Victoria Treasurer Tim Pallas dropped a bombshell on those attending a Property Council of Australia breakfast this morning after announcing tax plans that have vacant land in its crosshairs.

In a bid to encourage development and housing supply, the state government has laid down a new ultimatum to crack down on land banking.

“We can’t afford really to have vacant land in metropolitan Melbourne sitting idle,” said Pallas (pictured).

“Our clear message to the landowners is to either develop land or sell it to someone who will.”

Pallas is focussing on ‘unimproved land’ charges for substantial lots originally earmarked to provide, in bulk, to the community.

Within soon-to-be-introduced legislation, the state government plans to expand the tax on all vacant [government-owned and private] land to include areas outside Melbourne (including all of Victoria) and plots in the city that have sat idle for five years.

Only applicable to inner and middle Melbourne residential properties which are unoccupied for more than six months a year, the annual Vacant Residential Land Tax, is set at 1% of the capital improved value (CIV) of taxable land. That means if a vacant home has a CIV of $500,000, the landowner will cop $5000 in tax.

The changes are expected to take effect across the entire state from January 2025.

From January 2026, the tax will also apply to residential land in metropolitan Melbourne that’s waiting to be developed, zoned as residential yet unimproved for more than five years.

However, owners with a building permit can receive another two years.

Holiday homes are exempt.

Free up land for development

First and foremost, the state expects new measures to result in more land being freed up for development, rather than raising revenue per se. Initial estimates suggest the new measures could collect up to $37m in additional taxes.

“It doesn’t massively advantage the budget. What it does is, it tries to send a message to people who have underutilised assets to think about utilising them, making them available, for people to move into as homes,” said Pallas.

“Of course, the implementation of these arrangements has quite a long lead time as you’d appreciate. And we’ll work with industry to ensure that they are developed in the most effective way to amend behaviour without necessarily getting much in the way of revenue.”

Initial responses

While initial responses to the new tax were mixed, the Property Council’s Victorian executive director Cath Evans was surprised not to have been consulted on the changes.

“The devil will be in the detail… if work which is designed to accelerate housing is not delivered, then these reforms may in fact be a further impediment to the delivery of housing stock,” Evans told reporters at parliament.

Meanwhile, the Greens questioned the effectiveness of the proposed changes while vacancies were self-declared by property owners.

Then there was Shadow Treasurer Brad Rowswell who described the first act of the government under new Premier Jacinta Allan as an increased tax slug on Victorians.

Image: Tim Pallas Victoria Treasurer: Credit Victorian Chamber of Commerce and Industry