According to research by PropTrack and the e61 Institute, the average cost of stamp duty in Melbourne is six times higher than it was in the 1980s, sparking calls for the government to introduce reforms to address its impacts on the housing market.

While the Victorian Government expanded the stamp duty concession for off-the-plan apartments, units and townhouses from October 2024, thousands of existing residences remained subject to full stamp duty costs.

This has encouraged new buyers to prioritise new dwellings over existing properties, while homeowners are now prioritising renovations over selling and moving to avoid the cost of stamp duty.

The benefits of renovating over selling

As the stamp duty concession on new builds leads buyers away from purchasing existing residences, Victorian homeowners are choosing to renovate their homes to help increase their property’s functionality and value while avoiding the costs associated with selling and buying in the present environment.

If the end goal of moving is to live in a more suitable house, there are many ways homeowners can adjust their current premises to meet their needs.

For example, couples that have become families with kids now need privacy and space.

This could look like installing privacy fence panels for a cost-effective boost to their home’s security and ambience while expanding the property into their backyard for additional rooms.

Others have changed their style preferences over the years and have opted for larger-scale renovations to suit evolving design preferences.

There’s a multitude of ways to get more out of your living space – let’s explore some popular choices below.

Granny flats for multigenerational living

To accommodate changing family dynamics, some homeowners are building granny flats at the back of their properties.

Often built with all the functionality of a small apartment, granny flats are a relatively affordable addition that can help facilitate multigenerational living by creating a private, nearby space for family members like elderly parents.

The Victorian government is also encouraging granny flats.

Provided that the proposed granny flat is under 60sqm and the homeowner’s entire block of land is at least 450sqm, construction can take place without a permit in Victoria.

Building upwards

Other homeowners are opting to add a second storey to their homes, with the upstairs space giving growing families some extra breathing room while increasing the overall value of the home.

They simply get a house with more square footage without paying for more land.

Some homeowners find that this option provides them with better views from their property, particularly if their homes are located near bodies of water or parklands.

Extending up also allows them to preserve precious yard space, which can seriously appeal to families with an already limited backyard.

Building outwards

Compared to adding a second storey, extensions outwards that sacrifice a part of the backyard are a more affordable option for Victorian homeowners considering a major change to the home.

These extensions often appeal to families with younger children, who may be looking to add more living space to their homes without creating additional hazards like stairs.

As extensions can be designed to maximise natural light and ventilation, they also have the potential to create a more comfortable living environment for growing families.

Interior upgrades

Standard interior renovations are also an option for Victorian homeowners, with some choosing to change the existing floor plan entirely to suit the changing needs of their families, while others aim to simply modernise the interior of the home.

More affordable than an extension, interior upgrades allow homeowners to improve the comfort, safety and aesthetic appeal of their homes, adapting to their evolving needs without the cost and inconvenience of moving entirely.

There is also more flexibility in scope with interior upgrades, as they can range from a simple painting upgrade to a full re-layout, so there is more choice on whether you want to hire a builder or do it yourself.

Infrastructure Victoria’s call for reform

While homeowners hold off on selling, key advisory body Infrastructure Victoria has called for stamp duty reform in their latest strategy report, and it’s now back on the agenda of policymakers.

Stamp duty accounts for approximately $9 billion of tax revenue in Victoria and creates an additional upfront cost when buying property.

But for an increasingly tough market to enter or move within, stamp duty is a major barrier to homeownership for renters.

Infrastructure Victoria contends that people are therefore discouraged from moving into different homes over time to suit different stages of their lives.

Instead, they’re trying to find their ‘forever home’ at the first purchase – intensifying demand for larger homes, which are often more affordable in newer suburbs.

However, with a significant stamp duty in place, there is little incentive for people to sell these large homes and downsize.

Their proposal is to replace stamp duty with an annual land tax.

Similar reforms have already been carried out in the ACT over a transition period of twenty years, resulting in positive impacts on the economy: according to Victoria University’s Centre of Policy Studies, each 10% reduction in stamp duty rates resulted in a 6% increase in property transactions.

They also estimated that if all state governments were to implement this reform, Australian households would be better off by approximately $1,600 per household per year.

The Victorian Government is currently seeking feedback from its constituents on the draft infrastructure strategy, including the possibility of a stamp duty reform.

Public consultation will be open until April 28, 2025, allowing Victorians to have their say on the 2025-2055 strategy objectives and proposed solutions.

Paying a tax vs. improving their current investment

Victorian homeowners are holding off on selling their properties as buyers avoid rising stamp duty costs on existing dwellings in favour of stamp duty concessions on new builds.

With stamp duty as a deterrent, it’s hard to justify the cost of upgrading or downsizing.

Instead, homeowners are choosing to renovate, increasing the function and value of their homes and avoiding the cost of selling.

Major reforms to stamp duty have been proposed by Infrastructure Victoria as part of their 2025-2055 draft infrastructure strategy.

Public consultation on the draft is open, with submissions due by April 28, 2025.

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Thursday, 17th April 2025

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