Removing uncertainties surrounding developer contributions is central to the Planning Minister’s announced 2020 reforms that are aimed at unlocking new housing supply, delivering vital public infrastructure and boosting investment in NSW.
These reforms have become critical in the COVID-19 era, to ensure solid economic recovery and ongoing confidence in the property sector.
The infrastructure contributions framework in NSW has become increasingly complex, multi layered, inconsistent and plagued by delays. It is well recognised throughout industry and government that the framework lacks transparency, negatively impacting on both productivity and the timely delivery of infrastructure.
Recommendations for contributions policy reform, particularly on issues raised by industry, stakeholders and government, has been ongoing since 2004 (see diagram). The review is overdue, with some of the proposed changes in the current raft of proposals put forward in 2016.
The draft amendments, guidelines and discussion papers on exhibition include changes that will go some way to improving the operational aspects of the contributions system. The following represent some quick wins to achieve accountability and consistency:
Urbis is pleased the proposed changes aim to deliver improved transparency. However, there are several issues we believe are yet to be addressed, including:
A SIC is paid by developers in growth areas/precincts to support funding for regional infrastructure. So far only four SICs have been implemented since the introduction of the policy in 2006, and only one in the Greater Sydney region, for the Western Sydney Growth Areas. An additional seven have been exhibited as draft but not finalised. The premier has announced there will be 10 new SICs.
The protracted delays compound the uncertainty on the efficient delivery and coordination of infrastructure and the unlocking of housing opportunities. The government must set a timely schedule for implementation of the SICs. This is particularly important for the many planning agreements under negotiation in growth areas, in the absence of the SIC.
Whilst it is welcome to see guidelines being proposed for establishing fixed rate levies to a maximum of 3%, ultimate discretion still exists with the Minister to a agree to any proposal seeking more than 1%. The precedent was set some years ago for a 4% levy for Burwood Town Centre and Gosford CBD which remain the highest 7.12 levies in NSW. Several councils have contributions plans currently under review that exceed the thresholds. Will the 3% maximum be held?
The Greater Sydney Commission have developed the Place Infrastructure Compacts (PIC) model to align growth with infrastructure and services through government collaboration. The proposed guidelines identify a SIC will support the achievement of place objectives, however there is no discussion in the reform agenda on the relationship or role of the PIC.
A recent pilot study for the Greater Parramatta to Sydney Olympic Park (GPOP) found that of the estimated $20 to $30 billion capital infrastructure costs apportioned to GPOP, 50 per cent would need to be funded by the NSW Government and 11 per cent through developer contributions where there was a direct relationship with the new development. The PIC model is now being used as part of the Western Sydney City Deal to help shape growth in the Aerotropolis.
Given that the PIC is essentially the “sum of the parts”, including SICs, any ongoing uncertainty over SIC components will only create further confusion on the future of the PIC, which itself has already been the subject of significant feedback. In our view, the role of the PIC should form part of the broader review.
The Local Infrastructure Growth Scheme (LIGS) scheme was introduced in 2011 to ensure that the contribution framework supported NSW housing targets. It funded the gap between the maximum contribution and the actual costs for councils to deliver the necessary infrastructure. This capped the contributions.
Announcement of the LIGS closing in June 2020 and the removal of capping will likely result in councils raising contributions rates. While such increases will be reviewed by IPART there is concern that in this current economic climate, development feasibility and housing targets could again be compromised by excessive rates.
Planning Agreements are a useful component of a flexible planning system. To retain flexibility and impartiality, while allowing for the timely delivery of infrastructure, the process requires certainty.
The wording of the draft Ministerial Direction just indicates Councils must have regard to the Practice Note when negotiating Planning Agreements. The term ‘have regard to’ is not a mandatory requirement, suggesting considerable uncertainty will remain over expectations for chasing “value capture” particularly as part of Planning Proposals.
The amending documents are on public exhibition until Friday 12 June 2020
The more challenging and fundamental aspects of reform will be addressed by a review by the NSW Productivity Commissioner, due to be completed by the end of 2020.
At Urbis we are talking to clients to gain further insight and will share those with government and industry. Our team are experienced at operating within the development contributions framework and will be pleased to assist you to further understand the implications and to provide your views.