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VIC Budget: PEXA warns land tax could worsen housing shortages

By Julie Toth - Chief Economist • May 2023

PEXA today welcomed the Victorian Government’s changes to stamp duty and land tax for commercial properties, to be phased in from 1 July 2024, but said imposing new taxes on residential property owners over the next decade will only worsen Victoria’s housing supply and affordability crisis for rental property investors, and Victorian renters.

The changes to stamp duty will see buyers of commercial and industrial properties given the option to pay stamp duty in annual instalments over 10 years, with subsequent buyers only paying an annual land tax of 1% of the unimproved land value. This change will reduce the upfront cost of commercial and industrial properties purchased in Victoria.

For the residential property market, the Victorian Government has announced an effective increase in the land tax that is payable on all properties, other than owner-occupied homes (i.e. the principal place of residence), farms and charities. The COVID-debt levy will essentially increase costs for all housing investors and those holding more than one home, from 1 July 2024.

PEXA’s Chief Economist, Julie Toth, said, “The changes to stamp duty for commercial and industrial property will reduce the upfront cost of purchasing these properties in Victoria after 1 July 2024 and can be expected to stimulate demand for eligible properties after that date. In the short term however, we may see a brief period of delayed settlements over the coming year, as prospective buyers wait for the new, more favourable stamp duty arrangements to kick in.

“For residential housing, the COVID-debt levy will significantly increase the annual land tax paid by an estimated 860,000 Victorian landowners, including people who own more than one home – with 380,000 landowners now paying land tax for the first time. The decreased land-value threshold – from $300,000 to just $50,000 – will see this tax levied on far more properties across the state, for at least the next 10 years, and will need to be factored into the cost of investing in residential property in Victoria.

“The newly announced levy has the potential to add directly to rental inflation as landlords try to recoup increased costs, only adding to the state’s housing affordability crisis for residential property investors and renters,” she said.

According to a report by Homes Victoria in September 2022, there are only 6.1% of advertised rental properties in Metropolitan Melbourne where low-income households spend less than 30% of household income on rent – a trend Toth says is likely to worsen.

“If landlords were to pass on the full cost of this levy, that could mean an extra $1000 a year in rental repayments for Victorian tenants every year over the next decade,” Ms Toth added.

Ms Toth also commented on the need for future Budget measures to address social and affordable housing and the impact of delayed transport infrastructure spending for Melbourne’s more affordable outer suburbs.

“For very low-income households who are suffering the most in the current housing affordability crisis, there were no funding increases to tackle the growing waiting lists for public and low-cost social housing. We hope to see this addressed in the future,” Ms Toth said.

“Already in 2022, 57,672 families were on Homes Victoria’s official waiting list for public housing (up by 3,000 families in just one year), with 36,459 identified as urgent. The ‘Big Housing Build’ program announced in 2020 added an estimated 1,776 social housing dwellings in 2021 and 2022, but it was not expanded in this year’s Budget and is being rapidly outpaced by demand.

“While some small but very welcome Budget increases were provided for housing support services for rough sleepers and those at risk of homelessness, these programs will not increase the net supply of permanent, affordable housing that is available for the most disadvantaged.

“In addition, the delayed spending on transport infrastructure projects will be a key concern for recent buyers in new housing estates on the fringes of Melbourne, where housing is more affordable. Melbourne is the fastest growing capital city and additional infrastructure is required to support delivery of services for a fast-growing population.

“On the upside, the four-year delay for some of the largest transport projects may help alleviate some of the recent industry capacity constraints, potentially freeing up resources for new housing, however, the Government will need to effectively plan for the surge in new projects in four years to ensure the construction sector has the capacity to keep up with demand,” she said.

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