A 50 per cent tax on rezoning windfalls above $500,000 is among some of the tax hits to property that is driving the industry to distraction, but planners say the move is well overdue and sends some of the private benefit from rezoning back to the community.
Property industry representatives have jointly condemned proposed changes to Victoria’s tax laws they say will threaten jobs and housing affordability.
Victorian Treasurer Tim Pallas revealed the upcoming state budget would introduce an increase on the amount of land tax payable on properties worth over $1.8 million.
Under the changes land tax will increase by 0.25 per cent for taxable land holdings between $1.8 million and $3 million, and 0.30 per cent for those in excess of $3 million.
The Property Council of Australia, Housing Industry Association, Urban Development Institute of Australia (Victoria) and the Real Estate Institute of Victoria jointly condemned the changes and called for better consultation with industry.
With the economic recovery from COVID-19 still underway they said the changes could cause a “flight” from the property industry impacting jobs, investment and housing affordability.
They say the property and construction industry employs one in four Victorians and already contributes over half the state’s total tax revenue.
“It is unfair to be taxing landowners further on property when Victoria already has the highest stamp duty rates in the country,” Fiona Nield, Victorian executive director, Housing Industry Association said.
The changes also include a new windfall gains tax for properties whose value is boosted by a council rezoning. The tax will only apply to properties where the value is boosted by more than $100,000, and include a 50 per cent tax on windfalls above $500,000.
“The new windfall gain tax is particularly concerning and appears to take a disproportionate share of property value from landowners that are in fact helping to support the growth in housing supply that helps keep affordability in check across regional Victoria,” Ms Nield said.
Mr Pallas insisted the changes would only affect a small portion of Victorians who pay land tax, which is not paid on owner-occupied homes.
“There needs to be a balance between those wanting to buy their first property and large property investors who continue to profit from soaring property values,” Pallas said.
Professor of Urban Policy and director of the Centre for Urban Research at RMIT University Jago Dodson says the windfall tax was well overdue.
“I think the tax is a good step forward,” Professor Dodson said. “The approval of a rezoning confers a property right to the owner of the land in terms of the development they can undertake on that land and it comes about as an action of the state and it’s only reasonable that the state retains some of the benefit for the wider community.”
Leah Calnan, president of Real Estate Institute of Victoria said the property land tax changes could also affect self-funded retirees who rely on property investment as their sole income
“These ill-considered and poorly conceived taxes could cause a flight from the property sector by thousands of self-funded retirees. They show a fundamental misunderstanding of the real estate market, and the contribution it makes to the economy,” Calnan said.
“At a time when commercial property landlords are struggling to find tenants, especially in Melbourne’s treasured CBD, the increased taxes will put an extra burden on the commercial sector, which was one of the strongest supporters to Victoria’s COVID-19 lockdowns.”
Value capture could be a possibility
Professor Dodson said the windfall tax was comparable to value capture mechanisms, when the state undertakes valuable infrastructure that increase the value of nearby land.
The issue is the subject of “long-standing debate in urban planning circles going back to the early 20th century”.
“There’s a growing view that the state is entitled to claw back some of that value enhancement for the community, otherwise, it transfers public value to private interests.
“This is heavily contested by landowners who object to value capture. But from a public interest point of view they are very appropriate mechanism to use.”
Could the windfall tax open up the possibilities of value capture?
“Absolutely,” Professor Dodson said. “Especially at a time when state budgets are straightened, states need to be more aware of the value they generate [with infrastructure investment] that ought to be retained.”
He said the rezoning of Fishermans Bend from industrial to residential and commercial was a major missed opportunity given the amount of infrastructure the precinct needs to make it a viable urban development.
In the long run he said it would reduce the price of land because the expected value uplift from rezoning would not be as big.
“Speculators on land take a risk and Victoria has a long and sorry record on land speculation.”
He expected the taxes would be fiercely fought but that essentially the industry was sophisticated enough to understand it was beneficial overall.
Professor Dodson said that these types of tax changes would normally be flagged long before any announcement but that given the buoyant property market the current announcement was probably good timing.
“It’s good to see the Victorian government combine what makes good economic sense with what makes good social sense. It shows it’s looking out for the community and sign of a government that’s confident of its agenda and the policy it’s rolling out.”
– With Tina Perinotto