Developers on alert as state weighs expansion of infrastructure levy

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More developers would be slugged with a levy to help pay for local infrastructure under a plan the Allan government is considering, as Victoria prepares to squeeze thousands of new homes into existing suburbs.

But industry and the Coalition have sounded the alarm over the potential for the plan to worsen housing affordability, arguing more developers could be forced to pass on the costs of the Growth Areas Infrastructure Contribution to consumers at a time of high interest rates, expensive building materials and key worker shortages.

Homes under construction near Melton. The suburb is in one of seven local government areas that currently receive developer contributions to local infrastructure. Credit: Chris Hopkins

The one-off charge currently applies to developments in seven local government areas around Melbourne’s fringe: Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham.

Two senior government sources, speaking on the condition of anonymity to discuss internal matters, confirmed discussions about broadening the levy to include all of Melbourne or even the entire state to fund incoming housing reforms. A final proposal has not yet been signed off by cabinet.

It comes as the government is expected to unveil a blitz of new projects in Melbourne’s outer suburbs by the end of the year after committing to unlock the $400 million already collected for the fund. Labor had previously come under fire for not allocating money from the fund in the past two state budgets.

Councils and government departments have been asked to put in bids by October 27 for projects in Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham ahead of the announcement of successful applicants in December.

Half of the existing fund will be made available for public transport projects such as new bus routes, or for road improvements in these areas. The Department of Transport and Planning will have input on creating a shortlist that will be passed on to ministers.

Another $200 million will come from the Building New Communities Fund and can be directed to a broader range of projects.

A spokesperson for the Allan government said: “We constantly review our revenue system to ensure it is appropriate to fund the services and infrastructure that Victorians rely on. Every dollar of the Growth Areas Infrastructure Contribution is spent on providing infrastructure for growing communities.”

The Coalition’s suburban growth spokesman, Evan Mulholland, said expanding the Growth Areas Infrastructure Contribution (GAIC) would drive up the cost of housing, but not guarantee the delivery of critical services.

“The record of the GAIC is one of policy chaos and failure,” the upper house Liberal MP said.

“Instead of being used to deliver critical infrastructure in growing areas, half a billion worth of funds have been hoarded for over two years to prop up the budget.

“Despite the desperate need for greater community and transport infrastructure in areas such as Donnybrook, Wyndham, Point Cook, Clyde and Werribee, more than half a billion dollars of GAIC remains unspent.”

The Growth Areas Infrastructure Contribution was established in 2010. The rates for the 2023-24 financial year are either $110,590 or $131,360 per hectare, depending on the parcel of land. Payment is due within three months of title transfer. However, there are exemptions, such as land that is five hectares or less.

If the levy’s scope is expanded, it would not be the first time Labor has beefed up a tax following its long-awaited housing reforms. In early October, Treasurer Tim Pallas surprised the property industry when he announced the expansion of the state’s taxes on vacant and underdeveloped properties.

Australian Industry Group boss Tim Piper urged the state government not to continue down this path.

“Every new tax makes businesses question their willingness to continue to invest in Victoria,” he said. “We understand government needs to be funded, but we also need to encourage growth.”

Property Council executive director Cath Evans said the current infrastructure contribution system was not fit for purpose, but stressed the government needed to carefully examine any impacts on housing affordability and supply as part of any potential overhaul.

“Any reform must be very carefully considered and requires deep and ongoing government consultation,” she said.

In September, Infrastructure Victoria boss Jonathan Spear called for the Growth Areas Infrastructure Contribution to apply to more of Melbourne. His reasoning was that new or better infrastructure – such as roads, schools and hospitals – needs to be supported in established areas as well as in new neighbourhoods.

In its housing statement, also released in September, the Victorian government unveiled a plan to help deliver 80,000 new homes every year for the next decade. To fulfil that goal, the Department of Transport and Planning will take charge of building communities in “priority precincts” around major transport and service hubs.

The first 10 zones, identified in tender documents from the Victorian Planning Authority, include Broadmeadows, Camberwell Junction and Chadstone. The VPA hopes to assume planning controls in those areas before the end of next year.

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