Victoria's housing landscape is currently grappling with distinct strategies from the incumbent Labor government and the Liberal Coalition opposition, both aiming to bolster housing supply and affordability.
The Labor government advocates for high-density development in 60 "activity centres" near public transport and a statewide Townhouse Code, targeting 300,000 new homes in these centres by 2051 as part of a broader goal to deliver 800,000 properties over a decade.
In contrast, the Liberal Coalition proposes expanding Melbourne's central business district (CBD) zone for high-rise development while reversing high-density plans in middle-ring suburbs and fast-tracking outer suburban growth. These proposals come as recent data highlights a shortfall in housing completions against state targets, compounded by challenges related to commercial viability, escalating construction costs, and property taxes.
Government's Housing Strategy
The Allan government's housing policy places a significant emphasis on 60 designated "activity centres," with 58 linked to public transport. Two additional sites in the Cities of Melbourne and Yarra are to be identified collaboratively with councils. Draft maps for 23 additional train and tram activity centres have been released, augmenting the 35 previously published. The core aim of this initiative is to encourage higher-density housing development in close proximity to public transport corridors.
Key Features of Activity Centre Plans:
- Height Limits: Proposals include buildings reaching up to 20 storeys near Caulfield train station, and up to 16 storeys in specific areas of Malvern, Prahran, South Yarra, and Springvale. Height limits are generally highest near railway stations and at key locations like Toorak Village, which is on a tram line.
- Lower-Density Zones: Within a five-minute walk from a station, limits could extend to four storeys (or six for blocks over 1000 square metres). Areas within a ten-minute walk could have limits of three storeys (or four for larger blocks). Catchments are designed to merge in areas with closely located stations.
- Strategic Sites: Two specific sites on the western side of Caulfield Racecourse have been earmarked for urban renewal, though detailed height limits for these locations are yet to be determined.
- Public Consultation: Public consultation on the draft maps is ongoing through February and March. Approximately 3,000 submissions were received before the release of height limits, indicating that adjustments to height limits and boundaries may occur based on community feedback.
- Targets: The government anticipates finalizing plans for all 60 centres by mid-year. These centres are projected to contribute over 300,000 new homes by 2051. Planning Minister Sonya Kilkenny affirmed that these reforms aim to provide Victorians with a wider array of housing choices.
Other Government Initiatives:
- Townhouse Code: Set for introduction in early 2025, a statewide Townhouse Code will establish uniform standards for low-rise developments. Projects that meet this code will be "deemed to comply" and receive mandatory council approval, thereby bypassing potential VCAT challenges.
- Greenfield Development: Labor's 10-year plan also includes the approval of 27 new or updated structure plans to facilitate 180,000 homes in greenfield areas.
- Overall Target: The state government has an overarching objective to deliver 800,000 properties over the next decade, averaging 80,000 homes per year.
Opposition's Housing Proposal
The Victorian Liberal Party has put forth an alternative housing plan that seeks to expand Melbourne's central business district (CBD) zone and significantly alter the approach to density in middle-ring suburbs.
Key Proposals:
- CBD Expansion: The Capital City Zone (CCZ) would be extended to inner-city areas such as Southbank, North Melbourne, Fishermans Bend, Parkville, Fitzroy, and Collingwood. This expansion is designed to allow for increased residential density, including skyscrapers, with the stated aim of boosting city businesses and restoring vibrancy. Height limits would be highest closest to the CBD and gradually reduce towards established neighborhoods, with provisions for higher limits around heritage buildings with appropriate design standards.
- Middle-Ring Suburbs: The plan proposes removing state-imposed high-density overlays in the 60 suburban activity centres, thereby returning planning control to local communities.
- Outer Suburban Growth: The Liberal plan aims to accelerate the delivery of homes in new growth areas by imposing a two-year limit on the approval process for 27 Precinct Structure Plans, some of which currently extend into the late 2030s.
The Liberal plan does not explicitly address "missing middle" housing, such as townhouses and low-rise apartments. The Coalition previously opposed the Labor government's Townhouse Code, citing concerns about diminished local community power.
Housing Construction Data and Economic Viability
Official data indicates a challenging landscape, with Victoria currently constructing fewer homes than it did prior to its 2023 housing statement. The state is approximately 44,000 homes behind its 10-year target after two years, with completions reaching their lowest level since 2014. For the year to September 2025, 54,323 homes were completed, and 61,702 in the year to September 2024, both figures falling below the annual target of 80,000 homes.
