[+] Warning Bells Ring Loud and Clear on Victoria’s Land Tax Reforms

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. “We know the best thing you can do to make homes more affordable is supply more of them,” Pallas said at the time. “This is all about freeing up empty houses for rent and vacant land for new homes, particularly across the outer suburbs and regional Victoria.” But after a deal was struck this week between Jacinta Allan’s government and the Greens Party, the tax rate on vacant property will rise from 1 per cent of the vacant property’s total improved value to 2 per cent in the second consecutive year. The tax will increase to 3 per cent in the third year. Samuel Property managing director Illan Samuel accuses the government of failing to understand the industry. “We can’t change the market fundamentals … that is a major misalignment the government has at the moment,” he says. “We are sitting on land and opportunities because we have a choice. “Racehorses race and developers develop. We like to get things done, we are not shy of risks or taking things on but if the market fundamentals are not there—be those construction costs, infrastructure, finance requirements, the ability to get sales, or red tape and planning restrictions—all you can really often do is wait for the next cycle. ▲ Newly built homes will escape the tax for three years if owners can show they made genuine attempts to sell. “I think that’s what anybody who’s sitting on vacant land is doing,” he says. “But to tax them under the guise we are somehow restricting supply on purpose?” When the treasurer announced the tax changes in October, the Victorian branch of the Property Council of Australia took the industry’s biggest concerns directly to the government. The PCA says it was able to wrangle concessions to the Bill, including protections for existing holiday homeowners regardless of ownership structure. Now, under the tax scheme, the government says it will extend an exemption for holiday homes occupied by owners for more than four weeks a year to include use by immediate family members. Newly built homes will also escape the tax for three years if owners can show they made genuine attempts to sell at, or below, the price they expected when construction started. Still, the PCA is far from happy with the announcement. Victorian executive director Cath Evans says the council does not believe new or expanded taxes will build the new homes that the state desperately needs. “Victoria already has the heaviest property tax burden of any state in the nation,” Evans says. ▲ The property council says Victoria already has the heaviest property tax burden of any state in the country. “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. “We encourage the Victorian government to focus its attention on delivering policy outcomes that incentivise the construction of new homes, reduce the burden on business and allow the property industry to get on with delivering the housing supply that Victorians need and expect.” Samuel echoes that sentiment. “What the government could do is actually try to stimulate demand by incentivising activity rather than penalising those that are perceived to control supply.” Like Samuel, Wel.Co founder and managing director Andrew Welsh has long criticised the Victorian government’s approach to planning and development. For him, the increased taxes are another nail in the coffin. “They’re trying to solve issues with taxes rather than getting to the real source of the problems,” Welsh says. “In my view, the majority of housing supply is being held up and being caught up in red tape and the approvals process.” Wel.Co is a Melbourne-based developer specialising in building communities. Its bread and butter has been Melbourne’s Growth Corridor Plans—the Victorian capital’s integrated land use and transport schemes which will decide the region’s growth in the coming decades. ▲ Kyle Wathen, Cath Evans, Illan Samuel and Andrew Welsh. All agree the tax increase will have little effect on housing supply. But Welsh says they’ve struggled to find value in Melbourne’s growth corridors during the past couple of years. “There are large tracts of developable land in growth corridors that could be unlocked for housing,” he says, “but Melbourne Water, the local councils are not providing the approvals as fast as they should be. “I know numerous vendors that would develop their properties if they could, but they can't because the authorities are holding up approvals or not enacting their powers to allow development to happen,” he says. “Now they will be hit with this tax.” Kyle Wathen advises on property and construction for chartered accountants William Buck. He says that for developers, the new rates could mean an additional land tax bill of $200,000 a year for a property with a Capital Improved Value (CIV) of $20 million. For a residential property investor with an asset of $1 million, it will add $10,000 each year. “I just can’t see this being the golden key to unlocking housing supply, which right now, that’s where the bottleneck is,” Wathen says. “It’s the supply issue.” “The amount of new taxes around [the] property market that have come in the last calendar year alone is quite incredible,” he says. “Even if the numbers do happen to stack up now, there’s still that uncertainty as to what Big Government is going to do in the future. ▲ Exemptions may be made for land not currently under an application or request if there is proof of efforts being made to prepare it for development. “Because it takes a few years to get these things out of the ground.” Wathen believes Victorian developers will start looking to other states. Welsh says it is already happening. “We see it every day, and more and more,” he says. “We’ve seen a huge amount of developers move into the Queensland and South Australian markets over recent years. “It’s not just developers, we’re seeing engineers, sales agents, marketing companies, civil contractors … we’re seeing a lot of businesses that have been home-based in Victoria, move into these other markets because there is more stability around what planning is or isn’t going to happen.” Samuel agrees. “It just says even more that perhaps Victoria is closed for business because it makes it harder for people to get things to work.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Warning Bells Ring Loud and Clear on Victoria’s Land Tax Reforms

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