Vacant home tax to triple after three years as Greens secure changes

Land tax on vacant homes would triple if they are unused for three years, and Victoria would trial a scheme forcing owners of suspected empty properties to prove they are occupied, under new concessions to the Greens by state Treasurer Tim Pallas.

A proposal that would have led to major increases in the fire services levy on renewable energy projects has also been amended.

The tax will include vacant residential land that is undeveloped in five years.Credit: Chris Hopkins

The Allan government will this week make adjustments to its land tax laws to secure support from the Greens in the upper house.

Last month, Pallas surprised the property industry by announcing he would expand a 1 per cent tax on vacant homes to include the whole state, rather than only Melbourne’s inner and middle rings. The tax will also be widened to include vacant undeveloped land that is zoned for residential use, if it has not been improved within five years.

But the changes were on track to be defeated in Victoria’s upper house after the Greens announced they would block the bill unless the Allan government addressed their requests on housing affordability, including rent controls and changes to plans to rebuild Melbourne’s public housing towers.

The state opposition does not support expanding the tax, and Labor faced a difficult task persuading the rest of the crossbench to provide the six votes needed to pass the planned legislation. Debate over the bill was delayed while Pallas sought to fix the stalemate.

Treasurer Tim Pallas.Credit: Joe Armao

The breakthrough in negotiations ensured Greens support for the bill after the government agreed to major changes. Labor needs just two more votes to pass the laws.

In return for the Greens’ support, Pallas agreed to double the 1 per cent tax rate if a home is vacant for two years and triple it to 3 per cent after three years. Exemptions will remain if there has been a genuine attempt to sell the property.

Victoria would also launch a trial in which the tax was enforceable rather than relying on self-reporting. This would mean home owners identified by the State Revenue Office with potentially empty properties would be asked provide proof that people live at their residence.

The trial would start in 2024 with apartment towers and expand in 2025 to include inner and middle suburbs of Melbourne.

The Greens argue this would allow the tax to cover more properties that have been missed under the current program.

Estimates provided by the Parliamentary Budget Office predicted that making the vacant land tax scheme enforceable this way could expand its reach to 5000 properties in Melbourne compared with the current 900.

Exemptions for holiday homes have also been reworded to ensure those owned by family trusts or relatives are still included.

Another part of the legislation, which would have included the value of wind farms and solar panels in land valuations, will also be significantly reduced. Clean energy groups warned this would push up the cost of the fire services levy, by as much as 25 per cent on projects. It will fall from 77¢ per $1000 of value to 5.7¢.

The changes will be debated in parliament’s upper house this week.

Victorian Greens leader Samantha Ratnam.Credit: Joe Armao

Victorian Greens leader Samantha Ratnam said the concessions showed that that pressure from her party had worked, but did not back down from pushing for rent controls.

“Every day this housing crisis is getting worse. We’re seeing renters face unlimited rent increases and struggle to find a rental home,” Ratnam said.

“If Labor wants to continue passing their housing statement through parliament, they’re going to need to work with us on the kinds of solutions that will fix this crisis.

“That means urgent rent controls, and a commitment to build public and genuinely affordable housing.”

Greens treasury spokesman Sam Hibbins said the original bill would have limited investment in renewable energy.

“Through our negotiations with the government, we have pushed the government to make more homes available for renters and made investment in renewable energy and storage easier. We are delivering,” he said.

Pallas said changing the tax would provide more options for renters and buyers.

“Our reforms will provide more homes for families across the state – it’s vital that the legislation passes,” he said.

Shadow treasurer Brad Rowswell said the government had yet to show how the taxes would increase housing supply, accusing Labor of a desperate cash grab.

“The new and increased taxes in this bill will punish Victorians at a time when they can least afford it,” he said.

Urban Development Institute of Victoria chief executive Linda Allison said the proposed laws were a bad outcome, arguing land earmarked for development shouldn’t be included.

“There is a clear difference between land that will be developed in time compared with an owner who is holding onto a vacant house,” she said.

Allison said she rejected the idea that land banking was widespread in the state.

“The market conditions to deliver homes have never been more challenging. Industry need certainty that they can bring future houses to market without brand new taxes at every turn. The state cannot tax its way out of this housing affordability crisis,” she said.

Property Council Australia’s state executive director, Cath Evans, said the industry lobby group did not support the increased taxes, but that the government had listened to its advocacy by changing the rules on holiday homes and committing to provide greater detail about exemptions for land that cannot be developed.

“Victoria already has the heaviest property tax burden of any state in the nation. The reality is that this is creating an economic environment where Victorian businesses are struggling to attract capital investment to our state – jeopardising the capacity for our industry to build more homes,” she said.

The amendments come as Premier Jacinta Allan announced new protections for Victorians building a home, prompted by the collapse of Porter Davis in which hundreds of customers were left uninsured despite paying a deposit.

New offences will be introduced for any builder that receives money for domestic work costing more than $16,000. If these builders do not take out insurance as required, they can be fined up to $96,000 or $480,000 if they are a company.

“We said we’d reform our building system to better protect Victorians, and that’s exactly what we’re doing – protecting Victorian families’ hard-earned savings as well as their dreams of building a house to call their own,” Allan said.

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