Victorian housing plan a bust without tax reform, say industry experts

The Victorian government’s grand designs for more apartments, townhouses and units in Melbourne’s established suburbs won’t deliver more homes until it eases the property tax burden that has rendered most developments financially unviable.

This is the blunt assessment of property consultants, industry groups, developers and urban planners following a series of announcements by Premier Jacinta Allan and Housing Minister Sonya Kilkenny detailing their plans to stimulate the construction of 360,000 additional dwellings at 60 suburban sites along Melbourne’s train network.

Planning Minister Sonya Kilkenny and Premier Jacinta Allan continued their housing roadshow last week.Credit: Chris Hopkins

While the government is banking on an overhaul of residential planning rules to kickstart Melbourne’s moribund apartment sector, data provided to The Age by property advisory firm Charter Keck Cramer shows things are likely to get worse, with fewer than half the new apartments needed to meet demand expected to be built over the next four years.

The figures also show that successive state government tax rises and levies on developers, buyers and foreign investors contributed to the collapse of Melbourne’s once-healthy supply of new apartments, which is this year forecast to add just 4163 dwellings for sale, the smallest number since the depths of the global financial crisis.

Charter Keck Cramer chief executive Peter Hutchins welcomed the government’s “deemed to comply” planning provisions intended to provide fast-track approval for medium-density developments in suburban activity centres, but said that unless the prohibitive cost of development was addressed, changes to planning would do nothing to fix the housing crisis.

“In 2016, when the government abolished off-the-plan stamp duty concessions, it killed the market,” he said. “It stripped out international investors. It stripped out local investors. That was the start of the decline. That was the start of an absolute catastrophe.

“Our research tells us that year on year, for the next two decades, we need to be delivering 14,000 apartments to keep up with demand. We are not going to get close.”

Taxes are not the only issue facing developers. Hutchins notes that since the end of the pandemic, labour costs have risen 40 per cent and the cost of building materials has spiked. But of these problems, only property taxes fall under the direct control of the state government.

The dire state of Melbourne’s new apartment supply has prompted the Property Council of Australia and the Urban Development Institute of Australia to call for the 12-month stamp duty concession for all off-the-plan purchases due to expire in October to be extended indefinitely and broad reform of property taxes.

The Urban Development Institute, a signatory to the government’s Victorian Housing Statement, which set a target of 800,000 new homes by 2034, is pushing for an abolition of the windfall gains tax introduced in 2023, the scrapping of an additional duty on foreign buyers and a review into how best to transition from stamp duty to residential land tax.

The Property Council has called for a revival of the first home owner grant for new homes in green fields sites, a reduction of land tax on commercial property and other tax relief.

Treasurer Jaclyn Symes and Premier Jacinta Allan.Credit: Justin McManus

The Urban Development Institute submission warns Victoria’s housing crisis is at a tipping point, and the state’s next budget, the first to be given by Treasurer Jaclyn Symes, will be a “defining moment” for a sector crucial to both the state economy and government revenue.

“Housing approvals have plummeted, investor confidence has collapsed, and the rental market is in crisis,” the submission reads. “Rather than enabling supply, government policies are driving up costs, deterring investment, and slowing much-needed projects.”

Urban Development Institute of Australia chief executive Linda Allison said tax reform was the “missing piece” in the government’s housing plans. She said that while her organisation was realistic about the state budget position, the government needed to send a strong signal to improve investor and consumer confidence in Melbourne property.

“We are not calling for the abolition of stamp duty in the near term,” she said. “What we are seeking is a commitment to review the property tax take – putting all those takes on the table to see what can be done.”

Victoria has a lengthy rollcall of taxes on land and property transactions, including stamp duty, land tax, a 10-year “temporary” COVID debt levy on landholdings, a recently doubled Emergency Services and Volunteers Fund, growth areas infrastructure contributions and a financial accommodations levy.

The Urban Development Institute calculates that property taxes make up more than 40 per cent of the total government tax take. When the Andrews government came to power in 2014, it was 18 per cent.

When asked to respond to the various proposals for property tax reform, Symes left open the possibility of continuing stamp concessions beyond this year. “Our off-the-plan stamp duty concession for townhouses, units and apartments has been a shot in the arm for the sector and a huge win for all buyers,” she said. “This is an immediate boost, but I’ll always look at ways to create more homes.”

Victorian opposition housing spokesman Richard Riordan, while declining to reveal the policies his party would take to next year’s state election, said changes to property taxes would be a “central plank” of its housing platform.

Allan travelled from Hawthorn to Brunswick and Noble Park to Ballarat last week to reinforce her message that more houses needed to be built and that restrictive planning laws were standing in the way. It is a message little changed from that offered by her predecessor Daniel Andrews in the 2023 Victoria’s Housing Statement, in which he identified a “more active planning system” as the key to boosting housing supply and improving affordability.

Figures released by the Municipal Association of Victoria shortly after the housing statement was published challenged this premise. They showed that, at the time, there were 119,536 dwellings in Victoria that had been issued planning permits but had not proceeded to construction. Of these, 86,619 were in established suburbs of Melbourne.

An apartment block in Armadale was left unfinished after the builder entered voluntary administration.Credit: Justin McManus

Updated figures for some local governments indicate little has changed over the past eighteen months.

In the City of Maribyrnong, only 178 of 1178 dwellings that received council planning permits between July 1, 2023, and the end of last year are under construction, and 149 of those are in one development in Yarraville.

In the City of Bayside, where Brighton MP James Newbury is railing against the zoning of activity centres in his electorate, there were 22 extensions of time granted to developers for apartment buildings already given planning approval.

In the City of Whitehorse, 31 of 193 planning permits issued within the past 18 months have led to construction, and 190 permits issued earlier expired without the builders breaking ground.

In the City of Maroondah, nearly 800 dwellings approved for construction were delayed.

The rate of development within the Ringwood Metropolitan Activity Centre, an area earmarked by the council and the state government for higher-density residential development, is a cautionary tale for what to expect from other activity centres across Melbourne.

Between April 2016 and November last year, 2032 additional dwellings were given planning approval. Of those, only 370 have been completed and 12 are still being built. The rest remain unbuilt, and nearly 500 have been abandoned by the developer.

Municipal Association of Victoria president Jennifer Anderson said: “There are a whole lot of permits that local government has given out, and they are just sitting there, waiting to be built. That is not the fault of local government, that is not the fault of the planning scheme, that is just a fact.”

Planning Institute of Australia state president Patrick Fensham said improved planning laws were welcome, but they wouldn’t solve Melbourne’s housing problems on their own.

“We should look for continuous improvement, we should look to streamline appropriate development, we should look to provide capacity for housing in the right locations,” he said.

“It should also be recognised that there are many other aspects to do with housing supply which need attention.”

Data released last month by property analyst CoreLogic confirmed Melbourne’s status as having the weakest property market of any capital city in the country. However, the property slump has not triggered a significant fall in land values – a key component when determining the financial viability of new apartment developments.

Richard Temlett, Charter Keck Cramer’s national executive director of research and an expert in the Melbourne apartment market, said it cost between $4200 and $4500 a square metre to build an apartment, and total costs needed to be kept to about $15,000 a square metre to make a project viable.

He said the impact of the Victorian government’s “tax wedge”, alongside other rising costs, meant it was now only viable to build boutique, high-end apartment and townhouse complexes in about 15 of Melbourne’s most sought-after suburbs, where older buyers downsizing from family-sized houses were willing to pay more than $2 million for an apartment.

While these developments will add to Melbourne’s housing stock, they will do nothing to make home ownership affordable for more people – the ultimate goal of the Victorian government’s housing plan.

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