Are derelict homes part of the answer to Australia's housing crisis?

Believe it or not, according to locals, this is the best condition these terrace houses have been in for decades.

"I've been here for 25 years since [19]99 and it's been like that, actually it's been worse than this, since then," local resident Damien tells us as he stops to chat while walking his dog.

"Just recently I've seen people doing a little bit of work to it, as you can see with the ladder, and it's look like they've given it a bit of a coat of paint or whitewash."

While a lick of paint might have covered up the graffiti, it doesn't fix the holes in the roof, boarded up windows, missing balconies or plants growing out of the walls.

Data from Domain shows these houses last changed hands in the early to mid-1980s for just either side of $40,000 a piece.

They have two separate owners according to NSW Land Registry Services, but neighbours say they appear to belong to the same elderly man, who comes by occasionally to empty the mailbox and tidy the yard.

One neighbour tells us that they are stuffed with old furniture, in what the owner has told them is part of his ongoing efforts to keep out squatters.

It's a far cry from the $1.45 million paid for the updated two-bedroom terrace next door, which sold at auction just a couple of weeks ago.

All these houses sit a stone's throw from King St in Newtown, one of Sydney's trendiest areas.

Former neighbours say the owner, who they believe is well into his 80s, told them he owns a lot of houses around Sydney's inner-west, now one of the most in-demand and expensive parts of the city.

He's far from alone.

ABS estimates up to 140,000 homes sit empty

During an apparent housing shortage, when record low rental vacancy rates are pushing rents through the roof, experimental figures released by the Australian Bureau of Statistics last year estimate that at least 100,000 residential dwellings were uninhabited.

"Both electricity [usage] data and the government [administrative] records seem to suggest that about 1.3 per cent of all residential dwellings in Australia are inactive," says Duncan Young, who manages the census and population statistics for the ABS.

"That's between 100,000 to 140,000 dwellings."

The rate of vacant dwellings is, probably unsurprisingly, generally higher in rural and remote areas of Australia.

However, there is also a surprisingly high proportion of vacant dwellings in Australia's city centres and immediate surrounds, at 3.1 per cent for the City of Sydney and 5 per cent in the City of Melbourne.

Mr Young warns some caution must be exercised interpreting the data, which was taken over the few months leading up to the census in August 2021.

"2021 was a bit of a different year for Australia with the impacts of COVID-19, which impacted international borders and also domestic movement," he explains.

"The impacts of COVID-19 would have reduced the number of international people in the country using some of our dwellings, but also domestically potentially affected where people were staying — some people moving out of cities and some people moving into cities."

Land banking also an issue

On the eastern edge of the CBD sits this commercial property, which has had the same owner for around three decades.

It appears to have operated as a hostel for some of that time but it has been subject to three development applications over the past decade, the latest of which was lodged earlier this year.

It appears that the City of Sydney Council had approved at least one of those, with some minor modifications, and it isn't clear why that development didn't proceed.

Instead, the inner-city neighbourhood is left with an empty lot of nearly 1,000 square metres, seemingly occupied only by some squatters and their trinkets.

In Melbourne, this half-built apartment block has been vacant for years, despite council approved plans to turn it into a boutique hotel.

It most recently changed hands a couple of years ago, but the ABC understands its owner is still seeking commercial partners to complete the development.

The Real Estate Institute of NSW's chief executive Tim McKibbin explains that a delay in obtaining building permits can leave prime real estate sitting unused.

"It can take months if not, in some cases, it can take years to get your approval through," he tells me.

However, he also acknowledges that some property owners engage in a practice known as land banking, where simply sitting on prime real estate generates a significant gain.

"I've seen other properties in within about 500 metres of where we are now do just that — they have sat vacant, underutilised," he says.

Can anything be done about vacant buildings?

With prime real estate sitting vacant in the midst of a housing crisis, the logical question is what can be done about it?

At the moment, not much says Linda Scott, a long-term City of Sydney councillor who is president of the Australian Local Government Association. 

