Inner-city council’s proposal to double rates for property investors

A city council in a hipster part of Melbourne has voted to investigate charging far higher rates to landlords than to those who own and live in a unit or house. 

Merri-bek City Council, which covers suburbs such as Brunswick, Coburg and Pascoe Vale, passed a motion on Wednesday night that could lead to a doubling of rates for property investors and halving them for owner-occupiers and businesses.

The motion from Independent councillor James Conlan, who said he was ‘really excited’, was passed by six votes to five, though council staff expressed reservations over the plan’s legality.

‘This could slash rates for residents by around $900/year for every home owner and around $2,700 for each local business,’ Mr Conlan, who was a Greens member until February 2023, wrote on Facebook. 

‘It was interesting to see which councillors chose to side with property investors instead of local residents and businesses by choosing not to give them a massive rate cut. 

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‘One councillor actually said that “Property investors are improving the rental market”,’ he wrote. 

Among those backing the motion was Greens mayor Adam Pulford, who lives in a rented property in Coburg. 

But a statement posted to the council’s website said the proposal is by no means certain ever to become reality. 

‘Council staff have previously advised it is very unlikely that it is feasible to apply a differential rate for property investors who have more than one residential property in Merri-bek. 

‘This is due to strict Victorian legislation and ministerial guidelines setting out how local government can charge rates and how differential rates may be applied.’

The statement added: ‘As the first part of the investigation, Council will seek legal advice as to whether the proposal can legally be implemented.’

It said that if legal advice shows there are legal ways to bring in differential rates, ‘it would require careful consideration and analysis’. 

‘This would include investigation of potential implications for different groups of ratepayers, and investigation of how to avoid unintended consequences.’ 

Under Mr Conlan’s plan, landlords and investors’ rates bills would double to an average of $3,600 per year per property. 

His motion said investors have a fallback if they’re struggling financially, but owner-occupiers don’t.

‘Unlike owner-occupiers and renters, investors can sell at least one residential property without making themselves homeless. 

‘Ratepayers unable to keep up with expenses associated with maintaining an investment property may sell their investment properties,’ the motion said.

But council staff also said that doubling the rates charged to property investors with two or more properties would fund the halving of rates for owner-occupiers, commercial and industrial ratepayers.

SQM Research founder Louis Christopher said increasing rates for landlords in Merri-bek would just lead to higher rents.

‘We can’t tax our way out of a rental crisis. This will make the situation worse for the local area in terms of rental vacancy rates and rents,’ he told the Australian Financial Review.

There was some immediate pushback to Mr Conlan’s proposal on social media, with one commenter saying ‘so you’ve pushed a motion which as far as I’m aware isn’t even legal’. 

‘AND even if it is, renters are the only people who will be worse off, a LOT worse off. This is the pinnacle of economic illiteracy…. And a clown show.’

Another said ‘What happens once all the investors sell up? Do rates still stay low because then council is losing money?

‘Do you believe in the tooth fairy and Santa clause?’

A third wrote that ‘Rental property owners have worked hard and scrimped and saved in order to buy an investment property so they have an income when they retire in their later years’. 

‘Now you want to take that away from them and penalise them.’

A report into the feasibility of the proposal is expected to be delivered and debated by the council in August or September, though if more complex investigations are required the report may take longer to complete.

Councillor James Conlan told Daily Mail Australia he would have more to say when the report on the proposal returns to council later this year.