Property taxes under scrutiny as Victoria's housing market struggles

The Property Council of Australia is urging significant reforms to property taxes in Victoria, citing a pressing need for measures to stimulate the housing market and boost residential development. This call comes in light of recent polling that underscores widespread anxiety regarding housing affordability among the state's residents.

A survey conducted by Roy Morgan on behalf of the Property Council, which included responses from 3,863 Victorian adults between October 8 and 12, revealed that 80.7% of respondents attribute their financial strain and the rising costs of home ownership or renting to the Victorian Government's introduction of 32 new or increased property taxes since 2014. Furthermore, 88% of those surveyed expressed concern about housing affordability, while two-thirds indicated that lowering taxes and charges could spur increased private investment in housing.

More than 40% of participants identified taxes and charges as significant obstacles to expanding housing supply, drawing attention to the interplay between government policy, the feasibility of development projects, and the availability of new homes. The Property Council contends that the repercussions of these tax policies extend beyond affordability issues, as diminished buyer interest is impacting off-the-plan sales, project financing, and the initiation of new residential developments.

Matthew Kandelaars, Group Executive for Policy and Advocacy at the Property Council, stated that the current property tax landscape in Victoria is deterring investment and complicating efforts to provide the necessary housing to meet future demand. "The state’s punishing property tax burden is hurting Victorians, driving away investment and stalling new housing projects," he remarked.

The Property Council highlighted that the combination of low buyer demand and rising development costs is creating a challenging environment for residential projects, particularly for developers who depend on pre-sales to secure financing for construction. Kandelaars noted that the lack of buyers is causing a ripple effect through the housing development pipeline, as developers struggle to justify launching projects without confidence in property sales. "We’re facing a dangerous double whammy. Buyers are sitting on the sidelines and developers can’t justify starting new projects," he explained. "When buyers disappear, pre-sales dry up, banks won’t finance projects and construction grinds to a halt. No buyers means no projects. No projects means no new homes. It’s that simple."

This situation poses challenges for agents involved in project marketing and off-the-plan sales, where buyer commitments play a crucial role in financing developments. The Property Council argues that the current tax framework contributes to a cycle where reduced demand makes new projects less feasible, potentially limiting the availability of homes for future buyers.

Although the polling reflects public sentiment rather than directly assessing the impact of individual taxes on property transactions or construction activity, the Property Council believes the results demonstrate a strong desire for reform in the state’s housing tax system.

To reinvigorate the market and support new housing construction, the Property Council is advocating for an immediate stimulus package that combines tax relief with targeted incentives for buyers. Proposed measures include the elimination of stamp duty on all new builds, the introduction of a $25,000 downsizer bonus, and an increase in the first home owner grant to $20,000. These initiatives aim to benefit key buyer demographics, including first-time homebuyers, those considering newly constructed properties, and older homeowners seeking to downsize.

Additionally, the Property Council is pushing for the complete repeal of Victoria’s Absentee Owner Surcharge, arguing that it deters investment involving overseas capital, including partnerships between Australian developers and international pension funds. They are also advocating for the abolition of the Windfall Gains Tax, which they claim discourages landowners and developers from pursuing residential housing opportunities. The organization asserts that removing these taxes would enhance development feasibility and attract investment in new housing supply, although these suggestions remain recommendations rather than formal government policy.

Kandelaars criticized the Victorian Government for overly relying on property taxes at a time when the state must attract investment and stimulate residential construction. "With its overspending and record debt, the government has become addicted to taxing the sector responsible for delivering the homes Victoria needs," he stated. "The government has had its hand in the pocket of homebuyers and renters for the past 12 years, and Victorians know it." He emphasized the need for coordinated action on both ends of the housing market, advocating for measures that stimulate purchasing activity alongside policies aimed at enhancing the viability of new developments. "Victoria’s housing market is on life support. Demand stimulus to help buyers, while abolishing taxes that hurt supply, is the urgent defibrillator double-shock that is our only hope of bringing it back from the brink."

The Property Council's intervention arrives amid ongoing discussions within the industry about how governments can effectively enhance housing affordability while promoting the private investment necessary to increase residential supply. For real estate agents, these proposals highlight the importance of transaction costs, buyer incentives, and development feasibility in influencing market dynamics, particularly within the new-build sector. The Property Council warns that without adjustments to the state’s tax structure and measures to stimulate demand, Victoria risks perpetuating the conditions that hinder new residential projects from advancing.