Planning Minister Richard Wynne on Friday announced a 1.75 per cent contribution will be imposed on new developments to pay for the construction of thousands of social and affordable homes from 2024.
"This is the biggest commitment by a state or federal government ever to the provision of social housing," he told reporters in Melbourne.
From July 2024, new builds with more than three dwellings - or three or more lot subdivisions in Melbourne, Ballarat, Bendigo and Geelong - will contribute 1.75 per cent of their complete market value to a Social Housing Growth fund.
The government said the levy would affect less than 30 per cent of residential planning permits and could raise more than $800 million a year to fund up to 1700 new social and affordable homes each year.
Additionally, social housing properties will become exempt from paying rates, which will be phased in over four years from mid-2023.
Community service provider Uniting Vic Tas praised the state government's "courageous and bold leadership" in announcing the reforms, which it says will help thousands of vulnerable Victorians.
"These are groundbreaking reforms which not only ensures funding certainty but will allow us to deliver more housing for the communities and the people most in need," Uniting housing general manager Kristie Looney said.
"There's clear evidence that it's only after securing safe and permanent housing that people in crisis are able deal with other important needs, such as finding a job or seeking help for mental health issues."
However, property industry groups and the state opposition say the 1.75 per cent contribution is just "another housing tax".
The Housing Industry Association estimates it would add more than $6600 to the cost of land for new builds.
"The tax will hit many more new homes than the suggested 30 per cent of planning permits," HIA executive director for Victoria Fiona Nield said.
"The government must stop shifting the burden of funding social and community infrastructure onto a select group of Victorians each year that choose to buy a new home. This tax is inequitable and unfair."
The Property Council of Australia said there was "no walking away from the fact" that the contribution will see prices rise for new homebuyers.
Urban Development Institute of Australia said there was a role for industry to help deliver social housing, but it should not be paying for the cost of government underinvestment.
"It's incredibly disappointing that the government has shirked responsibility for a core social purpose and is looking to Victorian homebuyers to fund the shortfall," UDIA Victorian president Tom Trevaskis said.
Opposition Leader Matthew Guy said the government was "obsessed with putting on new taxes" and the levy would drive jobs away from the state.
Meanwhile, Treasurer Tim Pallas also flagged reforms to planning, including taking away "unnecessary interventions around planning rules".
He said the changes would allow people to put a shed in their backyard or add a minor extension to their house without planning approval.
"It basically removes bureaucracy from the minor works that people have to do," he told reporters.
