The government says it will not reintroduce the package if it is re-elected, and criticised the housing industry sector, saying despite the government delivering the package the sector called for, it was unwilling to share the benefits of the reforms with the broader community.

The Social and Affordable Housing Contribution (SAHC) was touted as a significant reform which would provide an increase in social housing and an $800 million windfall in levies for the government, while giving developers an easier path to planning approvals, expanding their profits.

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The government said the property sector stood to benefit from the range of reforms, which were designed to cut red tape, slash approval times by speeding up planning processes, support local councils, create jobs and bolster construction.

The changes provided for faster assessment pathways for major developments and precinct planning - cutting up to six months off planning permit applications, the government said, but for the reforms to proceed, there would need to be returns to the Victorian community by supporting a stronger and more sustainable social and affordable housing sector.

It was supposed to be a win-win for the most vulnerable in society and the big end of town, but it will now be shelved.

Mr Pallas was unable to conceal his anger and disappointment at the collapse of the SAHC in a press conference announcing the reform's withdrawal. Planning minister Richard Wynne had invested considerable effort and faith in the SAHC, Mr Pallas said, but a phalanx of opposition was raised from a diverse range of vested interests, including property bodies, local council, the Australian Forest Products Association, the Australian Services Union, the Urban Taskforce, the Real Estate Institute of Victoria and other groups.

"It is a truly disappointing result," the Treasurer said, adding the amount of time the government had put into explaining the reforms to the building sector did not warrant the negative result.

"Those people who are dependent on social and affordable housing, they need to have a clear public commitment. Nobody can question this government's commitment: we put aside $5 billion for the development of public housing. Not only that, it will deliver some 12,000 units of public housing stock. That is the biggest level of public housing contribution in this state, perhaps more than any other states combined. That's a commitment the taxpayers have made through the government's commitment.

"We expected to see a better response from the building and construction industry. In fact what we got was a misinformation campaign. The nonsense that has been propagated by this industry about an impost on housing stocks has really been discredited by Deloitte and the Department of Treasury and Finance.

"The good faith that has been shown to this industry has not been reciprocated. This government is not going to be in a position to provide super profits to this industry, an industry that is doing exceptionally well, in circumstances where there is a lack of supply of stock and the price is being pushed up.

"The practical consequence of that is this industry, in their failure to engage with the government in a meaningful way, in their apparent willingness to participate in a scare campaign around totally disingenuous costs to the consumer... we've made it very clear, we're not going to play that game."

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In a release, state opposition treasury spokesperson David Davis said the government was 'in disarray'

"Daniel Andrews would rather bully industry to conform with its plans rather than work with them on agreement that best reflects the interests of all Victorians," Mr Davis said.

"The fact that planning reforms, which would help address the issue of housing affordability in our state, aren't considered unless you agree to a big new tax speaks volumes on how this government operates,

"The Liberals and Nationals have a plan to rebuild Victoria and our position is clear; no new taxes."

The Australian Services Union also welcomed the scrapping of the SAHC over its concerns about the exemption to council rates on public housing, and the potential impact on council workers of reduced rate income

"Our union thanks to the government for listening to the genuine concerns of the local government workers and the local government sector with the rate exemption," ASU secretary Lisa Darmanin said.

"The Andrews Government has a strong record of increasing the stock of social and low-cost housing in our state."

The government said it will instead focus on delivering the $5.3 billion Big Housing Build to deliver more homes for Victorians in need.

In a statement, the Municipal Association of Victoria's president David Clark said Victorian councils were relieved to hear the rates exemption for social and affordable housing was 'off the table for good - it will not proceed under a re-elected Andrews Labor Government.'

"The rates exemption wasn't thought through," the statement said.

"It did not consider the impacts on council service delivery and it punished our most disadvantaged communities simply because they have the most state-owned social housing.

"The Local Government Sector, led by the Municipal Association of Victoria (MAV) maintains its support for increased social and affordable housing across Victoria. It is vital that social and affordable housing proposals do not come at the expense of proper community planning processes. Secret deals, questionable consultation, and horse trading for reforms are not part of good government in the 21st Century.

"While the State Government and property industry bicker about their levels of consultation, one thing is indisputable: local communities - through the MAV and councils - were deliberately cast aside in this consultation on the social and affordable housing bill and in the planning reform process more generally.

"Significant planning reform is still very much overdue. It would be a shame to see the opportunity for genuine reform of the State planning system torpedoed by the failure of one bill.The MAV stands ready to work with the State Government on planning reform and we call on them to engage early, openly and comprehensively with all stakeholders to enable everyone's meaningful input into the reforms."

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