Property developers, new home buyers and commercial businesses who operate in new precinct developments associated with Melbourne’s biggest railway construction project will need to contribute $11.5 billion to the project’s cost.

The Victorian Government has released details of how the state hopes to raise $11. 5 billion in value capture mechanisms to fund one third of the cost of the Suburban Rail Loop East project (SRL East).

Set to open in 2035, the $34.5 billion SRL East project will link Cheltenham in the south-east to Box Hill in the east via two 26-kilometer tunnels and six new underground stations.

The project is the first stage of the broader SRL project – a 90-kilometer orbital loop which is envisaged to link Melbourne’s middle suburbs from Cheltenham in the south-east to Werribee in the south-west.

In addition to the rail lines, the project aims to deliver up to 70,000 new homes as well as commercial and employment centres.

These will be delivered in six new SRL East neighbourhoods that will surround the new stations at Cheltenham, Clayton, Monash, Glen Waverley, Burwood and Box Hill.

Of the $34.5 billion in project cost, the Victorian Government hopes that one third – or $11.5 billion – will be raised through value capture mechanisms.

(For the remaining $23 billion, the Victorian Government has committed $11.5 billion and is hoping to secure an additional $11.5 billion from the Commonwealth. Thus far, the Federal Government has committed $2.2 billion for early works and has promised that more funding will be announced in next year’s budget.)

On Thursday, the Victorian Government released details of exactly how the value capture component of the funding will be realised.

In particular, the government hopes to raise:

• $6.2 billion through applying existing land tax and windfall gains tax to both new and existing developments in SRL East Precincts.
• $2.9 billion through an additional infrastructure contributions charge, known as the SRL Infrastructure Contribution Plan. Set to begin on 1 January 2027, this is a one-off payment which developers or landowners will pay when they increase the number of dwellings on a site (such as turning a single home into a block of units). This will initially be charged at an indexed rate of $11,350 per new dwelling in the structure plan area with no charge applying in the outer ring. This infrastructure contributions charge is identical to the system announced for the government’s metropolitan activity centres earlier this month. From 2032 to 2035, the Infrastructure Contributions charge will increase to $33,924 per additional dwelling in the structure plan area and $13,158 per additional dwelling in the outer ring.
• $800 million through a precinct specific congestion levy – otherwise known as a car parking levy. This will be applied to owners of commercial car parks and other non-residential off-street parking spaces (it will not be applied to residential car parking). The charge will be $3,030 per parking space per year. However, exemptions will be provided for businesses offering free visitor parking.
• $1.6 billion through state-initiated development. This involves developing land which is owned by the state government. This component of the funding will be explored once SRL structure plans are finalised next year.

The release of the value capture plan has reignited debate about the role of value capture in funding major infrastructure projects.

Essentially speaking, value capture is a public finance strategy where government collects a portion of the increased land or property value that results from public investments such as new transport or amenities to help fund those projects.

It is a form of ‘beneficiary pays’ which helps to pay for new public assets by getting a contribution from those who gain financially from the public good.

Proponents of value capture argue that such arrangements provide an equitable means through which those who benefit directly from infrastructure provision can contribute toward the cost of the infrastructure in question.

In a statement, Victorian Premier Jacinta Allan defended the application of value capture to the SRL East project.

“The SRL precincts will become highly attractive locations for people to live and work in,” Allan said.

“Value capture means those who will financially benefit from the SRL – such as those developing property or whose land value has increased through rezoning decisions – will help to proportionately contribute to the cost of the project…

“… Value capture isn’t new. It has been successfully used in Australia and around the globe.

“Projects such as London CrossRail, Grand Paris Express, Gold Coast Light Rail, our own City Loop and even the Sydney Harbour Bridge have used value capture to deliver transport people rely on every day.”

(artist impression of SRL East Cheltenham neighborhood).

However, property industry lobby groups slammed the move to apply value capture on the SRL East project.

Describing the announcement as a revenue grab, Property Council Victorian Executive Director Cath Evans said that the value capture mechanism would force buyers and renters to shoulder a disproportionate array of new taxes and charges in order to construct the project.

Ultimately, Evans argues that this would set the housing component of the project up for failure.

“Time and time again, the Victorian Government shows it does not understand that it cannot tax its way to housing supply and affordability,” Evans said.

“It cannot credibly claim the Suburban Rail Loop precincts will deliver Australia’s biggest housing project while simultaneously imposing the highest development taxes in the country. Those two positions are fundamentally at odds.”

Housing Industry Association Victorian Executive Director, Keith Ryan agrees.

“Today the Victorian government announced a slate of new housing taxes that will attempt to fund their contentious Suburban Rail Loop, but would result in further compounding the states housing affordability issues,” Ryan said.

“These so-called value capture mechanisms to fund the Suburban Rail Loop project – will only achieve one thing – lock more young families out of housing.”

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