The state’s economy and property markets were underwhelming for the entire 2010s decade. Just as conditions improved coming out of the pandemic, there’s now real reason to anticipate a period of intense and prolonged unrest in the Sunshine State.
The rental crisis in Queensland is about to become significantly worse. The ramifications will impact the state’s economy, migration patterns, the health sector, personal welfare and real estate.
Tenants, landlords, employers, employees, interstate and overseas migrants will all be worse off from recent nonsensical decisions by the Queensland government.
Landlords will be livid with the scrapping of basic asset ownership rights when new rental legislation begins on 1 October.
In addition, recent land tax changes made by Queensland Treasurer Cameron Dick will steal $000’s each year from 100,000’s of residents of Queensland and interstate.
Regardless of whether a property investor personally resides in Queensland or interstate, if they own one or more investment properties in the state of Queensland their annual land tax liability in this state will now be calculated using the combined value of land in all states.
If this is not illegal, it certainly is unethical. Despicable.
This debt-laden state government is also believed to be reviewing a range of other rental legislations that include dictating how an asset owner charges rent for the use of their asset as well as tenants being permitted to modify assets without the owner’s permission.
At a time when the sunshine state already has its biggest (ever) shortage of rental accommodation, it is likely that thousands of existing landlords will sell, thereby shrinking the size of the rental pool and leaving thousands of Queensland tenants with nowhere to live.
According to data from SQM Research, the total volume of properties advertised for rent across the entire state of Queensland at the end of July 2022 was only 5,019.
Many of those advertised properties are already taken.
The same time 5-years ago, when there were 400,000 fewer people living in Queensland, that figure stood at 22,298.
As research for this story, yours truly spoke with the managers of caravan parks in 7 different major cities across Queensland. From Cairns and Townsville in the north, the Gold Coast and Sunshine Coast in the south-east, Hervey Bay in between and Toowoomba in the west.
They all confirmed an enormous increase in requests for accommodation from people who can no longer find conventional rental accommodation.
A toxic ‘us-versus-them’ environment that has evolved over the last decade between landlords, tenants and bureaucrats benefit no one. Indeed, it’s creating significant harm.
It seems appropriate to remind people that rental properties do not fall out of the sky and that the transition from tenant to homeowner does not magically occur.
The Queensland government’s latest action is a shameful kick in the guts to the existing 400,000 Queensland property investors and countless others who live interstate while owning real estate assets in the sunshine state. They are about to be ravaged by a state government that is desperate to raise extra revenue and whose Housing Minister has previously been on record describing property investors as ‘slumlords’.
Instead of trying to increase rental supply by encouraging the activity of aspirational property investors, the state government’s action is (once again) likely to result in thousands of existing rental properties being removed from the rental pool.
As the pressure valve for rental supply and demand tightens further, logic suggests en masse mental health concerns for many of the 1.7 million Queenslanders who currently live in the state’s 620,000 rented homes (576,000 of them owned by everyday Aussies property investors).
Lifestyle seekers looking to relocate from interstate to Queensland need not bother unless they intend bringing their own caravan and are happy to park it somewhere on the side of a road.
A net 35,859 people relocated from other states to Queensland during H2 2021 – an all-time record high.
Queensland business owners (along with their staff and customers) will also be significantly impacted by this.
After an entire decade wherein the state unemployment rate consistently sat above the national average, the post-pandemic revival sees an impressive 52,000 Queensland jobs currently advertised on SEEK.com.
But there aren’t any locals to fill these jobs and it is impossible to attract employees from elsewhere when there isn’t any housing available (unless the boss’s garage counts).
All levels of government are desperate for the recent re-opening of overseas migration to filter through and fill these jobs.
As recently as this month, the federal government reported that visa applications received from overseas students was consistently above 10,000 per week throughout all of June and July. The nine Queensland cities with universities cannot expect to receive a boost of youth if they can’t house them.
