Two foreign investors have been ordered to pay penalties totalling $878,000 for failing to build on vacant residential land. But as Australia’s housing shortage continues, a bigger question deserves attention: how much developable land is sitting unused, and why?

Two foreign investors have been ordered to pay a combined $878,000 for leaving residential land undeveloped in Melbourne, meeanwhile, countless younger Australians are struggling to find somewhere they can afford to live.

It raises a question that goes well beyond foreign ownership: How much residential land capable of carrying new homes is sitting undeveloped across Australia?

Two recent Federal Court cases have provided a costly reminder that, at least for foreign investors, buying vacant residential land and failing to build on it can have serious consequences.

In September, the Australian Taxation Office (ATO) secured penalties totalling $878,000 against two foreign investors who breached development conditions attached to their investment approvals.

Guno Handojo was ordered to pay $370,000 after failing to construct a home on vacant land within the required four-year period. Just weeks later, another investor, Fengqin Li, was ordered to pay $508,000 for a similar breach.

Both properties were in suburban Melbourne, and both decisions remain open to appeal.

The ATO has made its position clear.

“Land banking, which limits housing supply for the Australian community, will be met with significant consequences,” ATO Assistant Commissioner Jennifer Moltisanti said following the second decision.

And the tax office isn’t stopping at two cases. It is undertaking a comprehensive audit of foreign investment approvals requiring residential land development, using data matching and other intelligence to identify properties that have not been developed as required.

During 2024–25, the ATO forced action to remedy 217 breaches of foreign investment rules, including the disposal of 111 residential properties.

Why foreign investors have four years to build

Australia’s foreign investment rules are intended to ensure that overseas investment in residential property helps increase housing supply rather than simply pushing up the value of existing assets.

Foreign investors who purchase vacant residential land are generally required to complete construction within four years and usually cannot sell the land until construction is finished.

The principle is straightforward: if foreign capital is coming into Australia’s residential property market, it should help create additional housing. There’s also a temporary federal ban on most foreign purchases of established homes, introduced in April 2025 and extended until June 2029, with limited exceptions.

The government is clearly trying to direct foreign investment towards building homes rather than competing for those already available.

There is considerable investment activity to oversee. According to Treasury, 663 residential real estate investment proposals worth a combined $1 billion were approved during the first three months of 2026.

Those figures cover residential investment approvals generally and they are not evidence that those investors are land banking, but they illustrate the scale of the system regulators are monitoring.

But why stop at foreign investors?

Here’s where the national conversation should become more interesting.

If governments believe undeveloped residential land should be put to productive use because Australia urgently needs more housing, why should the owner’s nationality be the central consideration?

Surely the more important questions are whether land can reasonably be developed, why it remains unused and whether owners are deliberately withholding it from the market.

Victoria has already taken a step in that direction. From 1 January 2026, the state’s Vacant Residential Land Tax applies to certain metropolitan Melbourne land that has remained undeveloped for at least five continuous years and is capable of residential development.

The tax is generally 1 per cent of the land’s capital improved value each year, subject to exemptions and eligibility rules. On land with a capital improved value of $1 million, that’s a potential annual tax bill of $10,000.

And it isn’t limited to foreign owners. The idea is to discourage land capable of accommodating housing from remaining unused indefinitely.

Whether the tax will encourage more development, and how much additional housing it might produce, remains to be seen.

Not every vacant block is being deliberately held back

There is an important distinction to make. “Land banking” has become an attractive target during Australia’s housing shortage, but not every vacant residential block is being held by someone waiting for prices to rise.

Some developments are delayed by planning disputes, inadequate roads or sewerage, financing difficulties, labour shortages or rising construction costs.

Other sites may be zoned for housing but lack the infrastructure needed to make construction viable.

A developer holding land for a future housing project is not necessarily preventing homes from being built today, nor should governments assume that imposing another tax will magically make an unviable development financially possible.

The Productivity Commission has previously warned against drawing sweeping conclusions about land banking without sufficient evidence.

Its analysis found foreign purchases of vacant land accounted for 16.7 per cent of foreign residential real estate purchases by value in 2022–23, worth $818.3 million.

But it cautioned that those figures did not establish that land banking was occurring, and that the extent of the practice remained unclear.

That uncertainty is precisely why better information is needed.

What Australians deserve to know

For older Australians, the housing shortage is no longer simply a debate about interest rates, developers and government targets. Adult children are delaying home ownership, grandchildren face the prospect of saving for years while property prices move further out of reach. Some families are helping with deposits, while others are providing a roof over younger relatives’ heads.

Of course, releasing vacant land won’t solve the housing crisis on its own. Australia still needs more skilled tradespeople, affordable construction, planning reform and infrastructure investment.

But surely it makes sense to establish how much suitable residential land is available and why it isn’t being developed?

How many hectares of developable residential land are sitting unused? How long have they been held? Which sites are genuinely ready for construction, and which face legitimate obstacles?

Importantly, where land is deliberately being held for future financial gain, are existing taxes and penalties enough to change that behaviour?

The ATO has shown it is prepared to pursue foreign investors who fail to meet their obligations. Two penalties totalling $878,000 are a powerful warning, but Australia’s housing shortage is far bigger than two vacant blocks in Melbourne.

If governments are serious about getting more homes built, Australians deserve to know how much residential land is sitting undeveloped, what’s preventing construction and whether existing rules are doing enough.

Because the ultimate measure of housing policy isn’t how much land we have available, it’s how many homes Australians can actually live in.