Multi-residential developments and subdivisions throughout metropolitan Melbourne and major Victorian regional centres are set to be slugged with a 1.75 percent tax to help pay for social and affordable housing.

But the industry has welcomed proposed reforms to streamline and improve the state’s planning system.

In a move welcomed by social welfare groups but slammed by the state’s property sector, Victorian Premier Daniel Andrews has announced that from 1 July 2024, all new multi-residential developments and subdivisions in Melbourne and major regional areas will need to pay a 1.75 percent contribution to a new Social Housing Growth Fund.

Known as the Social and Affordable Housing Contribution, the new charge will apply to:

  • All newly built developments with three or more dwellings; and
  • All new subdivisions with three or more lots.

The amount charged will be based on the ‘as if complete’ value of the project.

In its first ten years, the new charge will raise around 800 million per year.

The contributions are expected to fund delivery of up to 1,700 new social and affordable homes each year.

The government has also announced that social housing properties will be exempt from paying council rates.

This change – which will apply to social housing but not to affordable housing – will see social housing join other public assets such as hospitals and schools in being exempt from council rates.

The exemption will be phased in over four years beginning from 1 July 2023.

Both the new levy and the rates exemption for social housing will apply in local government areas across metropolitan Melbourne, Greater Geelong, Ballarat and Greater Bendigo.

Arrangements in other local government areas will not be affected by these changes.

Reaction to the new levy has been mixed, with social welfare groups and urban planning groups welcoming the reform but property industry lobby groups claiming that it will add to the cost of new housing provision.

Council to Homeless Persons CEO Jenny Smith said the new contribution would constitute a modest levy on new property developments but would deliver significant benefits to the most vulnerable in the community.

Pointing to 2021 data showing that almost half (46.7 percent) of Victorians receiving Commonwealth Rent Assistances paid more than 30 percent of their incomes in rent, Smith said rental affordability in Victoria has been deteriorating.

This means that homelessness services are being overwhelmed with demand and are needing to turn away 133 people on average each day on account of a lack of staff and housing options to support them.

“The new Social and Affordable Housing Contribution is a fantastic initiative that will deliver homes for those who are being left behind by our runaway rental market,” Smith said.

“The Victorian government is leading the way in showing how inclusionary zoning, whether it’s through levies or designating a portion of new builds to social housing, can work and deliver a fairer housing and rental market.”

The Victorian Division of the Planning Institute of Australia (PIA Victoria) agrees, saying the new levy will create a long-term funding mechanism from which to underpin social and affordable housing delivery.

PIA Victoria says the importance of social housing must not be underestimated. This includes not only equity considerations but also strengthening productivity by increasing access to skilled work and thus expanding the pool of available labour.

As for the cost of the new contribution, PIA Victoria argues that developers will ultimately ‘pass back’ the levy by paying a lower cost for land initially. This will mean than profits on development costs can be maintained and housing affordability will not be affected, it says.

“This a momentous moment for housing policy in Victoria, which will create a sustainable funding mechanism to help house people on very low to moderate incomes across the state”, PIA Victoria President Gabby McMillan said.

“PIA Victoria believe social and affordable housing is essential infrastructure and should be supported by long-term funding programs, like we have for roads, transport, open space, schools and hospitals.”

However, property industry lobby groups argue that the levy will add to the cost of new home delivery and further exacerbate housing affordability pressures.

Whilst acknowledging the importance of social housing being funded, Fiona Neild, Executive Director Victoria at Housing Industry Association, said costs associated with this should be borne equitably and should not fall solely on new home buyers.

“Today’s announcement that the Victorian Government will introduce a new tax to fund social housing is simply the wrong approach and will be another hit to housing affordability for all Victorians,” said Fiona Nield, HIA’s Executive Director Victoria.

“This tax will perversely make the problem of affordability for all Victorians worse, not better.”

Master Builders Victoria Acting CEO Saeed Mirbagher broadly questioned the need for yet another new tax when the building industry already made a strong contribution to the state.

This includes contributing over 46 percent to the state’s revenue and the housing sector alone generating $3 worth of economic activity for every dollar invested.

“This is yet another tax on our industry at a time when many builders are still recovering from the effects of the COVID-19 pandemic and getting back on their feet.” Mirbagher said.


Faster Planning Welcomed

Despite their disappointment about the new charge, builders welcomed new proposed reforms to streamline and approve planning processes for building and infrastructure.

Responding to 27 recommendations arising out of a review by the Red Tape Commissioner, the reforms aim to streamline planning processes, improve collaboration with local planning departments, deliver major projects, improve planning for priority precincts and prioritise infrastructure delivery.

Mirbagher welcomed the proposed changes, which he said would save builders time and money.

“Planning approval processes have long been regarded by our members as complex and time consuming,” he said.

“Quite simply, for our members, time is money.

“The harder it is for builders and consumers to navigate the planning system, the more costs are incurred.

“This is why Master Builders Victoria has continued to advocate for improvements of the planning system and welcomes simple and long overdue planning reforms, which will improve the planning process and make it more streamlined.”