Local Government (Differential Rates on Vacant Land) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 1 August 2018.)

The Hon. C.M. SCRIVEN (17:32): In introducing this bill, the Hon. Mr Darley explained that its intent was to protect first-home buyers from the imposition of higher differential council rates. The objective to protect first-home buyers from higher costs is, of course, a worthy policy goal and a goal shared by the opposition.

I note that in September 2018 the metropolitan Adelaide median house price was $470,000, many times the South Australian annual average adult full-time wage, which is approximately $78,750, as at May 2018. However, the opposition does not believe that the Local Government (Differential Rates on Vacant Land) Amendment Bill provides the right mechanism to protect first-home buyers from excessive council rates.

The bill proposes a three-year moratorium on the application of differential rates on land that is intended to be used for residential purposes. As the Hon. John Darley outlined in his second reading speech, the intent behind this moratorium is to allow first-home buyers to reduce their mortgage debts prior to their mortgages being subsequently extended to finance the construction of their homes. Amidst rising house and land prices, policies designed to assist first-home buyers are worthy of consideration. However, the bill's three-year moratorium on differential rates provides a blunt instrument for this purpose. It would inadvertently facilitate speculative investment.

Differential rates offer a deterrent to speculative investment. Speculative investors, those interested only in making unearned profits from the purchase and sale of vacant land, should be deterred or possibly prevented from this pursuit. Land that is owned and intended for residential development should be purchased for this purpose, because investment in residential construction is productive investment. It provides essential shelter for our community and contributes significantly to economic activity and employment growth.

The Housing Industry Association reported earlier this year that residential construction and land sales in South Australia amounted to $9 billion per annum, or a significant 8 per cent of the state's gross state product. In addition, the HIA also reported that residential housing construction employs 65,000 South Australians directly, with an additional large employment multiplier also contributing to employment in other industries.

Unfortunately, however, this bill does not differentiate between homebuyers and large speculative investors. Differential rate reductions would apply indiscriminately to all purchasers of vacant land and would therefore provide a loophole allowing for speculative investment. In addition, the benefits accruing to speculative investors would place more of the council rate revenue burden onto other ratepayers.

Further, there already exists a mechanism whereby first-home buyers can be exempted from higher differential rates. The Local Government Act 1999 allows applications to be made to councils on a case-by-case basis for discretionary rebates on differential rates applied to vacant land that is planned to be developed for residential use. Through this provision, first-home buyers can be exempted and spared the costs of higher differential rates.

The opposition believes that this bill will facilitate unproductive speculative investment and place a heavier council rate burden on other ratepayers while ignoring existing measures which can be applied by councils to protect first-home buyers from the costs of differential rates on vacant land. For these reasons, the opposition opposes this bill.

The Hon. M.C. PARNELL (17:35): I rise to indicate that the Greens will be supporting the Hon. John Darley's bill. But that is not to say that the remarks of the Hon. Clare Scriven are not valid concerns about the bill; it is just that we take a slightly different approach. The approach that we are taking is to look at the intent of the bill, which is to improve housing affordability, especially for young families who might be looking to buy a block of land and then build a house on it. I acknowledge that there are concerns about applying the same standard to speculative investors as to home owners, but it seems to us that this is something that, if the bill passes this house, can be dealt with. It can be dealt with between the houses, and we can have a look at whether any further finetuning of the bill might be necessary.

The starting point for the Greens is that we want to do what we can to address housing affordability. Young families often see it is very unfair, as they scrape together the money in stages. They first of all manage to get enough together to buy the block of land; they are not speculators—they have every intention of building on that land, though it might take them a few years to scrape the money together to build their house—and it seems that they are being unduly punished with these differential rates. I fully accept, though, that there are others who could take advantage of that for speculative purposes as well, but as I say I think we can fix that up between the houses.

We have had the calculator out, Mr President, and we have tried to have a look at what this bill might mean in various council scenarios. Each council sets its rates differently, but one thing that we have noticed is that many councils have what you might call a fixed element, expressed in dollar terms, and then there is a variable component as well. When we applied the formula in the bill, what we found was that there was in most cases many hundreds of dollars of savings by ensuring that the increased rate did not apply in those three years. So over a three-year period a young couple, for example, might save a thousand or so dollars, and that is going to be important to them when they are saving for their new house.

