Social housing properties will also become exempt from paying rates over coming years, under changes announced by the state government on Friday.

Planning Minister Richard Wynne said the reforms signified the biggest change to social housing since the 1940s.

"This is the biggest commitment by a state or federal government ever to the provision of social housing," he told reporters in Melbourne.

"This reform that we are announcing today, frankly, will change the lives of thousands and thousands of people."

From July 2024, new developments 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 completed market value to a Social Housing Growth fund.

The government said the contribution would affect less than 30 per cent of residential planning permits and raise more than $800 million a year to fund up to 1700 new social and affordable homes each year.

The social housing rates reform will be phased in over four years from mid-2023 and will only apply to social housing properties.

However, property bodies and the state opposition say the 1.75 per cent contribution is just "another housing tax".

The Housing Industry Association estimated the contribution will 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."

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.

The Property Council of Australia said there was "no walking away from the fact" that the contribution will see prices rise for new homebuyers.

Opposition Leader Matthew Guy said the government was "obsessed with putting on new taxes" and the contribution would drive jobs away from the state.

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.

Australian Associated Press