Allan government facing $400m budget black hole as housing market slumps

New data has warned the state government is tracking to generate hundreds of millions less than expected in stamp dutyrevenue this year, with raised land tax costs blamed for the trend.

The Allan government is facing a $400m budget black hole as the Victorian housing market continues to slump.

New data has warned the government is tracking to generate hundreds of millions less than expected in stamp duty revenue this year, with raised land tax costs blamed for the trend.

Real Estate Institute of Victoria figures show median house values have fallen $15,000 to $735,000 over the 12 months to September 30 despite a 4000 increase in the number of sales.

The figures threaten to derail the government forecasts that it will generate $8.5bn this year, almost $2bn less than a $10.3bn record set in 2021-22.

This year’s state budget already lowered expectations, predicting an average increase in stamp duty revenue of 6 per cent over the forward estimates, compared to the 8.4 per cent forecast last year.

That was blamed on falling, higher borrowing costs and subdued sentiment.

The state government is tracking to generate hundreds of millions less than expected in stamp duty revenue this year.

The budget predicted improved financial conditions in the latter part of 2024 to support a recovery in stamp duty revenue.

But property experts say current trends would equate to an about $360m-plus reduction in revenue.

They say Victoria’s current poor performance is being caused by high numbers of homes for sale, many of them being sold by landlords responding to raised land tax costs.

REIV president Jacob Caine said the data showed stamp duty was an “ineffective and unreliable tax that can leave gaping holes in a government’s budget”.

And he said sales data showed skewing in favour of properties selling at lower values at a time when first-home buyer loan numbers were rising, pointing to sales where stamp duty was waived.

REIV president Jacob Caine said the data showed stamp duty was an “ineffective and unreliable tax”.

PropTrack economist Anne Flaherty said while a rise in sales numbers should offset falling values, Victoria’s first-home buyers had been “driving a lot of the sales” and could sway the outcome for the state budget.

“And that would definitely be a hit to the government coffers, if we see relatively higher first-home buyer activity compared to investors,” Ms Flaherty said.

Australian Bureau of Statistics data show market entrants accounted for 24.6 per cent of all sales in the state in the 12 months to August.

Ms Flaherty added that if rental industry requirements and levies became too onerous, the government could also wind up with less land tax revenue than expected as investors sold properties instead.

“And I think the Victorian government is definitely playing with that now,” she said.

In 2023, the state government increased land taxes as part of a Covid debt recovery plan in a move which introduced new tax liabilities to 380,000 properties.

Victoria’s first-home buyers have been “driving a lot of the sales”.

A government spokesperson said any material variations in property market conditions from those expected at the 2024-25 Budget would be reflected in revised revenue forecasts in the 2024-25 Budget update later this year.

“We’re confident that revenue from stamp duty will broadly align with our forecasts,” he said.

“Victoria is the best place to be a first home buyer – in the last financial year we accounted for more than 30 per cent of first home buyer loans in Australia, more than any other state.

“Victoria continues to build and approve thousands more homes than any other state and we’re not going to slow down, we’re going to double down – that’s why we will soon outline new key policy changes to build even more homes.”

Shadow treasurer Brad Rowswell said record property taxes had driven down the value of Victorian homes.

“Labor’s Land Tax has meant that the cost to operate a rental property is higher and therefore the cost to rent is out of reach for many vulnerable Victorians,” he said.

“Under Labor’s property taxes, everyone loses – owner occupiers, rental providers and renters.

“Labor property taxes are too high and all Victorians are paying the price.”.