I suspect that Mr Darley will not have the numbers today, but I do want to put on the record the Greens' congratulation of his efforts to put this on the agenda. It is well intentioned in terms of housing affordability. The Greens think that any unintended consequences can be remedied between the houses, so we are happy to be supporting the bill at this stage.

The Hon. D.W. RIDGWAY (Minister for Trade, Tourism and Investment) (17:38): I rise on behalf of the government to speak to the Local Government (Differential Rates on Vacant Land) Amendment Bill, and I indicate, in the first instance, that the government does not support the bill. However, I will make a few remarks.

The bill seeks to amend the Local Government Act 1999 with regard to the level of differential rates that can be applied by councils to vacant land that is to be used for residential purposes. Prior to setting council rates each year, all councils are required to adopt an annual business plan, a budget and a rating strategy. One of the key rating decisions for councils is whether to declare rates on the basis of capital value, site value or annual value of the land. The majority of councils use capital value.

Councils then set a rate in the dollar to distribute the rate burden amongst the community to generate the required rate revenue. Amongst the tools available to councils to use when they are setting their rating strategy is an ability to use differential rates. Section 156 of the act allows councils to vary the rate in the dollar applying to different ratepayers according to the use and/or locality of their rateable land. A reduction in vacant rates will therefore shift the rate burden to other ratepayers. A decision to apply higher rates to vacant land is not unusual to both encourage land development and to create a greater degree of equity between residential and vacant land rates, as vacant land rates will attract lower capital value than developed residential land. It is, however, a decision for each council to make.

The local government system in South Australia is underpinned by the principle that councils are primarily accountable to their communities in carrying out their roles and functions and achieving their objectives. Each council has flexibility within the parameters set out by the act to adopt a rating strategy which in the opinion of the council best suits its community. Importantly, councils must be accountable to their communities for their rating decisions.

A key element of this is a requirement under the act for councils to consult with their community on their draft annual business plan which includes information on proposed rating decisions. This assists each council to understand their community's views on the appropriate policy to ensure an equitable distribution of revenue contributions.

While many councils may apply a higher rate to vacant land, it is acknowledged that some councils apply a significantly higher rate than the rate for residential land. In these instances the actual rates notice received by the property owner could be substantially more than the rates notice received for the land when developed. It is understood that the councils do this so as to prevent land banking and to promote development. A number of councils also provide a rate rebate to individual properties at a point at which the development is underway—for example, the laying of foundations—to provide rate relief at this point.

While this bill may be intended to address those instances where the variation between the residential rate and the vacant rate is significant, this amendment may have broader implications across a number of councils. This is because the bill makes no distinction between those councils that set a higher rate in the dollar for vacant land in order to make rate notices closer to or equivalent to that land when it is developed and those councils that utilise a higher rate in the dollar to impose rates that are significantly more than the rates that would apply to the land when it is developed.

This government is committed to strengthening local government transparency and accountability; however, we do not believe that it is achieved with this bill. In response to the council rate increases that over the past decade have increased at a pace more than double that of the consumer price index or the local government price index, the government has introduced the Local Government (Rate Oversight) Amendment Bill 2018 into parliament.

The bill, which passed the House of Assembly, will establish a much-needed oversight on council rates, restraining increases and requiring councils to make a clear and convincing case for an increase above the cap for both their communities and to an independent regulator. The bill therefore is not supported by the government.

The Hon. F. PANGALLO (17:42): We will be supporting the bill.

The Hon. J.A. DARLEY (17:42): First of all I would like to thank the Hon. Clare Scriven, the Hon. David Ridgway, and the Hon. Frank Pangallo. What the bill intended to do was to provide a positive incentive for people to build rather than the negative disincentive that currently exists in the act and quite clearly does not work. I understand the mood of the chamber, but I commend the bill to the council.

Ayes 5

Noes 13

Majority 8