Housing groups have lambasted the plans of the Victorian government to boost stamp duty and land tax, saying the tax hikes will only damage affordability and drag housing demand.

Fiona Nield, executive director for Victoria at the Housing Industry Association (HIA), said increasing land tax and stamp duty rates will only hurt Victorian home buyers. She said more than 40% of the state government revenue comes from property taxes, which is already a burden for many players in the market.

"It is unfair to be taxing landowners further on property when Victoria already has the highest stamp duty rates in the country," she said. "New taxes like these are passed on in higher land prices for all and stamp duty inhibits people from selling properties to allow for new homes to be built-it has direct impact on new housing affordability.”

In a statement, State Treasurer Tim Pallas said the government will "strike a balance between those wanting to buy their home and significant property investors who continue to profit from soaring property values."

With this, the state government proposes a new windfall gains tax on property developers. Developers and speculators will face a windfall gains tax of up to 50% applied to planning decisions to rezone land from 1 July 2022.

Furthermore, a new premium stamp duty rate will be charged for property transactions with values above $2m. For such transactions, the stamp duty will be increased to $110,000 plus 6.5% of the dutiable value in excess of $2m. This change is expected to impact less than 4% of transactions.

“It’s only fair that those making large profits return a reasonable proportion to the community — this means more Victorians can have the schools, hospitals and support they need and deserve,” Pallas said. “Our tax system is fair and progressive — making sure that everyone pays their fair share to support Victoria’s economic recovery.”

Still, Nield believes that the new windfall gains tax is quite concerning and will only contribute to the dampening of demand in the state and the worsening of the affordability, particularly in regional areas.

"The new windfall tax appears to take a disproportionate share of property value from landowners that are in fact helping to support the growth in housing supply that helps keep affordability in check across regional Victoria," she said.

Leah Calnan, president of the Real Estate Institute of Victoria, said the tax hikes will make the state a less desirable place to invest.

"There is not much more capacity any one sector to absorb further tax burden. These sledgehammer taxes could cause a flight from property by self-funded retirees, for which property investment is their only form of income," she said.

Gil King, CEO of REIV, said these tax hikes will eventually push homeownership out of reach for many hard-working Victorians and cripple retirement plans.

“This ill-considered announcement shows a fundamental misunderstanding of the real estate market, and the contribution it makes to the economy including its influence on Victoria’s economic recovery post-COVID,” he said.