Understanding VPAs

Section 93F of the Environmental Planning and Assessment Act declares VPAs to be ‘a voluntary agreement or other arrangement’ between ‘developers’ and ‘planning authorities’ under which developers make monetary contributions, dedicate land free of cost, or provide any other material public benefits, or any combination, towards public purposes.

‘Public purposes’ include:

• the provision of, or recoupment of the cost of providing, public amenities or public services, affordable housing, or transport or other infrastructure;

• the funding of recurrent expenditure in relation to such things;

• the monitoring of the planning impacts of development; and

• the conservation or enhancement of the natural environment.

They are usually negotiated when planning proposals are being considered or development applications assessed.  Sometimes they’re used in substitution for (and often in addition to) compulsory development contributions under s94, s94A or the special infrastructure contribution (SIC) levy under S94EF.

Misuse of VPAs

Many councils are using VPAs as a tool to extract additional contributions from developers that would not typically have been paid under a Contributions Plan. Often this happens when density controls are planned to be increased, but it occurs in a site-specific way without coordinated strategic planning and infrastructure needs assessment.

Urban growth and renewal has been so strong in some locations that the scale of demand has caught some planning authorities off guard. Some don’t have sufficient planning framework and infrastructure contribution mechanisms in place to help deliver social infrastructure to support liveability.

Rather than prepare strategic infrastructure plans to support the additional densities, councils are requiring developers wishing to take advantage of the increased density to prepare a Planning Proposal and concurrently enter into a VPA to pay a contribution for each additional square metre of floor space beyond the current controls.

The feasibility of projects proceeding is impacted and compounded when a VPA includes the dedication of land, and a council does not account for the value of that land in determining the contribution rates.

Value sharing

Several LGAs are seeking to capture 50% of the uplift in the underlying land value seeking an equitable sharing of value uplift, which are related to sharing development profits.

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There is an expectation from some Councils to capture an equal share in the planning gain resulting from changes in planning controls. How reasonable is this if there is clearly strategic merit in increasing housing supply and employment in urban centres and growth precincts?

Often at the time of a Planning Proposal, detailed feasibilities are not fully advanced. This makes it less likely that developers can determine the profit sharing that might be possible for a given development. Setting value uplift rates for different land uses (as the City of Sydney has done) so they can be consistently applied across precincts is a useful way to create a level playing field.

The need for strategic infrastructure planning

As people become more mobile, requirements shift and preferences evolve, evidence-based planning requires community needs assessment at metropolitan and district levels.  Needs should be considered on a long-term basis, considering current and future requirements, stakeholder and community benefits, and best practice delivery models for efficiency, flexibility and sustainability. 

Infrastructure planning is supported by collaborative partnerships that build from agreed evidence, articulate shared goals and values, and ensure clarity for all partners. This requires a collaborative rather than adversarial approach. 

It is important that councils assess their long-term infrastructure needs based on regional and district plans and provide for precinct-based infrastructure needs assessments.

Councils should ensure that the full range of contributions mechanisms is considered in the planning process. VPAs must remain a voluntary agreement between a developer and a planning authority in relation to the public benefits that arise from rezoning of large sites.

Defining the nexus for VPAs

It is necessary to establish the nexus between the development and the community needs associated with it, to define a proposal’s public benefits.

To establish nexus, relevant planning authorities and developers should have upfront, transparent discussions.  It also requires a robust assessment of local community needs, in consultation with service providers, stakeholders and the community.

A community needs assessment report, prepared by an independent consultant, is best-practice when it comes to establishing the scope of a VPA. It helps shape the discussion and define the strategic positioning of the proposal in the context of regional and metropolitan social infrastructure planning.

Social infrastructure needs are not static or confined to a particular area. The preparation of evidence-based community needs assessments ensures that discussions are based on real-time insights and the best possible representations of the incoming population associated with a planning proposal.

Getting it right

There must be an oversight of VPAs. Upfront community needs assessments, local infrastructure coordination and master planning have been missing as councils seek to renew many of our urban centres and growth corridors.

VPAs are a useful component of a flexible planning system. For VPAs to remain flexible and impartial, while allowing for the timely delivery of infrastructure, the process requires certainty.

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Infrastructure contributions from developers must be negotiated under a scenario where a strong nexus between the proposal and an evidence-based community needs assessment exists.

A lack of upfront planning leaves landowners and developers being forced to participate in capturing the uplift in land value and the community without a planning framework for the long-term sustainable growth of urban centres.

Evidence-based community needs assessment will become increasingly important in shaping the future of VPAs in NSW.

Proposed changes

The Department of Planning & Environment is currently exhibiting (until late January) proposed changes to the policy framework for VPAs.  The amendments seek to ensure that VPAs are considered on merit as part of a broader planning assessment, and not based on the financial outcome achieved.  The draft policy intends to improve the VPA process by ensuring:

• A fair, transparent and reasonable negotiation process.
• A clear public benefit that relates to the development.
• Infrastructure is informed by an assessment of local community needs.

The proposed framework strengthens the importance of VPAs as a mechanism to achieve increased public benefit. This policy evolution may create uncertainty as some developers may now feel compelled to offer a VPA, where previously this was not required.

However, what is clear is the positive direction that it is not appropriate for a planning authority to prioritise site specific planning proposals on the basis they provide for opportunity to capture windfall gain, over undertaking LGA wide strategic planning initiatives.  

Equally encouraging is the emphasis on embracing the concept of ‘reasonableness’ in safeguarding the use of VPAs. This will bring into question existing Council VPA policies that have pre-determined a value capture calculation methodology.

What must also be introduced into the framework is embedding evidence based community needs assessment in strategic planning and VPA negotiation. This will foster transparency, clarity and certainty into the process, for the benefit of all parties.     

What next?

Urbis has extensive experience in formulating VPA strategies and negotiating with councils on behalf of Australia’s leading developers.  We regularly advise on the use of VPAs in connection with large-scale development in growth centres and urban renewal areas, and for site-specific developments in metropolitan and regional locations.

We will continue to encourage the improvement of the VPA policy framework through submissions to and discussions with Government and Industry and we will listen to our clients and colleagues in developing our responses.

Further information on the proposed amendments is available at the Department of Planning and Environment’s website. 

If you would like to discuss the use of VPAs or the impacts of the proposed changes on VPA structure and negotiations, please contact one of our Sydney Urban Planning team.