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When Land Rezoning Results in a Massive Increase in the Value of Land, Developers Pocket Huge Windfalls and Victorians Miss Out

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When Land Rezoning Results in a Massive Increase in the Value of Land, Developers Pocket Huge Windfalls and Victorians Miss Out FAIRER TAXES, BETTER DEVELOPMENT THE GREENS’ PLAN FOR A WINDFALL REZONING TAX When land rezoning results in a massive increase in the value of land, developers pocket huge windfalls and Victorians miss out. The Greens will introduce a rezoning windfall tax to reduce land speculation and the potential for corruption in the planning system and ensure developers pay their fair share. When land is rezoned for a new, higher use – for A WINDFALL REZONING TAX example, turning farmland into a residential area – the value of the land can increase significantly at the stroke The Greens will implement a Windfall Rezoning Tax on of a pen. increases in land value due to rezoning. Rezoning often happens on ex-industrial land, or in We believe that increases in land value from rezoning farmland on the edge of the city. When the land is decisions should be captured by the government, not rezoned, property developers and large landowners can freely given to developers and large landowners. The make massive, windfall profits. We believe these revenue from these windfall gains should be used to windfall gains should be shared with the community, fund services and infrastructure that will benefit every with additional revenue invested in public transport, Victorian, not just the profit margins of vested interests. schools and other infrastructure. Our proposal is that the tax would be levied at 75% of Developers also frequently engage in ‘land banking’ the difference between the officially assessed land where they purchase cheap industrial or farmland in the value before the rezoning compared to the land value hope that it will later be rezoned for housing afterwards. The details of the tax will be finalised development. Land banking and speculation is adversely through a period of consultation. affecting housing affordability. We also propose the tax be levied at the moment a Research in Queensland showed that the beneficiaries development application is made based on the new of rezoning decisions were overwhelming property higher zoning or when the land is sold at a value that is developers with political connections.i It is a get-rich based on the new zoning. This means that the tax is quick scheme for people on the inside, which only levied when the rezoning is acted on and will only exacerbates inequality, benefitting the few over the affect those who are making a windfall gain directly many. related to the rezoning. The potential windfall gains from land rezoning opens We will also implement a two year ‘use or lose it’ the planning system up for corruption. The pressure on requirement for developers buying land for Planning Ministers from political donors and other development. connected players should be a concern to all of us. The Parliamentary Budget Office is costing our proposal. AUSTRALIAN GREENS VICTORIA •REZONING TAX•2018 PAGE 1 Authorised and printed by Samantha Ratnam, 1/45 William Street, Melbourne, VIC 3000 FAIRER TAXES, BETTER DEVELOPMENT THE GREENS’ PLAN FOR A WINDFALL REZONING TAX WINDFALL GAINS FROM The capacity of developer donations to influence planning decisions is widely acknowledged and has REZONING been noted by the Victorian Ombudsman. Victoria’s recent planning history is ripe with examples Murray and Frijters’ groundbreaking study found that in of property developers making millions from rezoning Queensland between 2008 and 2012 well-connected decisions. landowners owned 75% of rezoned land, but only 12% of comparable land immediately outside the rezoning As Planning Minister, Matthew Guy frequently rezoned boundaries, indicating that these decisions were large swathes of land, handing millions of dollars to primarily driven by the relationship networks of the developers and land owners connected to the Liberal landowners, rather than technical assessments of the party. efficiency urban expansion locations.vii Against the advice of the planning experts, the planning In this ‘Game of Mates’, the big end of town makes department lawyers and the local council, Mr Guy millions in profit and the rest of us pay.viii rezoned farmland at Ventnor on Phillip Island to make it available for residential development. After public outcry he reversed the decision but was then sued by WHY IT WILL WORK the property developers who lost their multi-million dollar windfall profits.ii Capturing land value increases for the public good that result from government decisions has a long history. Overnight he effectively doubled the size of the Various infrastructure projects in Melbourne and around Melbourne CBD by creating Fisherman’s Bend, which the country have been paid for by land value capture handed tens of millions of dollars to big property taxes in the past. The ACT has had a similar tax to our developers and land bankers, many of whom were proposal in place successfully since 1971. Economists connected to