Merri-bek City Council rejects proposal to hike rates for landlords

Merri-bek council has abandoned a radical plan to double rates for investment properties, after it received legal and financial advice.

 

An inner-city council has deemed it is unlawful and less profitable to spike rates for investment properties, after the radical proposal was backed by councillors.

Merri-bek City Council will on Wednesday table a report into the proposal that would have seen investors paying double the rates of owner-occupiers and businesses.

However, in her report, council officer Sue Vujcevic deemed the first-of-its-kind move would be “unlawful” and out of the local council’s power.

“Council staff have obtained legal advice, conducted financial modelling on the proposal,

and investigated other implications,” she said.

“Based on these investigations, we advise the proposal is not viable.”

The report also stated if property investor rates were increased, as Mr Conlan proposed, rate revenue would be permanently reduced because investors would likely end up selling their properties, meaning there would be more owner-occupiers.

“The proposal would reduce council rates revenue by approximately $250m over 10 years,” the report said.

“This would require significant cuts to council services and projects.”

Council officers said the proposal could result in the increased rate being passed down to renters — causing more housing stress rather than its aim to relieve cost of living pressures — and would deter property development in Merri-bek, with investors choosing other municipalities instead.

In addition, further investigation would likely cost another $1m and have a “very small prospect of a positive outcome”.

“This report recommends that council conclude the investigation and not proceed further with the June 2024 proposal,” it stated.

Buyer's agent Cate Bakos says the idea of increasing rates for investors had already had an impact on the Merri-bek property market. Picture: Supplied.

Prominent buyer’s advocate Cate Bakos said the idea to double rates for investors in Merri-bek was “terrible” because it would have “really hurt” the rental pool.

She said if the proposal was enacted, it would have been the “cruellest” move, especially for renters in Brunswick.

“Brunswick is an interesting area with many renters, whether they’re young professionals who haven’t managed to save yet for a deposit, or whether they’re students … it would have been the cruellest thing — to threaten the supply of rental housing,” she said.

Ms Bakos said the councillors who voted to pass the initial motion not only “wilfully disregarded” the ministerial guidelines but also created damage within the market for the local government area.

“The mere thought of doubling the rates created a lot of damage before it even got up because people would have made specific decisions around whether they invested or they sold on the back of just the suggestion of this,” Ms Bakos said.

“It’s just the anti-investor notion that people are concerned about when they’re considering investing in an area. Why would they want to go into a council where they’re being directly disincentivised? They will think ‘why should I invest in Merri-bek?’”.

James Conlan put forward the initial motion. Picture: Merri-bek Council

If the proposal was to go ahead, owner-occupiers would only have to pay an average of $900 per household per year, a significant saving for those under mortgage stress.

Investors who leased out a property in the municipality would have to fork out an average of $3600 — three times the amount of an owner-occupier — per property.

Investors with two properties in the municipality — who lived in one and leased out the other — would have their high rates bill offset by their discount for being owner-occupiers.

The initial proposal was tabled in June by former Greens councillor James Conlan, who has since resigned from his seat and announced he would not be running in the upcoming October council elections.

At the time, Mayor Adam Pulford, Cr Angelica Panopoulos, Cr Sue Bolton, Cr Monica Harte and Cr Mark Riley voted in favour of the motion.

Cr Oscar Yildiz, Cr Helen Davidson, Cr Lambros Tapinos, and Cr Annalivia Carli Hannan opposed the proposal.

The content summaries were created with the assistance of AI technology, then edited and approved for publication by an editor.