Melbourne Landlords Hit With NEW Land Tax — Threshold CRASHED to $50K

[00:00:00]Property investors are fleeing Victoria because of higher land tax and interest rates.

[00:00:05]>> If you are a landowner in Victoria at the moment, you actually feel like an enemy of the state.

[00:00:10]>> The The examples that have been given to me of people who've had land tax bills that like they've got one or two investment properties. Land tax bill goes from like 5,000 to 50,000.

[00:00:19]>> My land tax has more than doubled. This tax is going to increase in the next year every February. It'll go up by $50,000.

[00:00:26]>> This is my first investment property. It will be probably in my last.

[00:00:31]>> I've seen situations where people's bills have actually tripled over the course of 1 year.

[00:00:36]>> We don't mind paying a nominal land tax.

[00:00:39]Everybody does, but this is this become out of bounds now. Increasing by 23 times in 10 years is crazy.

[00:00:46]>> It is at the stage now where I will never ever ever invest in Victoria again.

[00:00:52]>> In early 2024, hundreds of thousands of Victorians opened an envelope they'd never received before in their lives.

[00:01:01]Inside was a bill from the state, a land tax bill on a property many of them had owned quietly for years without ever paying a cent of it. They hadn't bought anything. They hadn't changed anything.

[00:01:14]The rules had changed underneath them.

[00:01:17]>> We have absolutely no idea and there's no one giving us any indication as to of how they came up with the figure.

[00:01:22]>> We were very frustrated and if not furious.

[00:01:25]>> I really feel it's a an unfair system and >> I'm just so angry that as a landlord, I shouldn't have to feel guilty about owning property.

[00:01:35]>> Almost overnight, the point where land tax kicks in was slashed from $300,000 down to $50,000. And with that one change, more than 328,000 Victorians were dragged into paying a tax they'd never paid before.

[00:01:52]>> biggest changes in my view for land tax here in Victoria. So, as you'll see in that first point there, it used to just be in 16 inner and middle suburbs here in Victoria. But, as of this year, that has increased to the whole of Victoria.

[00:02:06]>> For some, it was a few hundred dollars.

[00:02:09]For others, thousands. And for a few, it was the number that ended their whole plan for retirement. One Victorian landlord with 10 properties rang up talkback radio and said the new taxes were, in his words, "pounding him into the ground and that he was selling the lot and would never invest in this state again."

[00:02:30]>> Yes, hello. Look, I'm a landlord and I can tell you I am sick and tired of getting pounded into the ground by this government with introducing new taxes, new fees, new regulations. It is ridiculous.

[00:02:45]It is at the stage now where I will never ever ever invest in Victoria again.

[00:02:51]I'm going to get sell it all my residential investment properties are going to be sold.

[00:02:56]>> Today, I'm going to show you how one line in a state budget quietly reshaped who can afford to own a home in Melbourne. Why it's the renters who ended up paying for it, and why, for a lot of people, the maths simply doesn't maths anymore.

[00:03:12]Let's get into it.

[00:03:13]>> I'm just a normal person that's trying to get ahead in life. I'm trying to get ahead in my small business.

[00:03:19]>> So, let's start with what actually changed because it sounds dry and it is anything but. Land tax is a yearly bill the state charges on the value of the land you own on top of your home if you own an investment property. For 20 years, if the land under your rental was worth less than $300,000, you paid nothing. That was the deal.

[00:03:41]That's the deal most mom-and-dad landlords bought into. One extra property, a bit of security for later, no yearly tax to worry about.

[00:03:50]Then the deal changed. The threshold didn't drift down. It collapsed. 300 grand to 50 grand in one hit. And $50,000 of land value is nothing in Melbourne.

[00:04:02]There is barely a suburb left in this city where the land under a modest unit is worth less than that.

[00:04:09]So, in practical terms, the government didn't just lower a threshold. It moved the line from most small landlords pay nothing to almost every landlord pays something in a single stroke.

