How thousands of Melbourne’s empty homes are dodging millions in tax

Thousands of empty homes are dodging Victoria’s vacant residential land tax, potentially costing the state tens of millions in lost revenue and undermining efforts to free up unused homes to boost housing supply.

Data obtained from the State Revenue Office (SRO) reveals just 1779 properties were assessed for the tax last year, falling well short of the 5000 properties that the Parliamentary Budget Office (PBO) estimates should have been liable.

A government crackdown last year, largely targeting apartment towers, helped boost revenue, with 1779 homes taxed in 2024, up from 1013 in 2023. However, it has failed to significantly curb widespread non-payment, leaving the vast majority of estimated vacant properties untaxed.

Grattan Institute economist Brendan Coates said the VRLT was difficult to enforce and could only have a marginal impact on unlocking housing supply.

“It is an inherently difficult tax to police, so I am not surprised if it is bringing less revenue than expected ... it is not like there is a central register of vacant properties,” he said.

“While on the margins it might help some extra homes end up on the market, it’s not going to be a big lever you can pull and see a big boost in housing supply.”

Coates believes large-scale rezoning of land for higher-density residential purposes, such as the state government’s new townhouse code, is a far more effective way to boost housing supply.

The new data shows last year the government took in more than $20 million in revenue from the tax, up on the $11.3 million from 2023.

But based on the average bill of $11,000 a year, the government could still be missing out on $34 million in revenue from the estimated 3200 missing properties.

Victoria’s VRLT was first introduced in 2018 to encourage greater use of residential properties in inner and middle Melbourne, initially applying a flat rate of 1 per cent of a property’s capital improved value if it was vacant for more than six months.

However, it largely relies on self-reporting, and various exemptions apply, including grace periods for properties under active construction or major renovation. Holiday homes used for a minimum period are also generally exempt.

Significant changes were legislated in late 2023, with major expansions beginning at the start of this year when the tax became enforceable statewide. It now also features a progressive rate of up to 3 per cent, increasing with each consecutive year a property remains vacant.

In its report released in late 2023, the PBO estimated that the number of properties required to pay will rise from 5000 to 10,000 from this year, when the charge is expanded to all metropolitan homes.

It noted the number of potentially liable properties was difficult to estimate, given uncertainties with vacant property data and a lack of data on exempted properties.

The 2023 changes stemmed from a deal between Labor and the Greens and included a commitment to publish the results of the apartment compliance trial, which will expand to inner- and middle-ring Melbourne suburbs this year.

Gabrielle de Vietri, Victorian Greens housing spokesperson, said developers and investors were avoiding the tax, which should be freeing up homes for first home buyers and renters.

“In a housing crisis, the Labor state government must close the loopholes that allow developers and investors to avoid this tax, and which allow thousands of homes to sit empty while we’re in a housing crisis,” she said.

Cath Evans, Victorian executive director of the Property Council, said she was concerned the tax penalised developers for unsold properties which could deter new housing supply.

“The discrepancy between the number of properties estimated to be liable and those actually assessed for the VRLT highlights the complexity of implementing this policy,” she said.

“It reinforces the need for careful, evidence-based policymaking that targets genuinely vacant established homes, without unintentionally penalising new housing supply that is yet to be sold or occupied.”

From next year, the VRLT will further expand to include undeveloped residential land in metropolitan Melbourne that has remained vacant for five years or more.

Charter Keck Cramer chief executive Richard Temlett warned these changes risked further inflating the already high costs hindering new housing projects.

“There’s a perception that developers are all greedy and land-banking – but that’s not the case,” he said.

“It’s just that it’s not viable because there are no buyers there right now and build costs are so high.”

A state government spokesperson said the tax was designed to encourage more owners to make their homes available for rent or sale.

“While we’re getting on with getting more Victorians into a home, the Greens continue to block homes from getting built. That’s not leadership, that’s just cheap politics – and Victorians deserve better.”

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