It was proposed that a Growth Areas Infrastructure Contribution (GAIC) would place a $95,000-a-hectare tax on the sale of land inside an expanded urban boundary.

Mr Madden said the bill's defeat also killed off expansion of Melbourne's urban fringe, which would have included room for an extra 37,000 homes in Melton Shire.

Mr Madden said the bill's defeat could inflate house prices by up to $30,000, and the Opposition was treating first-home buyers with "contempt". He said the Greens had betrayed their own members because the proposed urban expansion included 15,000 hectares of native grasslands reserve.

State Government spokesman Chris Owner said the Government would not move the urban growth boundary without securing the revenue to pay for new schools, roads, community facilities and services, public services and healthcare.

The minister's office could not say if an amended bill would be sent back to Parliament in coming months, or what other options the State Government would consider to accommodate Melbourne's growing population.

"We will consider our options, but we believe the GAIC legislation in its current form was the fairest way to help pay for the infrastructure needed by families moving to some of Melbourne's newest suburbs," Mr Owner said.