent about SLT impact on ERABPO?
Rent Control’s fade out boosted gentrification in council areas where SEPP10 applied—areas where Labor had consolidated electoral support.
2. SEPP10 introduced to retain affordable rental housing
In 1984 SEPP10 was introduced to retain ERABPO but SLT agendas undermined it. ERABPO of 15 apartments or less required Urban Planning consent to convert to strata, undergo alterations, rental increases and so on.
SEPP10 initiators were obviously:
- unaware SLT was undermining ERABPO as rental housing, or
- continuing NSW’s prejudicial policies to discourage ERABPO, or
- both.
Overlooked, SEPP10 had no authority over ERABPO conversion to Company Title.
Why would a Government introduce a planning policy to retain ERABPO while imposing State Land Tax to discourage ERABPO?
1992 SEPP10. Some guidelines, or rational quotes
- “In the past decade, housing affordability has become a critical issue”
- “More people living in private rentals, fewer, purchasing homes”.
- “Low incomes are finding it harder to compete for affordable long term accommodation that remains on the private rental market.”
But in SEPP10 was abandoned and SLT stratagem and agendas prevailed. There was not a word about SLT undermining ERABPO viability, which SEPP10 sought to retain.
3. State Land Tax (SLT) evolved into a ‘stealth planning weapon’
Land Tax has evolved into a ‘stealth urban planning weapon’ see (4) (8) (10)
‘Stealth’ because of how SLT impacts urban freehold land existing use, exploiting the “mass valuation methodology of 1916” (MVM) is, under the community and media radar, also, why, MVM was designed for Local Government to set Local Council’s land values, for their respective land tax “Rates”, commonly called, ‘Council Rates”SLT economic impact on Urban Freehold land existing use is intended, to promote its subdivision into numerous Strata Lots. (Only Freehold land subdivides into Strata Lots) a revenue stratagem to generate and compound State property taxes from Stamp Duty –GST etc. A revenue stratagem NSW Treasury calls ‘Town Planning” and, aligns NSW State Revenue policy with the financial interests of the Development Taskforce Lobby and, potentially corrupting of NSW Planning.
When NSW reintroduced SLT in 1955, Labor’s political rhetoric was to “tax the big boys — the Martin Place Squatters”, but other agendas were evolved such as planning, revenue, subsidised housing and funding state superannuation.
4. How SLT exploits the Mass Valuation Methodology (MVM)
When the Mass Valuation Methodology (MVM) was introduced in 1916, its intent was to ‘equitably distribute funding of councils among ratepayers’.
Basically the MVM requires the Valuer General when setting each council’s land values to:
- deem all residential land as vacant ready to build (Site Value)
- set all land values relevant to a common date.
Accordingly, the MVM values all residential land as vacant on a common date. Councils used to apply their respective land tax — rates — applying the same rate to all land in the same class to a land value set from a common base.
Unlike the State Government with SLT, councils cannot target tax on an existing use of residential land.
The MVM process deems entire residential districts as vacant land, ready for redevelopment. Redevelopment that may not occur in 50 years. The MVM process of 1916 was and is intended to set land taxing values for council “rates”, not SLT rates. Although the MVM process ignores the existing use of residential Freehold land, SLT is imposed if the existing use is ERABPO, applying a tax “rate” at usury rates, compared with local council residential “Rates”.
This is nothing less than a stratagem to knock ERABPO out of the rental-housing ring, while at the same time government warns of a rental housing crises and expands SARH.
5. Removing MVM’s transparency seriously damaged the processes’ integrity
In 2003 the Carr Government seriously damaged MVM integrity by blocking long-standing public access to local council’s “Land Valuation Rolls” and registers which record the taxing values and land ownership within each council area. Subsequent NSW governments have not restored public access.
The MVM processes’ transparency was a fundamental element to safeguard the MVM integrity. The VG is also silent. Labor privatised/land data, and closed public access to Council Valuation Registers, also, concealing the spread of “Subsidised Rental Housing Schemes.(SRHS) many managed by “Non-profit organisation, all SLT exempt, all, Taxpayer and Ratepayers funded. All silent about SLT undermines the viability of ERABPO, that exacerbating the rental housing crises.
