Developers to face a new $800 million social housing levy

Property developers will be hit with a new $800 million annual levy to fund an extra 1700 social and affordable homes each year, under an Andrews government overhaul the industry claims will add almost $20,000 to the cost of a typical new home.

In a move that has infuriated Victoria’s building and property sector, from July 2024 all newly built developments with three or more dwellings or lot subdivisions will be forced to hand over 1.75 per cent of the expected project value.

Industry claims the government’s new “Robin Hood tax” will add almost $20,000 to the cost of a typical new home.Credit:Bloomberg

The new tax, known as the Social and Affordable Housing Contribution, is expected to rake in about $800 million a year – money the government says will flow into the existing Social Housing Growth Fund to pay for more social and affordable housing, creating 7200 jobs annually.

The Robin Hood move, which will only apply in Melbourne, Geelong, Bendigo and Ballarat, adds to a growing list of levies and taxes imposed by the government on wealthier businesses and individuals to fund social policy initiatives.

That list includes the mental health levy announced in last year’s state budget, under which businesses with more than $10 million in wages pay a 0.5 per cent levy from this year, raising more than $800 million over four years.

It also includes so-called windfall gains tax, under which developers and land speculators who reap windfall gains when their property is rezoned will be hit with a 50 per cent tax if the gain is worth $500,000 or more from July 2023.

Treasurer Tim Pallas said the new tax “makes good economic sense”.Credit:Justin McManus

Under the latest changes, social housing properties will also be exempt from paying rates, bringing them in line with hospitals and schools. This will be phased in over four years from July 2023.

The government is also promising to reinvest every dollar of the $54 million currently spent on public housing rates back into public housing maintenance and improvements, such as kitchen and bathroom upgrades and better open spaces.

Treasurer Tim Pallas said the new tax would affect less than 30 per cent of all new residential planning permits, declaring it “makes good economic sense”.

“And let’s not forget that in the last 12 months Victoria issued more residential planning permits than any other state, not in relative terms, in absolute terms,” Mr Pallas said.

“It will allow … the government and future governments to build more homes for people who need them and it will also create more jobs for more Victorians, and of course, that makes good economic sense.”

Planning Minister Richard Wynne said it was the first time a government had committed to such a broad-ranging set of reforms to put the social housing system on a more sustainable footing.

“This will commence in July 2024 to give industry time to adjust,” he said.

The announcement prompted an angry response from Urban Development Institute of Australia president Tom Trevaskis, who said it was yet another tax that would add tens of thousands of dollars to the cost of a new home.

“However, rather than accepting that social housing is critical state infrastructure and an issue of community-wide importance, that requires a community-wide solution, the government has made the decision to levy the residential development industry – and, by extension, homebuyers.”

Mr Trevaskis said the industry had a role to play in delivering social housing, but it should not be paying the cost for 30 years of government under-investment which had led to a shortfall in new social housing and inadequate maintenance of existing housing.

Community Housing Industry Association Victoria acting chief executive Jason Perdriau said the announcement would mean more houses for more Victorians in need, beyond the government’s already announced $5.3 billion Big Housing Build.

“Community Housing organisations are already working in partnership with government and local communities to build new homes where the need is greatest, including for family violence survivors, Aboriginal Victorians and people living with disability or mental illness,” he said.

The Property Council of Australia’s Victorian executive director Danni Hunter said the government was intent on taxing new home buyers to cover structural flaws in the underfunding of social housing by successive governments.

Ms Hunter said there was no walking away from the fact the levy would increase prices for new home buyers.

“This new tax sends yet another signal to Australian and international investors that Victoria is a high-taxing jurisdiction with an overreliance on Victorian homeowners to fund their announcements,” she said.

The council estimates the new levy would result in a price increase on the median house being the equivalent of receiving an increase of 38.8 per cent to the rate of stamp duty. That means an extra $19,600 on the median price of a new house in metropolitan Melbourne and $12,110 on the median price of a new unit.

Ms Hunter said it was the 10th new property-based tax the Andrews government had introduced.

The Housing Industry Association’s Victorian executive director Fiona Nield said home buyers already contributed to half of Victoria’s tax revenue now.

“In Melbourne, 38 per cent of a new home build is made up of taxes, fees and charges. This new tax will see land and house prices being pushed further out of reach of new home buyers,” Ms Nield said.

”HIA estimates that this tax could add over $6600 to the cost of land for new homes. Add stamp duty and GST along with many more costs and this tax could cost more than $20,000 for a new home buyer, adding to their mortgage repayments.“

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