[00:04:22]>> In 2023, the Victorian state government reduced the threshold for paying land tax on properties. It used to be second properties valued at 300,000.

[00:04:33]Now, [music] it's been reduced to 50,000.

[00:04:36]>> So, this is one of the biggest changes in my [music] view for um land tax here in Victoria. So, as you'll see in that first point there, it used to just be in 16 inner and middle suburbs here in Victoria. But, as of this year, that has increased to the whole of Victoria.

[00:04:51]>> So, basically takes in every investment property, every holiday home in Victoria.

[00:04:56]>> And here's what that felt like on the ground. A Melbourne landlord logged in, saw their new assessment, and posted online in disbelief. Their land tax had jumped 35% in a single year. And they genuinely weren't sure it was a mistake.

[00:05:11]It wasn't. That was just the new normal arriving in the letterbox.

[00:05:15]Now, I want to be careful here because the number in the title $8,000 isn't what every landlord copped. Plenty of smaller owners got a bill of a few hundred or a couple of grand. One worked out that on a $500,000 investment they were now handing over nearly $2,000 a year out of money they'd already paid income tax on.

[00:05:38]And that's the bit people outside this get wrong. They picture landlords as tycoons in penthouses. The reality in Victoria is overwhelmingly ordinary. A nurse bought a second place, a couple who put their savings into a unit instead of shares, retirees who chose bricks over super because it felt safer.

[00:05:56]For those people, a couple of thousand dollars a year in a brand new tax isn't a rounding error.

[00:06:03]It's the difference between the property making sense and not making sense at all.

[00:06:08]>> I've seen situations where people's bills have actually tripled over the course of 1 year.

[00:06:13]>> My land tax is more than double. This is my first investment property. It will be probably in my last.

[00:06:19]>> Eric's paying $1,765 in land tax.

[00:06:25]>> The government is not doing enough [music] to have a fair playing field for both for both the landlord and the tenants.

[00:06:31]>> And to see where this road leads, if the land keeps rising, look at what happened to one Victorian holding over a decade.

[00:06:39]Their land tax bill climbed from around 8 and 1/2 thousand dollars 10 years ago to over 200 thousand dollars today, on the very same block they'd held the whole time. That one's a business rather than a mom and dad rental, so don't read it as the typical bill. But it shows you the direction of travel because land tax compounds as land values climb, and Melbourne land values have done almost nothing but climb for decades. But the bigger the holding, the more brutal it got.

[00:07:08]>> Angie's on 4 acres. 10 years ago, his land tax bill was $8,700.

[00:07:16]This year, it's a whopping $203,600.

[00:07:22]That's a 2,240% increase.

[00:07:26]>> This has gone out of bounds now, increasing by 23 times in 10 years.

[00:07:31]>> And it wasn't just land tax on its own, it came stacked. On top of land tax, there's a separate tax on vacant residential land and a levy tied to the value of your property for emergency services.

[00:07:44]Three separate bills, three separate rules, all landing on the same owner in the same year. As one landlord put it, it stopped being a tax and started being a pile-on. Which brings us back to that bloke on the radio with 10 properties.

[00:07:59]He wasn't some faceless corporation. He was exactly the kind of person these rules landed on hardest. Someone who'd built up a handful of rentals over years, brick by brick, something to his kids or fund his own retirement, and who suddenly found the yearly tax bill turning the whole thing from an asset into an anchor. His response was to sell everything and walk, and to say out loud that he'd never invest a cent in this state again.

[00:08:26]And that post about him, thousands of people upvoted it. Because thousands of people were sitting at their own kitchen tables, feeling exactly the same thing, doing the same grim arithmetic, reaching the same conclusion.

[00:08:40]>> Victoria, the tax state. That's what actually should be on our number plates.

[00:08:45]If a developer decides to build a project, they're hit with a contribution fee, a tax.

[00:08:53]If the average mom and dad buy an investment property, they're hit with land tax.

