A stick or a carrot

Rental shortages in Victoria and Western Australia are escalating, but while the Vic govt is using sticks to force investors and developers into providing more rental stock, the WA govt is using carrots to motivate and encourage them to do the same.

Victoria and Western Australia have the fastest population growth rates of all States, but neither has been able to generate a sufficient increase in rental accommodation to meet the growing demand.

The rate of new housing construction needs to increase, as do the number of dwellings available for long term lease.

Using the stick or the carrot

While the Victorian government has adopted the stick approach, intent on beating developers and investors into submission with big new levies and taxes, the Western Australian government has been providing carrots in the form of investor and developer incentives and funding as encouragement.

Easing the long term rental shortage

Many investors in Western Australia and Victoria purchased dwellings in recent years with the aim of turning them into high cash flow short stay holiday, business and tourist rentals, which has worsened the shortfall of dwellings available for long term tenancies.

To discourage short stay rentals, the Victorian Government introduced a “Short Stay Levy" of 7.4% on the total booking fee for short term rentals, hoping that this would encourage their owners to swap to long term rentals.

Rather than punish investors, the Western Australian Government rewards owners of short stay rental properties with the Short-Term Rental Accommodation Incentive Scheme which offers a $10,000 financial incentive to those who move to the long term rental market.

One is using a stick and the other a carrot.

While the Western Australian initiative is proving hugely popular, the Victorian levy has forced many investors to put their properties on the market, because they relied on the high cash flow from short stay rentals to cover their loan repayments.

Encouraging more housing development

In an effort to increase the supply of housing in Victoria, the government introduced a “Vacant Residential Land Tax” (VRLT) which taxes the owners of vacant residential land.

This tax applies if an existing home is left vacant for more than six months, or if an existing home has been under construction, renovation or has been uninhabitable for two years or more.

From 1 January 2026, this tax also applies to land in metropolitan Melbourne that is not in a non-residential land zone capable of residential development and has not been developed for a period of five years or more.

The VRLT increases from one percent to three percent of the value of the property each year that the land is left vacant and is additional to existing land tax obligations.

By way of complete contrast, the Western Australian government launched its “Build to Rent Kickstart Fund” which encourages developers to provide long-term rental housing options for tenants.

The fund will support projects for up to three years with no-interest loans to developers for thirty per cent of the construction cost of new Build to Rent developments.

This is followed by low-interest loans for up to thirty per cent of the asset value to developers for a further seven years once each project is complete.

Again, one is using a stick and the other a carrot.

The Western Australian government is actively assisting owners to develop dwellings aimed at easing the rental shortage, while the Victorian government is punishing property owners for not developing land, even when any development might not be profitable.

This only results in owners reluctantly putting their properties up for sale, and solves nothing.

About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.