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02 Mar 2017

“Ghost” houses, an emerging problem in Australia

200.000 “ghost” houses remain vacant in Australia and real estate agents report that this will be soon an important matter that the central government will have to face in a country that has a very expensive housing market. 120.000 of them are found in Sydney, the most populous city in Australia.

Sydney has been defined by researcher Demographia as the second most unaffordable real estate market in the world after Hong Kong. In the past month, prices have gone up by 2.6 % and 18 % total in a year. Melbourne and Brisbane face also the “ghost” house problem in the local real estate market. House prices in Melbourne went up by 1.5 % in February and 13% in total in the past year. Rental prices are in historic highs and their increase rate is larger than the salary increase rate. In whole of Australia prices increased by 1.4 % and the average price of a house amounts to 570.000 U.S. dollars.

There is an explanation why there are tens of thousands of empty houses but the prices rise constantly. A research from the University of New South Wales suggested that the crisis is being fueled by investors intentionally leaving their properties empty so they would be able to take advantage of tax breaks. If an owner faces losses against a rental investment they can be offset by negative gearing. Negative gearing means that if the loan costs are higher than the rental income, then the Australian Taxation Office gives the chance to investors to offset the loss against their income.

Market experts believe that this tax strategy fuels up the housing crisis and not the scarcity of housing. Homes in the cities’ suburbs are more likely to be unoccupied because of low rental yields and higher expected capital gains. There have been some cases that “ghost” houses are used for short time rentals or by students for maximum of 6 months. The government of the State of Victoria is planning a reform that will make possible rental contracts with duration for 5 years and more. The administration intends to make the house rental more affordable to the average income citizen.

Amy Reynolds, a strategist in APT Capital, told the Sunday Morning Herald that “a dry up of foreign investment could trigger a downturn in prices” and added that house prices would need to drop by almost 30% to come back in line with Australian economy fundamentals and averages.

Canada and Singapore, also members of The Commonwealth, faced similar problems but they found a solution quicker than Australia. A property tax was imposed in Vancouver on all houses that are empty and Singapore imposed a 16 % investment tax on all “ghost” houses. Real estate agents say that, for the time being, leaving a house empty is both profitable and subsidised by the government of Australia.