Many within the property industry lobby fraternity feel the rezoning of land to allow for residential development is often necessary in order to free up much needed areas of new housing supply.
There may be truth to this, but questions are being asked about who is really benefiting and whether or not governments are simply handing out multi-million dollar benefits to well-connected developers while leaving taxpayers to foot the bill for new infrastructure to support development in rezoned areas.
According to one recent study, there is reason to believe rezoning decisions are impacted by those with a vested interest influence. University of Queensland researchers Cameron Murray and Paul Frijters conducted an examination of six chosen areas in their state where rezoning decisions took place after a state government body took over planning control from local councils in order to ramp up the scale of development in those areas. What they found was that landowners who were well-connected owned three quarters of the land that was subsequently rezoned but only 12 per cent of that which was not. What’s more, being a central part of a well-connected network increased a landowner’s chances of achieving a favourable rezoning outcome by 25 per cent, while employment of a professional lobbyist improved the odds by 37 per cent.
The bottom line, Frijters and Murray concluded, was that well-connected developers were able to buy up urban fringe holdings, use their influence to ensure these were included within the rezoning areas at the exclusion of neighbouring lots, and reap massive gains in the value of their properties. Such influence stemmed from developers themselves being well-connected, the employment of professional lobbyists or simply the employment in a non-lobbying capacity of ex-politicians or bureaucrats.
What’s more, Murray said in a recent interview, this is costing the community dearly. Apart from the obvious lack of fairness, the ability of well-connected developers to secure rezoning for their land at the exclusion of others had led to lopsided and oddly shaped housing zones which make little economic sense. By granting rights for development rather than selling them, meanwhile, the government was essentially handing these developers multi-million dollar gains in the value of their holdings without any guarantee of corresponding benefits to the community. The public, meanwhile, were being asked to fork out money to build transport, water and sewerage and other links, which in turn increased the value of the holdings in question further. What’s more, the cost of extending services out to these lopsided new holdings to benefit a few was taking up money which could in some cases have been spent at greater community benefit to build more infrastructure which supported urban infill.
Taking the example of Stockland’s $5 billion community development at Caloundra South on the Sunshine Coast where Queensland’s state government was proposing to build a new train line, Murray says the government had already effectively given away billions of dollars’ worth of benefits to developers in the form of value increases and was then spending taxpayer dollars on a new train line to connect it up. It must be noted that no suggestion of wrongdoing on the part of the developer, the state government or any other party is intended. It should also be noted that Stockland as the developer is set to contribute $1.3 billion toward local infrastructure over the life of this particular development.
More broadly, Murray says there is a lack of accountability within the land rezoning decision-making process.
“That’s definitely been the case,” he said. “Previous plans at the state and council level could not have predicted the peculiar shapes of these final zones, so there’s obviously some kind of non-planning rationale for picking these sites over neighbouring sites.
“It’s pretty clear evidence here that it is an insiders club and they are just dishing out favours to their mates.”
Prosper Australia CEO Karl Fitzgerald agrees, saying the process was ‘essentially a public giveaway’ to the tune of at least 90 per cent of the infrastructure costs, and that some of these practices were actually leading to higher costs for first home buyers.
“Some of these new train stations now are costing between $50-$110 million dollars, and the value of the land surrounding some of these train stations will be going up by $300 million dollars,” he said. “And not only are we not capturing or recouping our initial investment, we are actually handing these developers a license to make easy money. Billions of dollars of valuable taxpayer money is going down the drain.”
What can be done? Both Murray and Fitzgerald say part of the answer revolves around implementing one or more forms of value capture - a concept where a portion of the uplift in value which private landowners whose properties are located near new taxpayer-funded infrastructure such as train stations or light rail derive from these investments is captured and returned to taxpayers. Murray says things like land value taxes are a good idea, albeit with exemptions in these areas for things like agricultural use of the land.
Such a concept appears to have traction with the new government, with Prime Minister Malcolm Turnbull promising to look at how value capture concepts could be implemented on transport projects which receive federal government money.
Murray also wants a ‘cooling off period’ for senior politicians and bureaucrats, which would prevent them from taking up post-public life positions of employment within the industry in which they had been responsible for a set period of time, most likely three years. He says this would prevent situations in which senior bureaucrats and politicians faced any temptation to grant favours to private interests in exchange for promises of employment upon their leaving of public life. In Queensland, he says, such a rule exists but applied to prevent former public officials from being employed specifically as lobbyists only – an application he says is too narrow.
Done well, the rezoning of land can potentially free up important areas for new housing supply.
Should the system be allowed to continue to be gamed, however, developers will continue to be handed multi-million dollar profits, with taxpayers coughing up millions to pay for services that help give land held by these developers such a massive uplift in value.