[00:08:59]If the average person buys a property and it stays vacant cuz they can't rent it, they're hit with land tax and vacant land tax. If you're going to buy a home, your dream home, the government says, "Oh, we need some stamp duty tax, more tax."

[00:09:15]>> But here's the part that changes how you see all of this. None of it was an accident. This wasn't a market that drifted, or bad luck, or a global shock.

[00:09:25]It was a decision, written into a single state budget, and I can show you the government's own document that explains exactly why they did it.

[00:09:34]Right. So, why crash the threshold in the first place?

[00:09:38]It comes down to one thing, debt.

[00:09:41]Through the pandemic, the state spent enormous amounts, and afterwards, it needed to claw that money back. So, in the 2023 state budget, the Victorian government created what it called the COVID debt repayment plan. And one of the main ways it chose to repay that debt was to reach into property.

[00:09:59]Dropping the land tax threshold from 300,000 to 50,000 was the lever.

[00:10:04]It instantly turned 328,000 people who'd never paid land tax into people who now did. Every single year.

[00:10:12]On paper, it's tidy. Lots of small bills add up to a lot of money.

[00:10:17]But out in the real world, the system it created was a maze.

[00:10:21]>> Over the last few years, the Victorian state government has expanded and increased a range of taxes to claw back debt accumulated during COVID.

[00:10:30]>> The land tax increases are to recoup COVID debt. The changes will last 10 years.

[00:10:34]>> And the Victorian government aimed to make a pretty penny out of it to help curb the state's soaring debt.

[00:10:43]>> And it caught people in ways that felt almost designed to infuriate. One owner discovered they were being billed land tax on a property they'd already sold, simply because of who held it at the stroke of midnight on the 31st of December.

[00:10:57]Sold the place, gone from your life, still on the hook for the tax. Another owner opened their mail to find five separate land tax bills for what they considered a single property. Five for one place. Because of the tangle of rules around how different ownership structures get taxed. And a rural couple were left fighting a bill after their property was mistakenly valued at over $2 million.

[00:11:21]A valuation error that inflated their tax to something they never should have owed.

[00:11:26]That's the thing about a system built this fast and pushed this wide. The mistakes land on ordinary people, and it's ordinary people who then have to spend their own time and money fighting to fix them.

[00:11:38]>> Emily and David Gridley run a small towing company. They bought the land to store cars in 2020 for $440,000.

[00:11:47]In January, they were shocked to receive a $32,000 land tax bill after the property was valued at more than $2 million.

[00:11:56]>> There's no rhyme or reason or qualifications to what's going on. So, it's like they're saying it's going up, but the reality [music] is that it's nowhere near that. There's no power. There's no water.

[00:12:06]>> At the moment, it's probably worth more money for hay than anything.

[00:12:10]>> And then people did the one thing the whole plan didn't account for. They left. According to the property investors' own peak body, nearly one in three Victorian investors sold a property. And of those who sold, more than a third pointed straight at increased land tax and government charges as the reason.

[00:12:28]>> There's a boom in the number of homes up for sale with claims property investors are fleeing Victoria because of higher land tax and interest rates.

[00:12:38]>> The number of properties for sale in Victoria is up almost 40% on this time last year, more than all other states.

[00:12:45]Too much, claim analysts, for the market to absorb. They blame a combination of higher land tax and higher interest rates.

[00:12:52]>> Now, to be fair, there's a genuine counterargument here, and you'll see it in the comments the second this goes up.

[00:12:59]When a landlord sells, the house doesn't vanish into thin air. Someone buys it, and often that someone is a renter finally becoming an owner, which, for that person, is a brilliant outcome.

[00:13:12]That's a real point, and it's worth sitting with. But it misses something crucial, and that something is where this story turns dark. Because not every renter who loses their rental gets to buy it. Most don't. And when this many landlords sell at once, the rental market doesn't just wobble, it breaks.

[00:13:32]For the first time since records began back in 1999, the number of active rentals in Victoria actually went backwards. Around 24,000 rentals gone from the market in a single year.

