How Victoria’s housing shake-up will affect property prices

As Premier Jacinta Allan looks to overhaul housing in the state by fast-tracking high-rise apartment buildings across the suburbs, she has rolled out a 12-month stimulus plan to slash stamp duty for off-the-plan apartments, units and townhouses.

Stamp duty has often been described as the least favourite tax of economists. Critics argue it discourages people from moving for work or to downsize.

Premier Jacinta Allan is seeking to boost supply and ease the housing crisis.Credit: Chris Hopkins

But will it have the desired effect of cutting upfront housing costs, speeding up building and making buying off the plan more affordable?

Opinion is divided, with developers already warning prices for existing apartments will need to go up before it becomes economical for them to build new ones. The government has also announced that developers would be forced to pay a new infrastructure charge to fund schools, parks and public transport under a trial that could be rolled out statewide. While no amount has been set per new dwelling, the cost will be passed onto home buyers.

Here’s what the experts say about the policies.

How will the stamp duty reforms affect property prices?

Emeritus professor of public policy at RMIT University, David Hayward, said the state government’s narrative was that if you increased supply, prices would fall.

“I think that is rose-coloured glasses. The housing market isn’t like a market for bananas. It’s very complex,” he said.

“At this time, they want to try to encourage additional high density on the basis that it will reduce the cost of acquiring accommodation, but [developers are] saying it’s going to cost more.

“That’s all part of the contradictions that haven’t been worked through this narrative at the moment. It’s under-researched and it’s based on, I think at this point, a lot of wishful thinking.”

PEXA chief economist Julie Toth said Melbourne’s price profile was different to the other cities’.

Victoria is slashing stamp duty for off-the-plan units, apartments and townhouses.Credit: Dominic Lorrimer

“So far, Melbourne has been better at providing supply than Sydney or Brisbane or definitely Perth, and that’s part of the reason why prices haven’t risen as much, and we do already have a higher proportion of high-density housing stock than those other cities,” Toth said.

“In some ways, the fact that Melbourne prices haven’t risen as much as other cities is a mark of success.”

Chief economist at AMP Shane Oliver said it was just a temporary reduction on all strata-type properties.

“I would rather see stamp duty abolished and replaced with land tax – but it probably will help,” he said.

There is also an argument it could raise prices, at least in the short term.

James Pearce, a partner with architecture practice Fender Katsalidis, which is involved in several off-the-plan projects that could launch within the next 12 months, told The Age this week the stamp duty cut could increase how much people were willing to spend on a new apartment.

“The developers need to see something change. They either need to be able to build it cheaper or quicker, or have people be able to afford to pay more ... and I guess the stamp duty concession gives people the ability to pay more,” he said.

Do apartment prices really need to rise before more can be built?

Hayward said land was the key issue.

“The owners of the land do not have to make that land available unless they get the return that they want from it,” he said.

“They just hold onto it. Builders are not going to build something if they’re not going to get a return because the costs are too high.”

Toth described it as a bit of a paradox.

“Normally when we have an oversupply, we do see prices flat or falling, and that has been the case in Melbourne’s market. But on the other hand, we know that construction costs have risen substantially,” she said.

“Until those two sides of the equation provide a better balance for the developers, it is hard for them to go ahead in a way that is generating a profit and an income for them.”

Will the stamp duty reforms increase housing supply?

Hayward said that was unlikely because “interest rates are still high, construction costs are still high”.

But Toth said it was certainly helpful for developers’ cash flow to have an increased proportion of their properties committed “off the plan”.

“It can be a stumbling block if they don’t sell enough off the plan initially,” she said.

Oliver said the fact the stamp duty changes were uncapped and open to everybody – investors, foreigners, owner-buyers, first home buyers – suggested it probably would have the desired effect of encouraging more construction of units.

Will it stimulate demand?

Hayward said it could simply encourage people to buy something that they would have bought anyway.

“It could be we’re not going to see very much [change], except that state revenue is lower than it otherwise would be,” he said.

Toth said that for those considering new properties rather than existing ones, it could push more of the demand towards apartments rather than house-and-land packages.

Oliver said it could get people who were in the process of saving “over the line earlier”.

How will the developer levy affect the price of new homes?

Toth said it would add to developers’ costs, and they would need to recoup that during the sale process.

“These charges always do get passed on ultimately to the final buyer,” she said.

Oliver said if there was enough competition, developers wouldn’t be making inflated profits.

“But the bottom line is, they want to make a profit. So they’ll seek to pass it onto their customers,” he said.

Hayward said it could just redirect development activity from “higher-regulated, higher-quality developments” to cheaper homes.

“If they do get to this unbelievable target of 80,000 dwellings a year, they’re going to need to find the money to accommodate all the infrastructure, and they’re going to have to impose those developer contributions, and they’re going to get passed on,” he said.

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