Andrews pulls $800m property tax bill, claims industry welched on deal

The state government is set to abandon its controversial $800 million social housing tax after the Premier accused the property sector of reneging on a deal to give them “massive windfall profits” through faster approval rules if they accepted the new tax.

Daniel Andrews said on Wednesday that the future of the bill was now “very, very uncertain” and would not be introduced to Parliament this week because industry had gone back on a deal to support the tax.

Labor’s $800 million social housing tax is on the ropes.Credit:Justin McManus

“We had an agreement,” he said. “It seems that agreement was not going to be honoured.

“I am not in the business of creating super profits for developers if they are unwilling to support sharing those profits.”

The issue has now degenerated into a heated stoush, with most of the state’s building and property industry groups denying they were told about the new tax until it was announced. The Property Council said it was told in advance but only provided recommendations and highlighted the additional flow-on costs to house prices.

The government last week announced property developers would be forced to hand over 1.75 per cent of the expected value of all newly built developments with three or more dwellings to pay for an extra 1700 social and affordable homes each year.

The new tax, to be known as the Social and Affordable Housing Contribution, was expected to have raked in about $800 million a year – money the government said would flow into the existing Social Housing Growth Fund to pay for more social and affordable housing, creating 7200 jobs annually.

The proposed overhaul, adding to a growing list of taxes on wealthy businesses and individuals, left the government facing the prospect of a damaging battle over housing affordability in the lead-up to the November 26 state election.

In a statement, the Property Council confirmed it was briefed in confidence by the government on the proposed tax.

“Both prior to, and following, the government’s announcement, we have not been provided with any further documentation, modelling, legislation or any other government analysis of the [tax policy],” the statement said.

The group’s statement confirms that it was consulted on the tax but does not appear to confirm Mr Andrews’ claim of an “agreement”.

“We are committed to working closely and collaboratively with governments at all levels to achieve these outcomes, including with the Victorian government on their current proposal.”

The other two main industry bodies – the Housing Industry Association and Urban Development Institute of Australia – said they had been blindsided by last week’s announcement of the new tax.

Housing Industry Association executive director Fiona Nield said her organisation, the peak body for residential builders, was not consulted.

“This was an unexpected tax … We did not have warning of it,” she said. “It should never have been put forward without appropriate assessment of the impact it would have on house prices.”

The property and building industries warned last week that the tax could add almost $20,000 to the cost of a typical Melbourne house.

In 2019, the Property Council, the Urban Development Institute and the Housing Industry Association were all consulted by a ministerial advisory group set up to “provide advice to the Minister for Planning on possible models and options to facilitate the supply of affordable housing”.

The general idea of developers contributing to social housing was raised in meetings of this group, which concluded in late 2019.

But Matthew Kandelaars, the Urban Development Institute’s Victorian chief executive, said the industry was never given any indication that the policies – streamlined planning permits which benefits developers and a new levy on those same developers – were linked. He said there had been no discussions about industry contributions since 2019.

“That issue was not raised with me in principle and no formal agreement was sought,” he said. “If it were to have been raised, we could not have agreed to it because, we have explained, the impost of a tax on a new home will always impact the cost of a home.”

Shadow treasurer David Davis said the Premier was being “loose with the truth” and claimed the government shelved the bill to avoid turning housing affordability into an election issue.

It is understood both the Department of Treasury and Finance and consulting firm Deloitte examined the net impact of a 2.5 per cent tax and a 2 per cent, with the rate lowered to 1.75 per cent after consultation.

The opposition had pledged to oppose the bill and it was unclear if the government would have secured five votes in the upper house it may have needed to pass the legislation.

The planned change also drew criticism from councils including the City of Melbourne, who said councils would be starved of revenue because one of the changes included exempting social housing from paying council rates.

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