The territory's controversial lease variation charge needs to be modified before it causes irreversible damage to housing affordability, development and the economy, a new report says.
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But ACT Treasurer Andrew Barr says the charge, introduced in July last year, has a sound basis in economic theory and its effectiveness cannot be judged on one year alone.
The report by the Allen Consulting Group, commissioned by the Property Council ACT, outlined ''significant, adverse consequences'' of the charge, which applies when landowners seek to change how a property will be used.
It said that the true impact of the charge may take time to be fully realised, but said evidence that it had stifled investment was already emerging as development application numbers fell.
The ACT government processed 156 applications requiring a lease variation in 2009-10 and 187 the following financial year, the report said.
The current financial year to mid-May recorded 64 relevant applications.
Property Council ACT executive director Catherine Carter said the charge shouldn't be abolished, but instead replaced with a simple, affordable and unambiguous system.
''There needs to be a change of use charge system,'' she said.
''But in order for it to be effective, the quantum of the amount charged needs to be realistic.''
The report said the charge had failed to produce expected revenue, with the ACT government's March Quarter 2012 Consolidated Financial Report showing a $9.9 million shortfall in revenue expected from the charge in the first three quarters of the fiscal year.
However, Mr Barr said the forecast related to applications that had been assessed and determined, but on which the charge had not been paid. ''There are currently around 90 applications in the system for the LVC, totalling around $15 million, that have been determined but not paid,'' he said.
Mr Barr said it was reasonable to ask developers to contribute some of their revenue to the wider community. ''Developers make windfall profits when a lease is varied for redevelopment - it is fair and reasonable that some of that benefit is shared with the community at large,'' he said. ''It's important to remember that every cent raised in LVC goes directly to the Urban Improvement Fund.''