Ditto with regards to overseas immigrants bringing much needed skills in other occupation types. Don’t bother letting them cross the Queensland border.
Most current tenants do not realise it yet, but over this next 12-months, tens of thousands of Queenslanders will be desperately exploring makeshift shelter such as caravans, tents, spare bedrooms, garages and shipping containers.
This horrible housing mess is all self-inflicted.
It has been entirely caused by several years of dumb decisions from drongos in high places, including the latest highway robbery committed by Mr Dick on those who own rental properties in the state of Queensland.
QLD Land Tax Robbery – Scenario
Desperate to address their dreadfully high government debt and with such disdain for property investors, Mr Dick and the Queensland government have deemed it appropriate to now calculate Queensland land tax through a new catch-all policy that includes land in other states. Thief.
Bill (a plumber earning $170,000) and Mary (a hairdresser earning $40,000) are everyday Aussies with two children and a mortgage to pay on their Brisbane home.
With an ambition to one day retire and enjoy a better lifestyle than what taxpayer-funded aged pensions and employer-funded superannuation will support, they have a goal to accumulate an investment portfolio with residential property as their preferred asset class.
In 2012, Bill and Mary purchased their first investment property in an adjacent suburb to where they live in Brisbane. After grasping the importance of not investing all of one’s eggs into the same basket, they subsequently purchased an investment property in suburban Sydney (2015) and Melbourne (2017). All three properties were purchased in Bill’s personal name.
The current land value of each property is $500,000 (the QLD land tax threshold is $600,000), $600,000 (NSW land tax threshold is $822,000) and $500,000 (VIC land tax threshold is $300,000).
The real estate acquisitions attracted taxes payable to each state government to the tune of $16,000 (QLD), $36,000 (NSW) and $37,000 (VIC) in stamp duty.
Bill and Mary have also paid the Victorian state government a combined total of $4,000 in land tax across the last 5-years.
Plus, they have paid a total of $66,000 tax to local governments (an average of $3,000 per year for council rates to each city council).
In total, Bill and Mary have already paid $159,000 in property-related taxes to state and local governments over the last 10-years.
The Queensland government’s new land tax policy means that the cumulative value of Bill and Mary’s land across three states ($1.6 million) now constitutes an annual expense of $4,500 payable to the Queensland government from 2022/23, and increasing each year thereafter.
Bill and Mary respected the rules that were in place at the time of purchasing each asset.
But this most recent instance of tall-poppy attacking is blatant revenue raiding, dream destroying also comes with wider consequences to the community broadly.
Pseudo homeownership
‘Your name might be on the title, but possession is nine tenths of the law; those who have possession may do as they please with it’: this appears to be the attitude of certain politicians who peddle to the demands of the entitlement society.
Commencing 1 October, some tenants may end up acquiring a ‘home for life’ without having to save for a deposit, without paying stamp duty, and never having to pay off a mortgage, insurance for the property, city council rates or repairs to their ‘home for life’.
“What’s the catch?” I hear you say.
Simply play the rental system that the Queensland state government recently put in place for people to milk.
For decades, it has been reasonably common for a landlord and tenant whom have both been happy with the relationship to, upon expiry of a lease agreement, keep things going indefinitely without doing the formal paperwork of a new lease. Such arrangements are referred to as a ‘periodic lease’.
New draconian legislation effectively means that, once a Queensland rental property is on a periodic lease arrangement, the tenant can remain living there for as long as they want. The only way that the asset owner can force the tenant out is if they move into the property themselves, sell the property or commence a major renovation.
The REIQ has published a best-practice suggestion to protect Queensland landlords.
Also, the owner of a residential real estate asset can no longer determine whether a tenant can have pets.
And the Queensland government is also looking seriously at following Victoria’s path with passing legislation which, from next year, will mean a tenant can carry out modifications to the asset, including painting the entire house a rainbow of pink, green and yellow without asking permission.