6. In 2005 the Carr Government abolished SLT tax-free threshold
Imposing SLT on ALL private rental housing and business throughout NSW.The Carr / Egan Governments experiment last one year, as protests lead by “the development lobby (that includes Banks) were alarmed, Strata Apartment sales to investors would be impacted.
2005 Premier Carr and Treasurer Eagan resigned.
In July 205 Andrew Refshauge advises that the catchall SLT will end on 1 June 2006. However the SLT tax-free threshold was reinstated, with increased tax rates and land values, especially in Council areas where SEPP10 formerly applied.
7. SLT revenue can and has been manipulated
Some NSW examples:
1980s “Equalisation methodology” setting land values from secret benchmarks.
- Introduced secrecy and devastated the NSW Valuer General’s Department.
- Introduced computer modelling to set land values (rubbish in, rubbish out)
1990s Labor introduced SLT on private family homes.
2003 Removing MVM’s transparency seriously damaged its integrity.
2005 SLT tax-free thresholds removed, taxing all rental housing and business.
2012
- A catch-all flat rate levy (SLT) of $300 was initially proposed. (Not proceeded)
- 2012 A catchall 0.7% levy proposed. (Not proceeded)
Changes made to SLT and proposed, indicate Government concern, also, exposes a rigid determination to continue manipulation private property, and retain the SLT stratagems evolved subsequent to SLT reintroduction in 1955, using the rhetoric:
“To tax the big boys, the Martin Place Squatters.”
(Labor Premier J. Cahill)
Mike Baird, then Treasurer of NSW, was sent a confidential letter on 28 December 2011 providing data how a 0.7% SLT would impact various Council areas, including Manly. The Treasurer’s office contacted me, requesting the letter be forwarded to Treasury Bureaucrats. I agreed. The request respected a condition of the letter, that it not be distributed without my consent. The 0.7% levy has not been raised again.
8. SLT tax-free threshold promotes Strata Development
Basically SLT is un-pegged, imposed annually on privately owned land that is re-valued annually by the VG, who also resets theSLT tax-free threshold.
The SLT tax-free threshold promotes the subdivision of urban freehold land into strata lots, and also controls political damage (see 6)
When the Site Values of “Strata or Company Title Buildings”, if rental, are apportioned, each apartment can receive SLT tax-free threshold. By comparison, if ERABPO, then only one tax-free threshold is allowed on the full site value.
SLT impact on “Exclusively Rental Apartment Buildings”, (ERABPO) compared with “rental Apartments of Strata/Company Title Buildings”.
Assume two buildings, both 12-apartment blocks in the same street in the Waverley Council area. Both have a ‘site value’ of $2,500,000.
Building (A) is exclusively rental, privately owned.
Building (B) is rented strata apartments, all privately owned.
In 2013 the SLT tax-free threshold was $408,000. Building A receives one SLT tax-free threshold of $408,000 based on its site value.
Site value = $2,500,000 less $408,000.
The site value liable for SLT = $2,092,000.
SLT on $2,092,000 @ 1.6% = $33,472 per year ($644 weekly).
Building B, however attracts no SLT because the apportioned site value of $2,500,000 is divided among the 12 units which are each valued at $208,000—$200,000 below SLT tax-free threshold of $408,000.
Effectively, Building B is exempt from SLT. For Building B to be liable for any SLT its site value would have to be $4,896,000—more than double Building A’s site value.
And before Building B’s SLT can equal Building A’s $33,472 yearly bill its site value would need to be $6,988,000 ($4,896,000 + $2,092,000).
Many examples exist of SLT demanding 20% + of ERABPO gross rentals. Small wonder then, that ERABPO properties are getting rarer.
All this while taxpayers and ratepayers fund SRHS, because of a “rental housing crisis”.
9. SLT exceeds local council residential land taxes (rates)
Local and state government and others advise a “rental housing crisis“ exists.
