Investors will ‘turn away from Victoria’ due to expanded tax: REIV 

The Victorian Labor government has announced a plan to introduce legislation into Parliament that will provide a “financial incentive” for owners to rent out empty homes or develop long-term vacant land in order to free up more accommodation amid the “critical housing crisis”.

Speaking at a breakfast hosted by the Property Council of Australia yesterday (4 October), Victorian Treasurer Tim Pallas announced that the government would be introducing legislation to extend the Vacant Residential Land Tax (VRLT).

The changes will see the VRLT – which currently applies to residential properties in Melbourne’s inner and middle suburbs that are left vacant for more than six months – expanded to include unoccupied residential properties throughout the entire state.

In a statement, the Victorian government said it believes the change “will have a flow-on effect to the rental market by boosting housing stock and helping to ease pressure on rents and prices”.

It suggested it would help with “providing Victorians with more choice when it comes to where they want to live”.

The period that properties will be deemed vacant will commence on 1 January 2024, with the change to include the entire state starting in 2025.

Existing exemptions will continue to apply statewide, including to holiday homes, properties recently acquired or regularly occupied for work purposes, and properties being built or renovated.

Those with residential land that has been undeveloped for more than five years in established areas of Melbourne will also face the expanded tax to discourage “long-term land banking” and “encourage new housing developments”.

The change will close a VRLT loophole, which meant it previously did not apply to unimproved land despite being appropriate for residential development.

That change will come into effect from 1 January 2025, with the government estimating it to apply to 3,000 undeveloped properties.

As part of the statement yesterday, Mr Pallas said: “Nothing is more important than finding a place to call home, that you can afford, close to work, services or community you rely on.

“We know the best thing you can do to make homes more affordable is supply more of them – this is all about freeing up empty houses for rent and vacant land for new homes, particularly across the outer suburbs and regional Victoria.”

Expanded tax will push ‘landowners to sell up’ and ‘turn away from Victoria’

In response to the announcement of the expanded VRLT, industry bodies have expressed their disappointment.

Speaking to Mortgage Business, Victorian executive director at the Property Council of Australia, Cath Evans, stated: “The Property Council is disappointed that the Government has confirmed its intention to introduce further increases in land and development taxes, especially so soon after the release of the housing statement.”

Ms Evans said she was dismayed that the announcement came so soon after Victoria’s Housing Statement was signed in partnership with the industry.

“The affordability partnership signed less than two weeks ago contains a commitment for government and industry to work collaboratively to address housing supply and affordability,” she stated.

“Within two weeks and without consultation, the Government now has a plan to introduce new and expanded taxes without any data that the changes will enhance supply and affordability.”

Similarly, the Real Estate Institute of Victoria (REIV) chief executive Quentin Kilian commented: “Each time a new tax or a new regulation is introduced, it beats confidence out of one of the state’s most important economic contributors. A sector, already shaken by years of new and raised taxes, but one that still contributes almost half of Victoria’s tax revenue.

“Less than a fortnight ago, the government released its much-vaunted ‘Housing Statement’ and within the space of two weeks we already have two new property tax increases announced. The exodus of rental providers has increased over the past year and with yet again another round of taxation aimed at the property market, there is no doubt that investors will continue to leave Victoria, exacerbating the rental shortage.

“We can assure Mr Pallas, and his team of policymakers, that the only behaviour this will initiate is for more landowners to sell up and continue to turn away from Victoria for investment.”

Mr Kilian added that the institute was “calling on the Victorian Government to engage the sector properly, so together we can work to better policy development that benefits all property participants”.

Despite being met with frustration from industry bodies, the expanded VRLT legislation was welcomed by the Victorian Greens party, which said it was a “step in the right direction”.

Victorian Greens leader Samantha Ratnam added: “Expanding the vacancy tax is an important step, but it needs to be properly enforceable.

“By raising the rate to 3 per cent and making it enforceable, this government could make thousands of homes available to renters or owner-occupiers and help alleviate the housing crisis.”

New Victorian cabinet sworn in

On Monday (2 October), the new Victorian Labor government cabinet was sworn in.

The key housing appointments saw Sonya Kilkenny receive an expanded role, taking on both her existing portfolio as Minister for Planning and Minister for the Suburbs.

Harriet Shing and Colin Brooks also received new roles where they will play important roles in resolving the state’s housing and rental concerns as Minister for Housing and Minister for Development Victoria, respectively.

[Related: Victorian government sets ambitious housing target]