Victoria’s commercial land use zoning

Productivity reform case study

The Productivity Commission found that Victoria’s commercial zoning arrangements illustrate the benefits of a more flexible approach to land use, with benefits for the broader community.

This is a finding from the Commission’s first case study on productivity reforms across the Australian Federation.

“Victoria’s system uses a smaller number of zones, which allow a broad range of permitted uses. This has increased the availability of sites and reduced set‑up costs for small-scale supermarkets and large format retailers to the benefit of consumers,” Commission Chair Michael Brennan said.

The Victorian experience shows that is it possible to bring more flexibility and simplicity to commercial land use without significant negative consequences.

More flexible zoning helps realise the productive potential of urban land, making it easier for new firms to enter local markets and for existing firms to expand with reduced administrative and compliance costs.

The report emphasises that land use regulation is important. Australia needs a certain amount of regulation to separate incompatible uses from one another (such as industrial uses from residential areas).

“There is a risk in being too prescriptive. Part of having a dynamic economy is being open to new types of business and new forms of economic activity, our commercial zoning arrangements should help facilitate that,” Mr Brennan said.

“Flexibility will be particularly valuable given the current uncertainties surrounding future patterns of commercial land use (such as those created by the COVID-19 pandemic),” Mr Brennan observed.

The case study notes that while Victoria’s new Commercial 3 Zone could provide a path to more productive use of some former industrial sites across Melbourne, its merits as an opaque form of industry assistance to selected firms or sectors are more questionable.

This is the first of a number of potential case studies aimed at highlighting possible reform directions for jurisdictions across the Australian Federation. The case studies aim to identify existing State and Territory initiatives which could help inform policy in other jurisdictions.

The productivity reform case study into Victoria’s Commercial Land Use Zoning can be found at:

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