Inter-state Comparison: Despite these challenges, Victoria has continued to build more homes than most other Australian states. In the year to September 2025, Victoria completed 10,000 more homes than New South Wales and 20,000 more than Queensland. The state is positioned ahead of all states except the ACT regarding federal housing targets, which aim for 1.2 million homes over five years starting from 2024.
Commercial Viability Challenges:
- Construction Costs: A significant 40 percent surge in construction costs over the past five years has been identified as a primary obstacle to development.
- Demand: Low demand for new apartments in some more distant centres, such as Broadmeadows and Epping, also poses challenges for developers.
- Property Taxes: Developers and property industry groups have consistently cited high taxes on local and foreign investors, including the windfall gains tax and absentee owner surcharge, as deterring housing investment.
- Feasibility Analysis: Analysis from the Grattan Institute suggests that only 18 percent (approximately 110,000 homes) of the planned capacity of 600,000 homes in activity centres is currently commercially feasible for construction.
Stakeholder and Expert Perspectives
Government Views:
Planning Minister Sonya Kilkenny's office acknowledged global pressures on housing delivery and stated that planning system reforms are being implemented to reduce upfront costs and cut red tape. A government spokeswoman indicated that some key reforms, including recent planning law overhauls and the activity centre initiative, are still being implemented and their full impact is yet to be realized. The spokeswoman also stated that the Liberal plan would not increase homes, would cut 300,000 new homes from activity centres, and could potentially increase housing prices by returning power to local councils.
Opposition Views:
Opposition Leader Jess Wilson attributed housing challenges to property tax burdens and stated that government data indicates their housing plan has not met expectations. Opposition planning spokesman David Southwick criticized Victoria's property tax burden and argued that the government's strategy requires critical infrastructure in addition to increased density.
Industry and Academic Perspectives:
- Property Council Victoria supported the intent of the government's activity centres program but emphasized that targets must be grounded in market reality due to construction costs and increasing taxes. Its executive director, Cath Evans, also supported certainty for developers in greenfield areas through measures like two-year deadlines for precinct structure plans, but cautioned against relying solely on the inner city to meet housing demand.
- Urban Development Institute of Australia (UDIA) chief executive Linda Allison welcomed the greenfield development aspect of the Liberal plan, citing costly delays in current systems impacting affordability. She acknowledged the potential of the inner-city policy but sought more details on middle-ring suburb plans, advocating for density across Melbourne. UDIA, along with Maple Property Group CEO Beau Arfi, stated that planning reform alone is insufficient, advocating for both planning and tax reform to address high taxes and construction costs.
- Grattan Institute's Brendan Coates recommended reforms such as increasing height limits in outer areas from three to six storeys, eliminating costly land amalgamations, and expanding the activity centres program to high-demand areas like Fairfield, Ivanhoe, and Newport. He also suggested allowing residential buildings of at least 12 storeys in high-demand suburbs such as South Melbourne and Hampton. Coates described the Liberal CBD expansion as "very back to the future" and considered the government's Townhouse Code its most effective supply policy, estimating it could unlock nearly 1 million homes, with 400,000 being profitable to build.
- RMIT University's Emeritus Professor David Hayward argued that the government should not solely rely on the private market for higher-density homes and suggested direct intervention might be necessary. He questioned the necessity of extended housing targets, noting that the government's land tax regime has already moderated property prices. Professor Hayward and Stephen Glackin of Swinburne University suggested the Liberal plan may be election-focused, potentially protecting middle-ring suburbs and shifting density to traditional Labor and Greens strongholds.
- Planning Institute Victoria President Patrick Fensham noted that the Coalition's proposal could lead to more inner-city apartments and outer-ring detached housing, potentially missing opportunities for diverse housing in middle-ring suburbs. He highlighted structural barriers to higher density in areas like Collingwood and Fitzroy due to fine-grain subdivisions and a soft development market.
- YIMBY Melbourne, a pro-density group, suggested that the peak of the construction cost crisis may have passed, noting that planning changes will enable building as economic viability improves.
Community Concerns:
The activity centre plans have drawn concerns from some local communities and opposition figures regarding resident input. Critics and local councils have characterized Labor's program as a top-down planning approach that reduces community appeal rights. Community groups and the Municipal Association of Victoria (MAV) have criticized parts of the Townhouse Code and other planning reforms removing third-party consultation, arguing that community consultation and objection rights have been eroded.