21 March 2011
On 21 January 2011, the Department of Planning also released the public consultation documents for a proposed special infrastructure contribution (SIC) levy on new homes in the Lower Hunter (said to be $8,800 per lot) and a levy on new homes in the southern Illawarra (said to be $6,200 per lot).
The Department is also proposing a $42,100 levy on each hectare of new Lower Hunter industrial land, and a $29,000 levy on each hectare of Illawarra industrial land. A recently published “determination” and ministerial directive sets the SIC levy in Western Sydney at $12,000 per residential lot (assuming 15 lots per hectare) and with an increase to $18,000 per lot, effective on July 1 this year. In the Western Sydney growth centres, the Department has implemented a $117,000 levy on each hectare of industrial land.
We have identified significant problems with the drafting and policy approach of the ministerial directives and determinations, including those already finalised by the Department. Some of our concerns are summarised below.
High levies and indefensible definition of “net developable area”
The levies as they are summarised by the Department are too high. However, the true burden of the levies is even worse.
The Department has made a serious error in assuming that 15 lots per hectare can be developed in Western Sydney or that 12 lots can be generally realised per net developable hectare in the Lower Hunter.
The figures are fictional, because the definition of “net developable hectare” is, in truth, a definition of gross developable hectare. It will end up including land that is not developable, including flood prone land, if the land is included in a private recreation zone, an environmental living zone, a regular residential zone, an industrial zone or a business park zone.
To give one example: if actual yields in the Lower Hunter are six lots per “net developable hectare” the levy jumps from just under $8,800 per lot to $17,600 per lot. However, in some instances, such as the large lot residential zone, the cost in the Lower Hunter could range between $35,000 to $52,000 a lot.
The Department’s statements to the public about the “per lot” impact of these levies are wrong, given its new definition of “net developable area”.
There is no commitment on infrastructure delivery
There is a broad-brush 25 year horizon for infrastructure in the Lower Hunter, and an even more relaxed 40 year horizon for the Illawarra. No time limit is specified for Western Sydney. No scope of works is presented or defined for named projects. Some descriptions are very generic, so it will be difficult to hold the government to account.
The government has disclosed how much of each infrastructure project it thinks should be recovered through levies, but it has not disclosed the full cost of many of these items. This means, in most cases, it’s not possible to tell how the cost of the project has been apportioned between existing residents and new residents.
Financing costs have been built into the figures – apparently to take into account the fact that some infrastructure will be delivered prior to the receipt of levies. However no information has been presented as to which infrastructure has what financing component. Nothing is said about how much is to be borrowed, the applicable interest rate and the expected pay-back period, or anticipated take-up rates.
If this methodology were adopted by a council in relation to their section 94 contributions plan, they would be rightly condemned.
“Industrial land” includes a wide range of non-industrial land uses
The definition of “industrial land” makes a mockery of the assertion that only residential and industrial lands are being levied.
That’s because many of the dominant land uses in zone B5 (“Business Development”) and zone B7 (“Business Park”) will not be “industrial” at all. These zones can also be about offices, business premises and large floor plate retail establishments. The government has previously claimed that development of this kind would be exempt from special infrastructure levies. They are now to be subject to a levy through the back-door.
The exemptions from the levy defy logic and must be broader
Levies are to be imposed on non-government schools and educational facilities, but not on government schools or TAFEs. All schools, not just government ones, should be exempt from the levy.
Levies will not be imposed on health services facilities owned or operated by a public authority, but they will be imposed on such facilities operated by a non-government entity, such as the Sisters of Charity and Sisters of Mercy. All health services facilities, not just government ones, should be exempt from the levy.
Some, but not all, retail and commercial development is exempt from the levy. All development for the purposes of “retail premises” and “business premises” should be exempt from the special infrastructure contribution.
Deed of charge may conflict with mortgagees
In 2008 the government said that a deferral mechanism would be introduced in order to overcome the financing difficulties faced by developers having to fund large cash levies to the government before receipts from the sale of finished lots were available. The mechanism was intended to allow the payment of the levy to be deferred at the time a subdivision certificate is issued, and instead paid when an actual lot is finally sold to a buyer.
However, under the determination, the deferred payment arrangement is made contingent on a registered charge over land or a bank guarantee lodge by the developer. As a result, the utility of the deferred payment arrangement is significantly reduced, if not nullified.
There is no formal, publicly available, statement about how the Department expects to rank relative to first and second mortgagees. However, in internal government documentation, obtained by the Urban Taskforce via a freedom of information request, the Department says that “the deed will recognise pre-existing mortgages and charges take priority”.
Our full submission to the Department is here. We have also raised these matters with the NSW Opposition.
The exhibition period on the proposed Lower Hunter and Illawarra SIC levy documentation has been extended. Submissions on the proposed special infrastructure contributions will now be accepted until 25 March 2011. The Government media release for the Lower Hunter is here and for the Illawarra is here.
Coalition policy
On infrastructure levies the Coalition observes that: “One of the main drivers of the cost of buying a home – or business premises – is the cost of government-mandated infrastructure levies in growth or infill areas.”
“Levies on housing or employment land development … are passed onto home buyers and business,” the Coalition says.
“Government costings for roads, utilities or social infrastructure, that form the basis of these levies, are generally not transparent.
“As a result of the high cost of these levies, housing and employment investment is redirected to cities like Melbourne and Brisbane which offer more competitive and lower cost land.”
The Coalition’s promises include:
- an injection of transparency and the disclosure of the way government levies are formulated – to force discipline on infrastructure costs;
- commit to consider proposals that offer better ways of delivering infrastructure that maintains or exceeds appropriate standards, delivers results and represents value for money; and
- convene a roundtable to assess where contestability can be most effectively applied.
More detail is here.
Labor policy
Last week the Labor Party released its “Fairness for your neighbourhood” planning policy. Most of the policy was a re-statement of the Metropolitan Plan and criticism of “urban sprawl”. However, the Labor Party did say that, if it is re-elected it will “maintain affordable development by slashing State Infrastructure Contributions by up to $27,000 per lot”.
This obviously sparked our interest, as it would be a reversal of the pattern of decision-making taken in the last three months. Nonetheless, despite these clear words, the Minister’s office advises us that, under Labor, no reductions in the SIC levy are planned, and existing schedule increases will proceed.
The Labor policy statement is available here.
A Sydney Morning Herald article reporting the Labor Party’s denial of its own promise to cut development levies is here.
