Because the tax raises costs and stifles development, it will suppress supply, forcing prices up. It will also force a developer to charge a higher price for the end product. Development feasibilities do not count company tax or personal tax as a cost, but they do count taxes levied on the way through, such as land tax, stamp-duty and GST.
A developer who rezones a property and increases its value effectively buys more cheaply, making it easier for them to bring affordable product on stream. In fact, they will probably end up sharing some of their good fortune with the purchasers. Increasing tax on the way through means they are going to load all of that onto the end product, or they won't do the project at all.
Ironically, to combat housing affordability, the Victorian government has a number of schemes to lower costs for developers and subsidise build-to-rent schemes. So on the one hand they charge a tax that decreases housing affordability, and on the other they will probably end up using most of the windfall, and more, subsidising housing affordability elsewhere as well as paying for the deadweight of increasing layers of bureaucracy.
The whole fandangle is a version of Marx's labour theory of value that imputes no value to the work of the entrepreneur, and delegitimises entrepreneurial effort on the basis it is achieved by exploiting someone else and is "unearned". To ethically justify the tax you have to see the uplift in value due to a change in zone as a gift of the state. In fact, it is a gift of the entrepreneur, who has found a way to grow wealth by correcting an inefficiency in the town plan.
Other states may be encouraged to follow suit. They should think twice. A tax that kicks entrepreneurs and home buyers, costs more than it raises, and only temporarily shuffles tax revenues between the state and Commonwealth, is not a recipe for "building back better" after COVID-19 .
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