On 1 June, the NSW Government announced a package of reforms intended to improve housing affordability.
These reforms were said to be focused on assisting first home buyers. However, there are some changes proposed which will have limited (and possibly contrary) impact on affordability if implemented.
Buried in the policy announcement was a proposed change to the regime for development contributions, namely an end to the important cap on contributions.
Currently, developer contributions for residential development are capped at AU$20,000 per lot for infill development and AU$30,000 per lot for development in new release areas. There are a few limited exceptions to the application of the cap.
Limited information has been provided at this stage in relation to the proposed changes to the cap, but it appears that:
- In council areas where the NSW Government is currently funding the gap in contributions, which appears to be limited to the North West areas of Blacktown and the Hills, there will be a three year phasing out of the cap. The cap will be increased by AU$5,000 on 1 January 2018, 1 July 2018 and 1 July 2019. The cap will be removed on 1 July 2020.
- In all other areas the cap will be immediately repealed, but the Independent Pricing and Regulatory Tribunal (IPART) must review the relevant contributions plans before the councils can charge a per lot contribution above the cap. We note that Wollongong and the former Rockdale LGAs already have plans that are in the course of being reviewed by IPART.
- The potential retrospective application of the repeal of the cap is unclear, but at this stage it looks like it may impact on developments already approved where the contributions have not yet been paid.
It is also proposed to extend State infrastructure contributions to 10 new areas (as yet unnamed).
These changes will obviously increase the cost of development, and will need to be factored into feasibility analysis for development.
The changes will also have implications for development applications that propose public infrastructure works (such as roads and drainage in a subdivision). We anticipate that developers will no longer propose to give this land away to councils free of cost as occurs in many cases now, but will be seeking to ensure they enter into material public benefits or works in kind agreement, or do receive contributions credits for public works where possible. Where council contributions plans do not reflect public works in DCPs (such as new road networks), developers may be more reluctant to propose to undertake those works at their own cost.
We will keep track of any developments and further information released by the government on this important issue and will provide a further update as soon as more detail is known.
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