the Liberal party.iii estimate that if a scheme like the ACT’s was implemented nationally, it would generate around $11 Another example that caught the attention of the public billion in government revenue per year.ix was Mr Guy rezoning farmland on the edges of Melbourne in 2012 giving more Liberal party donors Rezoning taxes like our proposal, sometimes known as potentially hundreds of millions of dollars in unearned betterment taxes, are supported by experts such as the wealth.iv Grattan Institutex and Industry Super Australia.xi Another example recently reported was the case of a A common critique of such taxes is that they are too land-banking firm Phileo Australia purchasing 366 complex, that it is too difficult to evaluate the land value hectares of farmland in Wyndham Vale in 2004 for $14.5 increases related to the rezoning. However, we have million that was later rezoned delivering this company faith in the Victorian Treasury and Valuer-General that $375 million in earnings.v they would be able to develop a robust process. Victoria already assesses value capture of land for infrastructure Between 2009 and 2012, successive Labor and Liberal projects. planning ministers in Victoria rezoned 47,000 hectares from the green wedge to residential use.vi These A further argument rolled out by the development rezonings gifted tens of billions to developers and land industry is that such a tax will increase development bankers. A rezoning tax would have ensured those tens costs and therefore house prices. It is a spurious and of billions were shared with all Victorians. simplistic argument that relies on the fallacy of the market being required to absorb such costs rather than additional costs affecting the profit margins of the developers. AUSTRALIAN GREENS VICTORIA •REZONING TAX•2018 PAGE 2 Authorised and printed by Samantha Ratnam, 1/45 William Street, Melbourne, VIC 3000 FAIRER TAXES, BETTER DEVELOPMENT THE GREENS’ PLAN FOR A WINDFALL REZONING TAX Furthermore, we suggest that the current system for tax. The current system of ad hoc levies would be development in Victoria based on land speculation is simplified and made more certain through our unsustainable and not working to provide affordable proposal. housing in any event. Our windfall rezoning tax will target unearned wealth Under the Green’s proposal, developers and land owners given to developers and large land owners by Planning will still retain 25% of the unearned increase in value Ministers. In the longer term, Victoria should start received from rezoning. The reduction in speculation on moving away from inefficient taxes like stamp duty and the other hand will open up more land for more unhealthy taxes like pokies revenues, to more effective innovative affordable development models to be used in and fairer taxation measures. Victoria. It is time for government to stop rigging the economy to The ‘use it or lose’ provisions will also ensure land benefit large scale landowners and property developers opened up for development is actually developed and with connections, and instead capture the value from not hoarded, contributing to more affordable housing. rezoning so it works for the interests of all Victorians. We believe the real resistance to a windfall development tax is rooted in the self-interest of the development i Cameron Murray and Paul Frijters, ‘Four ways we can clean up corruption in land rezoning’, The Conversation, 4 June 2015 industry and ideological support for lower taxes and https://theconversation.com/four-ways-we-can-clean-up- trickle-down economics, which is continuing to fail our corruption-in-land-rezoning-42557 society. ii Farrah Tomazin and Royce Millar, ‘The secret life of Matthew Guy, Liberal leader’, The Age, 9 November 2017 https://www.theage.com.au/national/victoria/the-secret-life- of-matthew-guy-liberal-leader-20171109-gzif5g.html IMPLEMENTATION iii Royce Millar, 'I wasn't told': Matthew Guy's misadventures with Liberal donors’, The Age, 8 August 2017 We recognise that introducing a new tax requires a https://www.theage.com.au/national/victoria/i-wasnt-told- period of consultation to ensure the details are right and matthew-guys-misadventures-with-liberal-donors-20170808- there are no unintended consequences. gxrhgb.html iv Royce Millar, ‘Liberal donors win big from rezoning’, The Age, 14 June 2012 The consultations would be concerned with https://www.theage.com.au/politics/federal/liberal-donors- implementing a tax within these parameters: win-big-from-rezoning-20120613-20am6.html v Clay Lucas, ‘Profits of almost $400m not enough, says A rate of 75%; developer in VicRoads fight’, The Age, 15 October 2018 The tax would be applicable when the new higher https://www.smh.com.au/politics/victoria/profits-of-almost- value of land gained through rezoning is realised. 400m-not-enough-says-developer-in-vicroads-fight-20181015- This could be at the point where a development p509th.html vi Royce Millar, ‘Government shifts green wedge boundary”, 13 application is made on the basis of the higher June 2012 rezoning or at the point of sale of land at the newly https://www.smh.com.au/business/companies/government- rezoned value.
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