[+] Feasibilities Stretched as Front-Loaded Charges Snowball

Infrastructure charges are one of the snowballing costs preventing residential projects stacking up, planners and developers say. Front-loading charges impact cash flows and therefore feasibilities—and the infrastructure charges among the most onerous are in centres that need homes most. While this is predominantly Sydney, Brisbane and Melbourne, other centres also figure, where indecision is counterbalancing incentives. Between regions Data collected by The Urban Developer from about 40 councils in South-East Queensland, Greater Sydney and Melbourne found that some of the highest relative infrastructure levies were found in Sydney, although comparison can be difficult given the multitude of different methodologies for calculating charges. One of the more expensive areas for infrastructure levies is Parramatta, where the percentage rate for residential projects over $250,000 in development costs sits between 3 per cent for those identified in Area A priority development areas, and 5 per cent everywhere else. Levies for many other major councils sit around 1 per cent for developments costing more than $200,000, taking into account ministerial caps. Patch Planning managing director Mason Stankovic says that various Section 7.11 and 7.12 contribution plans mean that levies are very much council specific. “People are going hard at it at the moment, but in NSW there’s layers upon layers of contributions and payments and levies to be made, it definitely hurts feasibilities and means projects can’t get out of the ground,” Stankovic says. ▲ According to Savills, not increasing residential development taxes and faster approvals could help deliver 209,000 new homes in Sydney and the Illawarra. In fact, since 2018 the NSW Government has introduced a host of new taxes and charges, including Sydney Water developer contributions of up to $45,000 a house, and Housing and Productivity Contributions of up to $12,000 for homes. According to the Property Council of Australia (PCA) many councils have increased residential development fees, sometimes costing up to $60,000 a house prior to building work even beginning. “It’s a complex web of contributions that can apply and it’s becoming a real impediment to development, not just the contributions themselves, but the timing of those contributions, and when they’re paid,” Stankovic says. Meanwhile, under Brisbane City Council’s “adopted charges” infrastructure levies, developers can be billed between $12,167.49 for a one to two-bedroom home, to $17,034.48 for a three or more bedroom home. ▲ A section of the Moonee Ponds Creek in the City of Moreland. In Victoria, infrastructure contributions can be collected via development contributions plans (DCPs), infrastructure contributions plans (ICPs), public open space contributions or a growth areas infrastructure contribution (GAIC), although changes are afoot. An interim DCP for Melbourne’s Macaulay Precinct, for instance, in place since 2017, collects $21,559 a home, according to the latest figures, but the permanent DCP in the amendment proposes a $12,929 development infrastructure levy and a $1450 community infrastructure levy per new home. Delays in adopting these measures are costing some developments, such as those in the Moonee Ponds Creek Precinct , dearly while other councils have put themselves in the crosshairs, including Mornington Peninsula Shire Council that was slated for its 3.3 per cent social housing levy . By themselves, infrastructure levies are not a huge consideration, Place Design Group director Angus Green says. “It might not be a major thing, $10 per square metre, in comparison to the overall cost of the project, and they might not make decisions when they’re building a block of units, based on those infrastructure charges,” he says. But clearly certain state governments are subscribing to the “every little bit helps” adage. ▲ Brisbane City Council last year announced plans to lower infrastructure charges by 75 per cent on apartments in selected areas. The Queensland Government’s $350-million Incentivising Infill Development Fund , the first round of which closed in June, aims to incentivise market-ready projects geared towards density, which were struggling to get out of the ground by providing relief from infrastructure charges. At Brisbane City Council, build-to-rent incentive policies introduced last year allow for infrastructure deferral and discounts. “A project doesn’t live or die by the infrastructure charges but it does impact feasibilities and ultimately those charges are passed on to the end buyer,” Green says. “When the state steps in offering faster approvals and more density, alongside those infrastructure charge deferrals, that has a real bearing.” Timing is everything A report from the PCA and Savills last month modelled hypothetical apartment and greenfield developments across the Greater Sydney area, from Hornsby and the Northern Beaches to Wollongong. It found that government taxes and charges make up 24 per cent of greenfield development costs in Central River City government areas, and a 250-unit apartment development is no longer feasible in these areas. The project linked residential feasibilities not just to the infrastructure and other government charges but to the timings of these charges. “If you’ve got to pay a 3 per cent levy prior to even getting your construction certificate, rather than at the end of the project when you’ve made a lot of your sales, and that project has two years to run, you are carrying the cost of that,” Stankovic says. “It’s got a compounding effect, and it’s not an insignificant amount of money at the end, eating into your feasibilities.” ▲ Taxes increase with inflation at 3.6 per cent a year but median unit prices have increased only 1.5 per cent in five years, says Savills. Implementing a maximum 12-month planning approval pathway could help reduce holding costs, said the PCA. As could backloading infrastructure fees. “While some developers might argue against fees altogether, we need those social licensing contributions—people need that money to contribute to the public realm, we need that,” Stankovic says. “But to relieve pressure on an already hairy process, you can reduce the costs that are required to be absorbed when cash flow is critical, by offsetting those contributions so they are paid later in the development cycle. “If you’re in an inflationary environment where things are tough, and you’re in a housing crisis, and it’s difficult to get things to stack up, it’s the deferral of the payment that should be looked at, rather than not paying them at all.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Feasibilities Stretched as Front-Loaded Charges Snowball

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