Victoria's Ombudsman has intervened to end a 65-year dispute over development restrictions on thousands of blocks of land along Gippsland's Ninety Mile Beach.

Key points: Ombudsman tells council to repay rates dating back to 2006 charged on land that can never be developed

Ombudsman tells council to repay rates dating back to 2006 charged on land that can never be developed First blocks went on sale in 1954 and within 15 years almost 12,000 had been sold

First blocks went on sale in 1954 and within 15 years almost 12,000 had been sold Some of the land is now valued at only $100

Some of the blocks, south of Sale in eastern Victoria, are in flood zones and coastal dunes and can never be developed yet had been incurring council rates and waste charges.

Investors, mostly from Melbourne, bought the land in the 1950s after a developer promoted the area as Victoria's Gold Coast.

"They do feel cheated, they thought they were purchasing something that would give them a comfortable retirement or a beach holiday for their grandchildren," Ombudsman Deborah Glass said.

"They were lured in by developers with promises that it was going to become Victoria's Gold Coast, but what was discovered fairly quickly was that this was land that could not be built on because it was coastal dunes or flood-prone."

Wellington Shire Council must now repay rates and water charges dating back to 2006, and compulsorily acquire the blocks by 2021 to be returned as public land managed by Parks Victoria.

"It's a sorry tale that goes back to the 1950s — basically they were sold a pup," Ms Glass said.

Golden Beach is part of the coastline where land was sold in the 1950s and '60s. ( ABC Gippsland: Bec Symons )

'No winners, only losers'

Council chief executive David Morcom said its total liability of about $300,000 would be absorbed by the existing budget.

"This is an incredibly gut-wrenching saga that has been going on for more than 50 years and there are no winners, only losers," he said.

"We're dealing with people's dreams and hopes and aspirations, but these lots simply cannot be developed — some are in Lake Reeve, some are in coastal dunes.

"The game-changing recommendation is that all 1,500 blocks of undevelopable land will be compulsorily acquired."

Until now, the council's land acquisition program had been voluntary.

Vassily Afcouliotis says the Ombudsman's efforts do not go far enough. ( Supplied: Vassily Afcouliotis )

Refunds welcomed

Vassily Afcouliotis purchased two blocks of land along Shoreline Drive in Golden Beach decades ago for a total of £1,500 and has paid about $120 a year in rates.

He said he tried many times to consolidate his blocks but his neighbours were unwilling to sell.

"The block on my left is owned by the council and they won't sell it to me, and the block on the right-hand side is owned by individuals and they won't sell it to me either, so I am stuck in the middle unable to have any land to expand."

Mr Afcouliotis said the council had sent inconsistent messages about how many blocks of land would need to be amalgamated to be eligible for a planning permit.

"One year they said two, another time they said four, and then it was nine blocks."

He said he welcomed the Ombudsman's efforts to resolve the issue and dig into the council's paperwork but that the recommendations did not go far enough.

"Yes, they're making steps to try and solve the problem but ... the Ombudsman didn't include landowners in the resolution."

'Rates were unfair'

The stoush reignited in 2006 when the council sent rates notices to landholders for their undevelopable land.

It also started charging for waste disposal in 2011 for blocks that in some cases could not even be accessed.

The Ombudsman launched its investigation last year after it received 67 complaints from landholders, some of whom felt the council was profiteering from its buyback scheme.

Landholders were concerned the council was buying back blocks from individuals at a cheap rate and then combining them into larger blocks for resale.

Advertising material for a planned subdivision at Golden Beach which was used to sell land along the Ninety Mile Beach. ( Supplied: Victorian Ombudsman )

Ms Glass said there were two broad categories of land; some that could never be developed but also land that could be developed if smaller blocks were combined.

"The council's buyback program and the land they proposed to sell fell into that second category, but we did not find evidence that the council was profiteering," she said.

"But in relation to the council's decision to charge rates and other charges on land, I felt that was unfair."

Blocks spread across 25km of coastline

The first blocks went on the market in 1954 and were the first of 23 subdivisions spread over 25 kilometres of coastline to sell over the next 15 years.

There were no planning controls at the time and by 1969 a total of 11,800 blocks had been sold.

One landowner told the Ombudsman her parents paid £148 for their block in 1961, while another said her parents paid $648.

According to the Reserve Bank's inflation calculator, those amounts equate to roughly $4,285 and $8,023 in 2018 dollars.

Ms Glass said the council should work with owners of blocks which can be developed to help combine them.

$100 coastal blocks

The council's $300,000 rate refund liability reflects the deflated value of the blocks as assessed by the valuer-general.

"The value of some of these blocks is about $100, so some of the rates charges have been less than $1 a year," Ms Glass said.

"So I don't think we're talking about significant sums of money, but there's an important principle at stake here about charging rates and charges on land that simply can't ever be developed."

Mr Morcom said the Ombudsman had also asked council to be more proactive to facilitate private deals between the owners of smaller blocks.

"In essence to encourage the consolidation of blocks in key settlements like Golden Beach and Paradise Beach," he said.

"If four lots were amalgamated into one larger lot and they can build septic tanks and the like, they can be developed under our planning scheme."

The council employed a full-staff member funded by the State Government to work on resolving the inappropriate subdivision for more than five years.

"One of the challenges is locating some of the owners. Many of them were new migrants and there has been a lot of detective work to try to locate them," Mr Morcom said.