Legislation to regulate how the owner of a rental property asset sets rent is also being considered. The streets will be littered with tents if that comes into force.
Impact on Queensland rental market
For each of the last 7-years, insufficient rental supply has been added to the Queensland rental pool. This is reflected in the consistent decline in vacancy rates across Queensland since 2016 [review the charts below].
Generally speaking, upward pressure on household rents tends to occur once vacancy rates dip below 2.5 percent.
Large parts of Queensland first began to experience rental pressure in 2018/19.
In November 2019, well before the global health pandemic, Propertyology published a research report warning that annual rent increases of $5,000 were likely throughout Queensland.
Insufficient participation rates from property investors meant that rental supply kept tightening and vacancy rates fell further in 2019/20.
24 of Australia’s 100-largest townships are located in Queensland. The asking rent for 3-bedroom houses in 21 of them have already increased by $100 per week or more over the last 5-years.
Examples include Yeppoon (up $260 per week), Gold Coast ($225), Sunshine Coast ($195), Cairns and Fraser Coast ($150), Brisbane ($135), Townsville ($130), Toowoomba and Warwick ($110).
With 22 of the 24 Queensland townships currently having a vacancy rate of 1 percent or less, asking rents are expected to increase at an even higher rate into the future.
As has happened for each and every one of the last 150+ years in Queensland, demand for rental accommodation will increase every single year into the future.
Propertyology anticipates that the ‘fortunate’ few who move into a different Queensland rental property in 2023/24 are likely to pay $7,000 more rent for a standard house in Year 1 compared to 2022/23.
Existing Queensland tenants with a preference to enter another lease with the same landlord should anticipate an annual increase of between $5,000 and $7,000.
Thousands of existing tenants will not be afforded the option of a lease renewal when their landlord decides to give the state government the one-finger salute and sell their asset. Many tenants who find themselves in this situation will be destined for makeshift accommodation.
Options for owners of Queensland investment properties
EXISTING ASSETS
- Do nothing: absorb the extra cost as a ‘privilege’ of investing in a draconian state.
- Sell your Queensland property/s: make sure you first consider capital gains tax, transaction costs associated with selling a current investment and then recycling the investment capital into another property elsewhere, and the market outlook for capital growth in different locations.
- Ownership transfer: for good assets in locations with a promising outlook, owners may consider managing their land tax liability through changing the ownership structure. This includes variations of personal ownership or to a completely different entity, such as a company or trust. Beware that this same state government will rob you with another stamp duty charge if you do that. Importantly, get professional advice in regards to how a different ownership structure will impact things such as future capital gains tax concessions and the annual treatment of the asset’s profit or loss.
FUTURE ASSET PURCHASES
- Completely ignore the sunshine state.
- Consider the pros and cons of buying future assets in various names (refer above).
Queensland-based accountant Chris Wheatley says, “when discussing whose name an investment property should be purchased under with a client, recommendations are based on a balance of the income tax result of any rental profits or losses (negative gearing) throughout ownership, future Capital Gains Tax when the property is sold, a bank’s appetite to different ownership structures, plus any state-based Land Tax assessments per year.”
As soon as a property investor owns one property in Queensland, the land value of every other investment asset owned by that person / entity (regardless of where it is in Australia) is captured when calculating land tax in Queensland.
The shenanigans associated with Queensland assets will create increased awareness regarding ownership names, including trusts.
“There are compliance costs associated with having a trust,” said Mr Wheatley.
“Establishment fees plus the costs to prepare annual income tax returns and financial statements will be incurred. These may be lower than the annual Land Tax charge.”
It gets more complicated.
“If the annual rental income is less than annual expenses and the trust therefore makes a loss (negatively geared), that loss is quarantined within the trust. Therefore, a trust is not usually ideal for properties that are negatively geared.”
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
Here’s how we combine our thought-leading research with Propertyology’s award-winning buyer’s agency services.