[00:13:45]24,000 homes doesn't sound like much against a whole city until you remember every one of those was somebody's roof. That's 24,000 front doors that used to be available to rent and simply weren't anymore.

[00:13:59]And in a market that had grown every single year for as long as anyone had been keeping track going backwards even once was the signal that something had genuinely broken.

[00:14:08]This wasn't a slow leak. It was the tap being turned off.

[00:14:13]>> Another rental property gone.

[00:14:15]>> Whistle. Congratulations to our >> Snapped up by first home buyers, this house was rented long-term, but its current owner had to sell.

[00:14:24]>> The costs and the expenses were just too, you know, too significant.

[00:14:29]>> Our tightest rental market on record is about to get much worse.

[00:14:33]>> It is scary, really scary. It's terrifying.

[00:14:36]>> Around half the state's landlords are looking to sell their investment properties. Many can no longer afford to keep them because of the new land tax.

[00:14:45]>> Unfortunately, the the landlords who are beautiful people, they've been slugged with this land tax.

[00:14:50]>> And here's the thing about that. It wasn't one bad suburb. It was nearly everywhere. Right across Melbourne, council area after council area lost rental stock. The inner city, the outer east, the growth corridors, all of it thinning out at once.

[00:15:06]Fewer rentals, same number of people needing them. You know exactly what that does. It turns every inspection into a scrum and every lease into a lottery. It got so crowded that inspections started running with queues out the door. Agents in some spots capping the number of people allowed through a single open.

[00:15:26]Tenants copped rent rises of around $15 a week in just the first 3 months of 1 year. Nearly $800 more a year straight out of the renter's pocket and into a shrinking pool of landlords.

[00:15:38]>> Close to 1,200 homes were taken off Melbourne's rental market in the past month. The state's vacancy rate plummeting to a new record low. Lining up at lunchtime, these renters are desperate to live in Fitzroy, but so it seems is the rest of Melbourne.

[00:15:54]>> 100 other people applied for my apartment.

[00:15:57]>> It's just really difficult. It's an intense competition.

[00:16:00]>> I find everywhere's like there is so many people looking at each place that even if you really love it, the chance you'll get it is quite low at the moment.

[00:16:08]>> But a rent rise is an abstraction until you see what it does to a real person.

[00:16:13]So here's the human face of this whole thing. A Victorian mother and her 19-year-old son who has ADHD and autism ended up living in a tent in bushland near Castlemaine after 13 months of failed rental applications. 13 months.

[00:16:30]Her words were simple and devastating.

[00:16:32]She'd gone from barely being able to afford a rental to there not even being one available.

[00:16:37]That's not a landlord's balance sheet.

[00:16:40]That's a family in a tent at the far end of a decision made in a budget spreadsheet.

[00:16:45]>> It's the middle of the night and by daybreak the situation hasn't improved for this young mum. Susanna Taylor and her family live in a tent. Just down the road from Susanna in Burrum Heads near Hervey Bay, Ian Heron has also been forced to live a life in a tent unable to get rental accommodation.

[00:17:07]>> I'd settle for a roof over my head, somewhere warm and dry for me and my little dog. That's all.

[00:17:14]>> Cassie and her two little boys have been homeless since July, bouncing between hotels and crisis accommodation.

[00:17:21]There've been days they've gone without meals.

[00:17:24]>> Yeah, and I just want a home for these boys.

[00:17:26]I just want my boys to grow up happy and healthy.

[00:17:30]And know that they've got somewhere to sleep every night. I'm sorry.

[00:17:35]>> Now, if you're thinking surely no one could have seen this coming, they did.