"Unless a house is posing a risk to our community, there's very little local governments can do," she explains, referring to demolition orders that councils can make if a building poses a risk to public safety.

"Where local governments are not being paid rates, or our taxes, local governments do have powers to look at the ownership of that property. That's often a very long, drawn-out process, however."

That doesn't mean there is nothing that state governments could do about vacant or derelict properties and unused lots.

"Contrary to popular belief, there actually is no constitutional protection for private property at state level in Australia," observes Professor Cathy Sherry, who specialises in property law at Macquarie University.

In fact, Linda Scott says many local governments have already been lobbying their state political masters to give them more powers to discourage vacant properties.

"The state government could examine giving councils the power to charge higher rates for vacant properties," she says.

Cathy Sherry says, if they wanted to, state governments could even cut out the middle man and deal directly with vacant homes.

"The state government absolutely can acquire land for any purpose it wants [and] it will pay compensation under the just terms act," she explains.

Put simply, if a state government wants to buy your home and pays you a fair value for it, then there's not much you can do to stand in its way, under the law.

But state governments adopting such a use it or lose it policy would face serious pushback from the property lobby.

"It becomes very difficult, I think, when the government starts to impose on somebody what they can and can't do with the property," responds the Real Estate Institute's Tim McKibbin.

Taxing vacant properties into use

Mr McKibbin is also not a fan of increased rates or taxes on vacant properties and land.

"I would certainly never advocate for any more taxes on property, it is the most taxed asset class in Australia."

But Cathy Sherry says such moves are gathering pace globally, as politicians feel more heat from those struggling to buy or rent a home.

"San Francisco has introduced an empty property tax, Ireland has one, the United Kingdom has one, France, Spain," she observes.

So far in Australia, Victoria is the only state to have taken the plunge.

It introduced a vacant residential land tax (VRLT) from 1 January 2018, initially targeting empty homes in the inner and middle suburbs of Melbourne.

Under changes legislated late last year, that tax has now been expanded to cover empty homes across Victoria.

It is a charge of 1 per cent of the improved value (i.e. with buildings) of land that has been unoccupied for six or more months out of the preceding calendar year.

That tax rate doubles if a property is used for less than six months a year in two consecutive years, and rises again to 3 per cent for properties underutilised for three years or more.

There are carve outs for most holiday homes and properties that people live in when working away from their primary residence, such as those who own a city apartment to live during office days while primarily living in rural Victoria.

But underutilised short-stay holiday accommodation is very much in the firing line.

"It is not enough that the property is available for occupation, such as by listing on a short-term rental website. It must actually have been used and occupied for more than six months," the Victorian government's website notes.

"It is not enough for the property to be used intermittently or on a casual basis by friends or family of the owner. The use and occupation must be either as a PPR [principal place of residence] or subject to a bona fide lease or letting arrangement."

Property wealth 'comes out of somebody else's pocket'

The tax has been controversial with many property investors, but Victorian Treasurer Tim Pallas is not backing down.

"We know we need more homes for Victorians, and by cracking down on vacant properties we are easing the housing pressures being felt across the state," he argues in a statement to ABC News.

There are some signs that the tax is having that effect, with evidence that property investor activity is lower in Victoria than elsewhere in the nation, while first home buyer activity is higher.

However, collection of the tax relies heavily on self-reporting or tip-offs by neighbours, supplemented by very limited random audits, potentially limiting its effect.

Cathy Sherry says pushback from some quarters is to be expected.

"I think that there's reluctance to interfere with anything that is seen as compromising people's ability to build wealth from residential property," she says.

"The problem with that is, when you build wealth, it always has to come from somewhere, it always has to be at somebody else's expense, it doesn't fall out of the sky.

"It comes out of the pocket of somebody who needs a home, either as a tenant or, potentially, as a first time buyer who's not able to actually buy property because they're bidding against an investor."

Six years on, no other states have yet followed Victoria's example, with New South Wales, for example, focusing on relaxing planning rules in key areas of Sydney to allow the private sector to build more apartments.

That is if the existing owners are willing to sell.