From John Ray's shorter notes
31 March, 2016
Why investors are leaving 90,000 Sydney homes EMPTY and thousands more in Melbourne
Belinda Cleary must be very young. She hasn't got a blind clue about the topic she addresses below.
You CANNOT "benefit from negative gearing" by leaving a property unoccupied. Negative gearing applies to rental income only. You have to let out the property to "benefit from negative gearing".
The article is pretty downhill after that so let me give the major reason behind the vacancies: Difficult tenants and no support for landlords in dealing with them. The various State Governments have passed restrictive legislation that is strongly protective of tenants -- and thus cause large losses for landlords when a tenant trashes the place or fails to pay rent. So if you have just bought a nice new house or apartment you may well decide not to let tenants mess it up for you -- by leaving it vacant. You will still usually get benefits from capital gains.
Another TEMPORARY factor is a mismatch between requested rentals and what tenants will pay. There has been a huge building boom in most of Australia's capital cities recently, with new apartment buildings springing up like mushrooms. And the owners think they can get both the purchase price and the rental income that they could have got 2 years ago. But they cannot. The law of supply and demand says that a big increase in supply will lead to a big decrease in price. So those new apartments will sell for less than projected and rent out for less than projected.
Owners of new builds, however, are often very reluctant to drop their expected rents so keep a property vacant for a year or so just hoping that someone will give them the rent that they calculated on. As disappointment sets in, however, they will drop their requested rent and get the property let out. So part of the vacacy factor is temporarty. Rents will fall markedly in the next two years, thus leading to higher occupancy rates
Some of Sydney and Melbourne's most desirable suburbs are being left vacant by property investors who benefit more from negative gearing than they do by filling the homes.
Now experts are calling for Sydney property investors to fill their empty properties and end the 'artificial' housing shortage the city is experiencing.
UNSW Futures Research Centre has found that one in seven homes in the inner-city, eastern suburbs and north shore suburbs of Sydney are empty.
A similar report shows up to 88,000 homes are vacant in Melbourne's inner suburbs leading researchers to believe it is a nation-wide program.
Dr Laurence Troy and Professor Bill Randolph have published an article in the Sydney Morning Herald which explains investors are securing big tax properties so they can benefit from tax-breaks.
This means they benefit more from leaving their properties empty than they do by filling them.
It is estimated around 90,000 properties are sitting vacant in some of the city's most desirable suburbs.
'The number of empty dwellings could more than account for the notional supply shortfalls,' Dr Laurence Troy and Professor Bill Randolph wrote.
The areas which see the highest amount of vacancies are those where capital gains are high and rental yields are low.
The experts say this is 'no coincidence' and reflective of negative gearing.
A study in Melbourne last year suggested more than 80,000 properties in the Victorian capital were left empty The Age reported.
'Having property sitting vacant has a very high cost on the economy. It's very destructive to our national prosperity,' Catherine Cashmore, author of the Prosper report said.
The researchers in that study used water-use data to reveal how many homes in the city area were being under used.
The recently revealed Sydney study showed fringe suburbs which experience higher rental yields and lower capital gains had fewer empty properties.
Doctor Laurence Troy has said on social media that he and his team want 'houses for people to live in!'
The Futures Research Centre team believe both the housing supply and shortage issues can be solved by filling those vacant properties.
They explained that the structure of the housing market is driven by a poor match in supply and demand.
'This only further exacerbates the emerging spatial inequalities experienced in our major cities, driving affordability in central, well connected and serviced parts of the city,' they wrote.
'Failure of governments to acknowledge the pervasive prevalence of empty homes only adds to the ongoing un-affordability crisis,' they wrote.
Haymarket and The Rocks are the most vacant suburbs in Sydney but a more than 13 per cent of homes in Manly, Potts Point, Wooloomooloo, Darlinghurst and Kirribilly are also vacant.
The researchers noted many desirable inner-city suburbs have also been left vacant in other Australian state capitals.
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