[00:17:39]Because it's already happened somewhere else. Look at the United Kingdom. A few years back, they changed the tax rules on landlords, too, squeezing the tax relief that made renting a property out worthwhile. And landlords there did exactly what Victorian landlords are doing now. They sold and left in huge numbers. An estimated quarter of a million of them walked away from the market. And rents? Rents went up because the homes to rent dried up. It's not a theory. It's a completed experiment run on 20 million people with a result already in the history books. Same playbook, same ending. To be fair, and this matters, Victoria's land tax does raise real money that pays for real things. And Melbourne's rent rises have actually been milder than some other capitals. Nobody's saying the state shouldn't tax property at all. But look at what the places getting it right actually did. In New Zealand, rents have started falling for tenants. And they did it not by taxing existing landlords harder, but by building more homes. The international consensus, right up to the OECD, is blunt about it. You fix a housing shortage by increasing supply, not by taxing the existing supply until it shrinks. That's the whole game. Build more homes and prices ease. Tax the homes you already have and the people who own them quietly disappear, taking the rentals with them.

[00:19:08]Translation, while other places built their way out, Victoria taxed its way deeper in.

[00:19:14]>> If you go and have tax reforms that target investors, suddenly investors are saying, "Well, it's no longer my problem. I don't want to hold an investment property." And that means one less rental property. So, supply and demand, if there's less rental properties and more people need to rent, you're going to have rents go higher.

[00:19:29]>> Fundamentally, housing affordability is about is about supply. Uh if you go back to when I was a kid, we had uh houses costing about 5 years average income.

[00:19:38]Now, they cost about 12 years average earnings. Uh that increase is fundamentally because the housing supply hasn't kept up with demand.

[00:19:46]>> And now for the twist that makes the whole thing almost hard to believe.

[00:19:50]Remember, the entire point of crashing that threshold was to raise money to pay down the state's debt. So, did it work?

[00:19:58]Here's the punchline. The land tax take has now come in below target 2 years running. The state is around $128 million behind where it was just 2 years ago on this very tax. And falling property prices have blown a roughly $2 billion hole in the budget on top of that. Let that sink in. They lowered the threshold to squeeze more money out of property owners. The property owners left. The rental market broke. Rents went up. Families ended up in tents. And at the end of all of it, the government is collecting less, not more. Every single thing that was supposed to happen happened backwards. The one goal of the policy was money, and the money went down.

[00:20:40]The one thing it wasn't supposed to touch was renters, and renters got hit hardest of all. The whole thing, from top to bottom, is absolutely cooked. And that's the part I want you to really hold on to because it's the difference between this being a story about tax and this being a story about you. A tax that raises money and does some harm is at least a trade-off you can argue about.

[00:21:06]This is a tax that ended up raising less money and did enormous harm to landlords, to renters, to the budget itself. There's no version of the ledger where this comes out ahead. It's a lose-lose that was sold as a win.

[00:21:21]So, where does this leave you right now depending on who you are? If you're a landlord in Victoria, you already know the maths doesn't maths anymore. The real question is whether you hold and hope the settings change or sell into a softening market and take the certainty over the stress. Only you can run that number, but run it with clear eyes. If you're a renter, this is why the queue at every inspection feels impossible.

[00:21:47]You're not imagining the squeeze and you're not being fussy. You're living inside a rental pool that physically shrank underneath you and that's not your fault. If you're a first home buyer, there's a strange silver lining buried in here. Some of those ex-rentals are becoming the homes first timers finally get to buy. So, watch the ex-rental listings in your area closely because opportunity and crisis are sitting in the same street right now.

[00:22:13]And if you're an investor weighing up your next move anywhere in the country, understand that the real lesson of the last two years isn't about one tax in one state. It's about how fast the rules can change underneath an asset you were told was the safe one. If you're in one of these situations, tell me which one in the comments because half the value of understanding this is realizing how many other people are in it right alongside you.

[00:22:40]Here's the truth. One line in a state budget crashed the land tax threshold from 300,000 to 50,000, dragged hundreds of thousands of Victorians into paying it, drove enough landlords out that the rental market shrank for the first time on record, and the tax still ended up raising less than before. I'll be breaking down what's really happening to Australian property every week. The taxes, the trends, the decisions most people never see coming. Subscribe to Aussie Explained so you don't miss the next one. Thanks for watching. See you in the next one.