New home buyers hit with tax on residential developments

Development giants and industry leaders have slammed the Andrews government’s “incredibly disappointing” levy that will add thousands to the cost of a new house.

The social housing levy will add an extra $20,000 on the median price of a new house in Melbourne.

First-home buyers are about to be slapped with a new tax on residential developments to build social housing under a policy that has outraged the sector.

Development giants and industry leaders have slammed the Victorian government’s 1.75 per cent social housing levy, which will add an extra $20,000 on the median price of a new house in Melbourne from July 2024.

All new developments featuring more than three dwellings, or three or more lot subdivisions – in Melbourne, Ballarat, Bendigo and Geelong – will pay 1.75 per cent of the as-if-complete market value price to the Social and Affordable Housing Contribution.

Social housing properties will also become exempt from paying rates over coming years, under new reforms to be phased in over four years from July 2023.

The 1.75 per cent social housing levy has been criticised by development giants and industry leaders. Picture: David Crosling

Property Council of Australia’s Victorian executive director Danni Hunter said the levy would result in a price increase on the median house.

“This 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 unit,” Ms Hunter said.

“The levy would see an extra tax bill of $9362 on the median house price in Wyndham in Melbourne’s west, a $21,525 increase in Burwood in Melbourne’s east and $11,725 in Armstrong Creek in Geelong’s growing southern suburbs.

“This sends yet another signal to Australian and international investors that Victoria is a high-taxing jurisdiction with an over-reliance on Victorian homeowners to fund their announcements.”

The levy equates to an extra $19,600 on the median price of a new house in metropolitan Melbourne.

Urban Development Institute of Australia Victoria president Tom Trevaskis said it was “incredibly disappointing” that government has “shirked responsibility for a core social purpose”.

“The government needs to realise it can’t tax its way to housing affordability. This announcement had great potential but instead will lead to unintended consequences for thousands of Victorian families, for whom house prices are rising faster than their savings,” he said.

Master Builders Victoria acting chief executive Saeed Mirbagher questioned the need for “yet another new tax”, while SJD Homes director Simon Dunstan said it would hurt the entire sector.

“All the government seems to talk about is affordable housing but then they turn around and do this,” Mr Dunstan said.

Master Builders Victoria acting chief executive Saeed Mirbagher questioned the need for ‘yet another new tax’. Picture: Norm Oorloff

“It seems a bit hypocritical trying to solve a social housing problem by adding more taxes. It’ll just push the first home reality further away.”

Villawood Properties boss Rory Costelloe warned the government taking the cash and doing it themselves could lead to less efficient provision of social housing than if developers built it themselves.

“There will be zero incentive for any private social development,” Mr Costelloe said.

He added if it weren’t for federal and state taxes, the cost of a $300,000 block of land would be $172,000.

Pace Development Group sales and marketing manager Ashley Bramich said the company had a $1.56bn pipeline across 16 projects right now.

“That tax will work out to a $28m hit to either our profit margin, or to be passed on to the consumer. It’s astronomical,” he said.

Mr Bramich said the industry was “really frustrated” that efforts to increase the supply of homes, and alleviate affordability issues as demand for homes outpaced supply, would be hit with extra costs.

“This just makes Melbourne less affordable for people to get into the market,” he said.

The new policy is the 18th property tax to be implemented under the Andrews government.

It will affect fewer than 30 per cent of residential planning permits, but will raise more than $800m a year to fund up to 1700 new social and affordable homes each year.

“Labor are addicted to new taxes,” Opposition Treasury spokesman David Davis said.

Federal Housing Minister Michael Sukkar also slammed the move, calling on federal Labor to “urgently condemn” the tax.

“Make no mistake, this is a tax on first-home buyers that will make it harder and more expensive for Victorians who are trying to get into the housing market.

“If Anthony Albanese is serious about cost-of-living pressures and helping Victorians into their first home, he needs to publicly denounce this new tax rise.”

The state government says the sector has time to address the risk of the contribution being passed on to purchasers, meaning developers can factor the reform into development feasibility of projects.

Housing Minister Richard Wynne said: “We’re establishing a stable funding stream to provide the dignity of housing to thousands more Victorians.”