Victoria's housing market has experienced shifts in affordability and investor activity, while its short-stay accommodation sector has seen growth stagnation, both occurring amidst the implementation of new state government taxes. These taxes, aimed at influencing property ownership, generating revenue for social housing, and improving affordability, have drawn varied responses from market analysts, industry bodies, and political figures regarding their effectiveness and broader market impact.
Overview of Victorian Housing Market Trends
Melbourne's housing market has shown signs of cooling, with observed improvements in affordability and an increase in first home buyer participation. New taxes introduced by the Victorian government have been cited as a contributing factor to these market conditions, alongside other influences such as slower population growth and sustained home building rates.
The Real Estate Institute of Australia (REIA) reported improved housing affordability in Victoria for the three months ending September. The report indicated that mortgage repayments constituted 43.4% of household income, a decrease from 44.4% in the preceding quarter. Rental affordability also showed a slight improvement, with 20.7% of household income required for median rents, down from 21% in the prior quarter.
Impact of New Taxes on Long-Term Housing
Tax Measures Introduced
In May 2023, the Labor government announced increases in investor taxes, including the introduction of a 10-year "COVID debt levy." This involved:
- Lowering the land tax-free threshold from $300,000 to $50,000.
- Adding new fixed charges up to $975.
- Doubling the absentee owner surcharge for foreign investors to 4%.
Market Analysis and Affordability
- CoreLogic's Perspective: An analysis by Eliza Owen, head of research at CoreLogic, suggested that these new taxes have contributed to a cooling in Melbourne’s housing market, potentially reducing competition for homes. Owen noted an increase in investment lending since 2023, though its growth rate remained below the national average. She outlined a scenario where investors exiting the market could facilitate renters becoming first home buyers, linking subdued price growth and reduced investor activity to increased affordability and first home buyer participation. However, Owen also raised the possibility that this trend might reduce new housing supply due to diminished feasibility for construction projects.
- Grattan Institute's Assessment: Brendan Coates, an economist at the Grattan Institute, assessed the direct impact of taxes on Melbourne property prices as likely minimal. He noted that these taxes have provided an advantage to first home buyers, as some investors have sold properties or opted against purchasing, leading to fewer investors at auctions. Coates also attributed Melbourne's comparative housing affordability primarily to its higher rate of home construction compared to other states.
First Home Buyer and Rental Data
- First home ownership in Melbourne has risen and is currently the highest in Australia. Australian Bureau of Statistics (ABS) home loan data reported approximately 70,000 first-time home owners in Victoria during the two years ending September 2025.
- Victorian rental bond data illustrates a decrease in active bonds, falling from 678,885 in June 2023 to 655,625 by June 2025. This metric is commonly used to gauge investor involvement. Despite a reduction in the number of rental bonds, vacancy rates have maintained relative stability over the past year.
Industry Concerns on Future Supply
Property industry representatives have voiced concerns regarding future housing supply, attributing potential reductions to higher taxes exacerbating the effects of elevated construction costs. Developers have used the phrase “anywhere but Melbourne” to highlight their view that high government charges affect the feasibility of apartment developments.
Short-Stay Accommodation Market and Levy
Market Stagnation
Growth in Victoria's short-stay accommodation market, which includes platforms like Airbnb and Stayz, halted in 2025. Data from AirDNA indicates that the average daily number of short-stay properties listed across Victoria in 2025 was 43,735, a marginal decrease from 43,738 in 2024. This contrasts with significant growth in previous years, including a 22% increase in 2023 and a 12% increase in 2024, as the market recovered post-COVID-19.
Linda Rollins, an AirDNA research analyst, suggested that the listing slowdown is more likely a result of cooling customer demand rather than the new tax levy. Accommodation demand growth decreased to 6% in 2024 and further to 2% in 2025, leading to an excess of supply over demand and contributing to falling occupancy rates.
The Short-Stay Levy and Revenue
A 7.5% levy on short-stay rentals (for stays under 28 days) was announced in 2023 and implemented in January 2025. Its primary goals are to encourage property owners to transition short-term rentals to the long-term market and to generate revenue for Homes Victoria, specifically for social and affordable housing projects. Twenty-five percent of the revenue is earmarked for regional Victoria.
The government initially projected the tax would raise approximately $75 million annually. However, only $19 million was collected in the first six months of the tax's operation. This revenue uncertainty coincides with Homes Victoria recording a $359 million deficit, which a state government spokesman attributed to "timing differences between government funding and project expenditure."
Limited Effect on Long-Term Rentals
Multiple studies indicate that the levy has had little impact on shifting properties to the long-term rental market. A 2025 University of Canberra study, led by Professor Naomi Dale, found that most short-stay owners use their properties for personal holidays or or intend to move into them in the future. These owners were unlikely to switch to long-term leasing, citing concerns about renter rights. Victorian government data for 2025 showed a continued decline in active rental bonds, indicating fewer available long-term rental properties overall.
Political and Industry Perspectives
Government Rationale
A state government spokesman maintained that Homes Victoria's deficit does not affect service delivery and affirmed that the Short Stay Levy is intended to increase long-term rental or sale opportunities and increase housing supply through streamlined planning and development.
Opposition Criticism
Opposition Leader Jess Wilson criticized the Labor government's property taxes, stating they were unrelated to affordability and instead represented an attempt to finance government spending. She argued that increasing taxes would not lead to more affordable homes and that additional property tax costs would ultimately be borne by home buyers or renters. Wilson advocated for Victoria to adopt new policies involving tax and red tape reductions to enhance its competitiveness as an investment destination. She also characterized the short-stay levy as a "desperate attempt" to address Homes Victoria's financial challenges, stating that a Liberal and Nationals government would repeal the tax.
Industry Views on Supply and Confidence
Brendan Coates of the Grattan Institute cautioned that higher surcharges on foreign investors could reduce the viability of major off-the-plan apartment projects, which traditionally rely on international capital. Cath Evans, chief executive of Property Council Victoria, stated that the impact of higher investment property taxes would ultimately affect renters. She suggested that efforts to improve affordability for both local buyers and renters should focus on increasing supply and restoring investor confidence, rather than implementing additional taxes.
Recent data indicates that foreign investors are acquiring more property in Victoria than in any other state, primarily focusing on new dwellings and undeveloped land valued under $1 million.