Industry partnership ‘set on fire’ over Victoria’s vacant property tax

The legislation, which is being heard by the Victorian Parliament this week, will extend the state’s Vacant Residential Land Tax (VRLT) – which currently applies to properties in Melbourne’s inner and middle suburbs that have stood vacant for more than six months – to unoccupied residential properties across the entire state.

It also looks to close a loophole on “unimproved land” that previously exempted undeveloped properties from the VRLT. Residential land that has been undeveloped for more than five years in established areas of Melbourne will also now be subject to the tax.

The government stated that it’s making the changes “to discourage long-term land banking and encourage new housing developments”, in an effort to boost housing supply and affordability.

Government OK if investors rent, sell or pay

In a statement announcing the tax, the government acknowledged that some investors might move to sell in the face of this new levy. While it is not looking to tighten the state’s vacancy rates, with stock also tight on the sales market, the government seems to acknowledge that either outcome will be considered welcome.

“The move will encourage owners of unoccupied homes in Melbourne’s outer suburbs and regional Victoria to make these dwellings available for rent or sale – working to ease the housing pressures being felt right across the country,” the statement read.

According to the state’s treasurer, Tim Pallas, the tax “is all about freeing up empty houses for rent and vacant land for new homes, particularly across the outer suburbs and regional Victoria”.

“We know the best thing you can do to make homes more affordable is supply more of them,” he said.

The period for which properties can be deemed vacant will begin on 1 January 2024, with the change coming into effect in 2025.

Other exemptions to the tax – including to holiday homes, properties recently acquired or regularly occupied for work purposes, and properties being built or renovated – will continue to apply.

The government noted that its previously introduced tax on undeveloped land in areas of Melbourne will be payable for the first time from 1 January 2026, at which point it expects to charge the levy on 3,000 properties.

Industry hits back

The Real Estate Institute of Victoria (REIV) has slammed the expansion of the tax, with REIV CEO Quentin Kilian calling it “just another regrettable demonstration of poor property policy development, and short-sightedness from the Victorian government”.

Mr Kilian voiced concerns that this would disincentivise investor activity at a time when rental vacancies are very slim.

“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,” he said.

Commenting on the idea that the tax will work to encourage investors to rent out or develop properties, Mr Kilian said that this change, coupled with new land taxes introduced earlier in the year, would serve only to sow uncertainty in the state’s investment prospects.

“We can assure Mr Pallas, and his team of policy makers, that the only behaviour this idea will initiate is for more land owners to sell up and continue to turn away from Victoria for investment.

“It will create more uncertainly in investment at a time when the participants in the sector are crying out for consistency and common sense and concepts that inject more confidence into real estate regulation,” Mr Kilian said.

Housing partnership in peril?

Mr Kilian called on the government to involve the industry in closer consultation “so together we can work to better policy development that benefits all property participants”.

Meanwhile, other industry advocates expressed shock at the move, coming just weeks after the government signed an “affordability partnership” with key housing organisations to work together on the state’s plans to boost supply.

Property Council of Australia CEO Mike Zorbas called the new tax a “trust burner”, noting that the organisation was not consulted on the change.

“Here’s a tip for state governments trying to reach ambitious housing goals in partnership. Don’t ‘do a Victoria’,” he said.

“Don’t go slow on housing and approvals for the past few years and then seek redemption through a partnership with industry that you set on fire inside a fortnight.

“Burning through the trust. Always a bad way to start a partnership,” he said.

Moreover, the organisation’s Victorian executive director Cath Evans noted that the council intended to uphold its end of the bargain, but described the industry advocacy body as “disappointed”.

“The partnership clearly outlines that consultation is a shared responsibility and that we all agree to work together to find solutions in a complex economic environment,” she said.

“Sadly, eight business days later, the treasurer, who was a signatory to the partnership, has announced the introduction of new and expanded taxes without any consultation … and we are yet to understand how these reforms will improve the availability of rental stock to the market or increase the supply of new homes.”