Victoria announces housing relief with land release

Scott Kuru October 25, 2024 5 min read

KEY POINTS

The Victorian government is introducing housing initiatives to increase confidence and housing supply
Key among the moves is a 12-month stamp duty cut that will apply to new apartments and townhouses to encourage buyers and investors
Over the long term, 180,000 new housing lots will be released on Melbourne’s outskirts for residential development

Extended pandemic lockdowns and state government taxes that have been roundly criticised by business and property lobby groups have given Victoria a reputation as a bad place to invest or buy property.

Over the four and a half years since the onset of the Covid-19 pandemic, Melbourne property values have also underperformed, notching up just 9.9% growth on CoreLogic figures compared to huge gains - albeit off a lower base - in Perth (+74.6%), Adelaide (+69.0%) and Brisbane (+66.4%), while Melbourne’s great rival, Sydney, has seen a 29.2% jump.

High-profile property developer Tim Gurner recently quipped that “the strong consensus in other states is that Victoria is broke, it’s cold, and your property prices don’t go up.”

However, all that could be about to change, following a series of housing initiatives unveiled by the state Labor government of Premier Jacinta Allan.

At Freedom Property Investors, we believe these incentives will help kick-start a recovery that will see Melbourne emerge as the best performer in the next property cycle.

Stamp duty holiday

Victorian Premier Jacinta Allan has been rolling out a series of housing announcements that have been billed as a program of “more homes, more opportunities” for Victorians.

In the short term, the most significant of these is a temporary move to slash stamp duty for off-the-plan apartments and townhouses.

While there are already various stamp duty exemptions and discounts for first home buyers and owner occupiers buying under price thresholds, for 12 months from the 21st of October 2024 the construction cost component of stamp duty on strata-title apartments and townhouses will be lifted for everyone and every property.

The state government says this means someone “who buys off-the-plan before any construction work starts could pay around $28,000 less stamp duty on a $620,000 apartment – with duty slashed from around $32,000 to around $4,000.”

If someone has signed up to buy an off-the-plan apartment or townhouse and construction has already started, the stamp duty exemption will apply to the value of the construction still to take place from the 21st of October.

The state government says the stamp duty waiver is a response to complaints from the building industry that current high interest rates have slowed pre-sales of apartment and townhouse developments, meaning many projects that are shovel-ready have been shelved.

“We asked industry what they need to build more homes sooner – and this is what they said,” Premier Jacinta Allan says.

“More apartments and townhouses getting built means more homes for young people and families to rent or buy.”

However, using the government’s possible savings formula, and with the state Treasurer Tim Pallas forecasting forgone revenue of only around $55 million, the stamp duty scheme would possibly only bring forward the purchase of around 2,000-3,500 homes.

So, our assessment at Freedom is that what will prove to be a popular program will be extended for at least 2-3 years.

The next Victorian state election is scheduled to take place on Saturday the 28th of November 2026 and we’d be amazed if it was cut before then.

Longer-term initiatives

The Allan government has also unveiled a number of longer-term housing initiatives, including a “greenfields” plan that would see 180,000 new lots for homes released in 27 areas on Melbourne’s outskirts.

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However, this process will take over a decade, and it’s worth putting this into context, aside from projections for Melbourne’s future population.

Using an average of 2.5 people per home, this would see enough housing for 450,000 people by 2034.

Victorian government projections estimate that by 2031 alone, metropolitan Melbourne will have 5,953,438 residents, a whopping 21% more than in 2021.

Many of these potential greenfield sites had been earmarked for development anyway, with a number reportedly languishing in the planning minister’s in-tray for more than 2 years.

While welcoming the 10-year greenfields plan, the Property Council of Australia noted the plan “provides a target for delivery but fails to answer key questions about how delivery will be sped up, including how current barriers such as drainage and other infrastructure delays, or inconsistent cultural heritage requirements, will be adequately addressed.”

“There’s also little information about how sites have been selected and prioritised.”

Closer to the CBD, plans for high-density apartments in 50 “activity centres” around existing suburban train stations have caused uproar from NIMBYs, worried about the “amenity” of their neighbourhoods.

While much of this noisy opposition will eventually die down, the main barrier to the large number of apartments the Victorian government wants to see in these “activity” areas is cost.

And that’s leading to a reluctance by many developers to take on new projects.

“Apartments would be great if they were an inexpensive housing product,” says Melbourne developer Maxwell Shifman, whose company Intrapac specialises in apartment projects.

“But they are not - and nothing proposed will reduce the prices to a point where they become attractive and attainable to the broader housing market.”

The take-out

While the impact of both these short and longer-term housing initiatives may be less than the headline figures initially suggest, there’s no doubt they’ll provide a major confidence boost for home buyers and investors in Victoria.

As my business partner and Freedom’s head of research Lianna Pan has been arguing for some time, the Melbourne market is currently seriously undervalued, when you consider the city’s long-term record of property price growth.

This has been exacerbated in recent years because of policies like land tax threshold changes and Covid debt levies that she says “made it a bit unpopular to invest in Victoria.”

However, Lianna sees the slashing of stamp duty for off-the-plan purchases as “the start, a major stimulus that's going to kickstart the recovery of the Melbourne property market.”

When you combine this with expected interest rate cuts, Lianna says that’s a powerful “combination of factors that's really going to improve sentiment for the market.”

“So we are forecasting massive growth.”

“In fact, we're saying that Melbourne will be the best performer in the next property cycle,” she says.