The Victorian government’s decision to increase taxes on vacant residential land and empty houses will force developers to look to other states for business, industry leaders have warned.

Developers, builders, economists and lobby groups all say the new tax—which could, according to estimations, add an additional $37 million into state coffers—is unlikely to make much difference to Victoria’s critical housing shortage.

The planned tax increase was first mooted last month when, in a surprise to the industry, Victorian treasurer Tim Pallas announced he was expanding the 1 per cent tax on vacant homes to include the whole state, rather than only Melbourne’s inner and middle neighbourhoods.