New home demand to be brought forward by Victorian residential development levy
New home buyers in Victoria are set to be hit with a new levy on residential developments from 2024, which is expected to bring in more than $800 million annually.
The Victorian Government is proposing amendments to the Planning and Environment Act 1987 to introduce a social and affordable housing contribution, which will be payable on eligible planning permits from 1 July 2024 onwards.
The proposed contribution seeks to grow the supply of social and affordable housing in Victoria. It is the 18th property tax to be proposed by the Andrews government.
The amount of contribution payable is proposed to be 1.75% of the market value of new residential apartment or townhouse developments of three or more dwellings, or of three or more residential lot subdivisions.
The proposed contribution will apply to a planning permit that authorises developments or subdivisions in metropolitan Melbourne, Ballarat, Greater Bendigo and Greater Geelong and would be held in the Social Housing Growth Fund to be allocated to community housing agencies to deliver new social housing projects across Victoria.
Legislation is yet to be passed by Parliament.
But it is expected to bring forward a rise in demand by buyers ahead of any formal start date.
The policy that has outraged the sector as it will mean higher prices from July 2024.
Fiona Nield, HIA’s executive director Victoria, affirmed the cost of new homes after July 2024 will increase with this tax being passed through in the land prices.
“Victorian home buyers already pay a range of taxes when they buy a new home, contributing half of Victoria’s tax revenue now.
"In Melbourne 38% of a new home build is made up of taxes, fees and charges.
"This new tax will see land and house prices being pushed further out of reach of new home buyers.
“Median land prices are $377,000 in Melbourne, while the median house price is now $950,000.
“HIA estimates that this tax could add over $6,600 to the cost of land for new homes. Add stamp duty and GST along with many more costs and this tax could cost more than $20,000 for a new home buyer, adding to their mortgage repayments."
The Property Council of Australia’s Victorian executive director Danni Hunter said the levy equates to an extra $19,600 on the median price of a new house in metropolitan Melbourne and $12,110 on the median price of a new apartment.
The levy would see an extra tax bill of $9362 on the median house price in Wyndham in Melbourne’s west.
Pace Development Group sales and marketing manager Ashley Bramich told the Herald Sun the new levy would either impact developer profit margins, or be passed on to the home buyer.
The state government says the sector has time to address the levy.
“We’re establishing a stable funding stream to provide the dignity of housing to thousands more Victorians," Housing Minister Richard Wynne said on Friday.
“Today really is about the biggest reform to social housing since the formation of the Housing Commission in the 1940s,” Wynne said.
Victoria’s treasurer, Tim Pallas, said the contribution would affect fewer than 30% of all residential planning permits.
It would raise more than $800m each year, paying for up to 1,700 new social and affordable homes and support 7,000 jobs in the construction sector every year.
Jago Dodson, Professor of Urban Policy and Director of the Centre for Urban Research at RMIT, said it was a very significant reform of the social housing sector that provides long-term funding certainty for public and social housing agencies through a simple and broad levy on urban development.
"It also reduces complexity by streamlining the process for developers’ contributions to social housing.
“While this is an important initiative it could have been bolder, such as via a higher levy rate.
"However, establishing this policy as a normal part of the social housing and urban development policy process is a significant step towards widening the range of mechanisms that retain public value from private development," Professor Dodson said.