The data below shows the extent SLT exceeds councils’ residential “rates”.
| Local government area | SLT exceeds rates by | Res .Rate |
|---|---|---|
| Marrickville | 830% | — |
| Burwood | 900% | 0.2110 |
| Canterbury | 713% | 0.2803 |
| Hornsby | 1370% | 0.145474 |
| Kogarah | 1200% | 0.16672 |
| Ku-ring-gai | 2000% | 0.0978450 |
| Leichhardt | 900% | 0.2021 |
| Manly | 1190% | 0.066904 |
| North Sydney | 2400% | 0.083051 |
| Pittwater | 1150% | 0.17291 |
| Randwick | 1130% | 0.17664 |
| Waverley | 1350% | 0.1481 |
| Woollahra | 3800% | 0.051527 |
| Willoughby | 2000% | 0.077619 |
The Sydney statistical area. Comparing SLT 2002 with SLT 2013.
| Liable rental housing | State Land Tax collected | |
|---|---|---|
| 2002 | 115,216 | $288,280,000 |
| 2013 | 157,285 | $718,177,000 |
The above data about 10% conservative. SLT mechanically collected not included.
10. SLT has evolved to fund NSW State Superannuation
The Finance and Services Ministry administers SLT and Superannuation. SLT revenue is a charge/estate on private land, enforced by punitive compliance and recovery powers administered by Office of State Revenue. The OSR is given enforcement powers that exceed a Bank Mortgage.
Compliance requires OSR to employ a small army of compliance and recovery personnel because SLT is so financially detrimental to owners of ERABPO and to small business that requires a freehold site to operate.
SLT revenue is guaranteeb by annual valuations by the Valuer General, using computer modelling. The Capital Value of liable private property secures SLT Revenue.
Liability for all charges to private land, buildings compliance etc, falls exclusively upon the “Registered Proprietors”, regardless of the equity they hold. That maybe 50% or less. Regardless, the Registered Proprietor, pays 100% of all costs, including SLT. A bank economist was reported in The Australian Financial Review saying, “SLT was a good tax, an efficient tax”. I responded (unpublished)
“If banks paid SLT on their equity/estate in land, would he agree SLT was a good tax?”
Summary
I place on the record my support for subsided rental housing schemes, (SRHS) as an essential social housing safety net, when, need is evident.
What is evident, are political agendas / stratagems, prejudicial to “exclusively rental housing, IF, privately owned /funded”. Done, while government and others constantly advise the community is griped by a rental housing crises and, advocate expansion of government SRHS, into a growth industry, funded by Taxpayers and Ratepayers.
NSW State rent control commenced in 1948 and directed at rental buildings for decades, deeming them “prescribed premises”. (NSW Landlord and Tenant Act.)
“State rent control, was NSW’s first and most extensive subsidised rental housing scheme, and funded by the private providers of rental housing, that is ERABPO.
As NSW State rent control faded away, gentrification was rising causing political concerns in Council areas Labor had consolidated electoral support, especially, in Council areas, SEPP10 would be imposed in 1984.
As rent control faded, NSW Government changed stratagem to discourage ERABPO, replacing Rent Control that targeted rental building existing use, decreeing the buildings “Prescribed Premises “and disregarding land value. 7. md
Replacing rent control with a SLT, was a significant change in government stratagem that discourages ERABPO. NOW, unlike rent control, SLT disregards existing use of buildings, delivering impact by taxing land value set by MVM that, unlike rent control, disregards buildings existing use, selectively target taxing liable residential land on redevelopment value, to impact existing use. ,
NSW continuing agendas to discouraging a Rental housing stock, that impacts 1000s who need long –term rental housing, ERABPO provide, imperilled by a SLT stratagems serving political agendas to impact ERABPO viability, while, government advise of a rental housing crises. Such stratagems are political agendas.
SLT stratagem intent is to continue discouraging ERABPO by impacting economic viability of existing use on Urban freehold land, following decades of rent control.
The impact of SLT tax “Rate”, is augmented by taxing land values set by the “Mass Valuation Methodology of 1916” (MVM) increasing impact if existing use is ERABPO.
The NSW Governments, Treasury, Valuer General and OSR are all aware: Aware that the MVM was intended for Local Government to set land values in each council area. Aware that councils must use MVM land values to impose council ‘rates’. And aware that councils must apply the same “rate” to all land in the same class. Unlike SLT, councils cannot target tax to residential land use (see 4).
Concern exists as to why councils have not questioned SLT, imposed in competition with ‘rates’—councils’ own land tax. In 1905 SLT was withdrawn and handed exclusively to local government, but then Labor reintroduced it—on top of rates—in 1955.
The MVM requires the VG to deem all residential land as vacant, ready to build, or, redevelopment value is imposed, Site Value, ready to build. A situation that may not occur in 40 years in most Council areas, accordingly, SLT stratagem is to tax all liable lands on its redevelopment value that impacts existing use, especially existing of freehold land ERABPO require to be ERABPO.
Although SLT disregards existing use of buildings, if the property is ERABPO. In that case SLT is selectively imposed on this residential land use; thus continuing NSW governments’ long history of discouraging ERABPO. This also affects the many small businesses that need a Freehold site to operate.
The ERABPOs that survived decades of NSW Rent Control only to be undermined by State Land Tax face a particular problem because ERABPO are designed specifically as self-contained Residential Rental Apartment Buildings. When viability is impacted by SLT, Strata or Company Title conversion is the only option. But this removes the properties’ use as exclusively rental housing— adversely affecting tenants. This occurs while government warns of a rental housing crisis and advocates expanding SRHS.
NSW could have removed SLT or phased it out on ERABPO before
- SEPP10 was introduced in 1984, to retain ERABPO of 15 Apartments or less, or
- the 2000 Olympics.
In 2000, the total SLT collected on private rental housing in Sydney Statistical Division was $288.28 million. For the rest of NSW it was $24.60 million for a total of $312.88 million
In 2013 the total SLT collected on in the Sydney Statistical Division was $720 million and $122 million for the rest of NSW, for a total SLT on NSW private rental housing of $842 million.
Examples: SLT on rental housing 2000 compared with SLT on rental housing 2013.
| 2000 | 2013 | |
|---|---|---|
| Bankstown | $4 million | $9.4 million |
| Blacktown | $3.6 million | $13.3 million |
| Botany | $1.7 million | $7.2 million |
| Ku-ring-gai | $11.6 million | $21.5 million |
| Leichhardt | $7.8 million | $22 million |
| Manly | $ 7.4 million | $18.6 million |
| Randwick | $14.2 million | $47 million |
| Waverley | $12.2 million | $49 million |
SLT could have been removed on NSW rental housing without impact on the State Budget. Doing so would have eased the impact of a rental housing crises, while reducing demands on taxpayers and ratepayers to fund government-subsidised rental housing schemes such as SRHS. Not to phase out SLT indicates the stratagems evolved for planning revenue promote SRHS expansion while funding state superannuation is a likely factor State Members are silent about SLT impact on ERABPO and many small businesses.
It is paradoxical of NSW governments to discourage ERABPO, while promoting the expansion of taxpayer- and ratepayer-funded subsidised rental housing schemes needed because of a rental housing crises. This duplicity reflects political agendas.
It is disappointing State Members and senior bureaucrats are silent, but I suppose that SLT agendas may have evolved to lock–in silence.
SLT could have been, and can be, phased out on privately-funded exclusively rental housing buildings. Alternatively the State government can encourage more privately-funded rental housing by allowing the SLT threshold on each ERABPO apartment. Strata and Company Title buildings are already treated this way, so why not ‘exclusively rental housing’? This would ameliorate a rental crisis, and improve availability as SEPP10 intended, while reducing demands on taxpayers and ratepayers to fund social housing schemes.
Yours sincerely,
C.J. (Mike) Danzey.
Certified Property Valuer No 2003.
(I own ERABPO and will make full details of SLT impact available)