The Christmas break has offered time for perspective and the opportunities presented by a post COVID pandemic economic recovery.

The strong feedback from the property development sector is that “time is money”.  The capacity of businesses to deliver better outcomes (better place outcomes, design for country, connected communities, improves sustainability outcomes, better design) is all undermined by the lengthy processes of preparation of specialist reports, their assessment, review and often repeated debate over detail.

Rising cost pressures risk the creating of a “profitless boom”

Increasingly industry leaders are speaking openly of fears of a profitless boom in the post COVID-19 pandemic period.

The risk that margins are being squeezed by ever increasing regulation, increasing fees, taxes and charges, and the lack of timely planning decisions (and outcomes) are coalescing.

Now is not the right time to implement any planning policy that reduces housing supply or increases prices.

Over the last 12 months there has also been a rapid increase in the cost of construction (materials and labour).  All this is having an impact on the cost of supplying new houses, the affordability of new houses and the production of new houses.

In NSW, there are a range of new cost pressures on the horizon, and this is not good news for home buyers. If (when) interest rates do go up, these additional costs will have an enormous impact.

  • Across Australia, the cost of construction has spiked.  Construction costs have seen the highest growth on record for NSW. According to CoreLogic, the costs have risen the fastest since the introduction of the GST.  They were up 6.6% in the year to September 2021. However, Urban Taskforce members report that the construction costs have risen dramatically since that time. Costs have increased for construction of the structure (eg. concrete), façade (eg. windows), finishes and fit out (eg. tiling and carpentry) and services (e.g. plumbing and electrical). The price of containers has risen by 400% as a result of COVID and the Suez Canal blockage. The annual increase in the cost of building materials has risen by over 10%.
  • The NSW proposed Infrastructure Contributions reforms will introduce an alternative to Section 7.11 charges of up to 20% of rezoned land. Although this figure is capped, there is a real risk that NSW councils will aim to charge the maximum 20% thereby turning the Land Value Contribution into a 20% tax.
  • Section 7.12 fixed local infrastructure charges are also increasing. While the standard charge was 1% of the cost of development, it is proposed that Councils can charge 3% for residential development.
  • Section 7.13 affordable housing charges, which apply on land such as Green Square, Ultimo-Pyrmont, and are spreading across Sydney, will increase in 2022. The City of Sydney affordable housing program states that from 1 July 2022 the affordable housing levy will double – from 1% of the total floor area that is to be used for non-residential uses (up from 0.5%) and 3% for residential (up from 1.5%).
  • As part of the Infrastructure Contributions reform, a new Regional Infrastructure Contributions (RIC) scheme is proposed to replace the current State Infrastructure Charges (SICs):
    • Residential RIC charges (now applied to all development where there is an increase in the intensity of the land use)
      • Base contribution: $12,000 / 10,000 per house/apartment (Greater Sydney)
      • Biodiversity: Where applicable – expected to be circa $5,000 per dwelling
      • Transport: Undetermined and uncapped (a significant risk for the industry)
    • Non-residential RIC
      • Industrial: $15 per m2 of new Gross Floor Area (GFA)
      • Commercial: $30 per m2 of new GFA
      • Retail: $30 per m2 of new GFA
  • Draft Design and Place SEPP, if progressed, will add even more costs to future developments. For example, the new SEPP requires qualified designers to prepare a design verification statement for development projects which will add costs and extend the time of development.
  • As part of the Draft Design and Place SEPP, the Government is also proposing higher BASIX Standards. According to DPIE’s own analysis, this policy will result in an average increase per dwelling of $7,152.  Urban Taskforce members have advised that the actual costs will be significantly higher – particularly given the recent spike in the costs of construction inputs.
  • Over the last year the cost of land has also dramatically increased. In Greater Sydney alone, the median price of residential land increased by 32.2% over the year to September 2021 (Source: HIA)

All of this is on top of the existing fees, charges and taxes, such as: GST, stamp duty, land tax, payroll tax, company tax, etc.

So, what can be done?

 

1. Postpone the Design and Place SEPP

Urban Taskforce has been consistent in calling for a focus on improved productivity in the NSW planning system. The first policy to be shelved should be the Draft Design and Place SEPP.

The Design and Place SEPP was initially promoted by former Minister Stokes as a means to deliver the rationalisation of the Apartment Design Guide (ADG) to a simple set of guidelines allowing greater flexibility and opportunity for design flexibility. Instead, the exposure draft released late last year went the opposite way. There are widespread industry calls for the complete abandonment of the entire exercise.

Urban Taskforce sees merit in rationalising the ADG and allowing innovation and architectural design to assist in solving the housing supply and affordability crisis. We urge Government to set aside the current Draft document for 24 months so decisions can be made by the development community on land purchases without the threat of the introduction of a new policy which changes the metrics on the feasibility analysis.

As noted above, now is not the time for this pandora’s box. Industry would welcome the opportunity to work on what was initially planned – a cut down version of the highly prescriptive NSW ADG involving the removal of prescription and clarity given to the guideline only status of the document.  Put simply, how can you build a more affordable apartment when the rules require that all apartments are necessarily expensive?

2. Extended Construction Hours

In accordance with the recommendations of the NSW Productivity Commissioner, Urban Taskforce members are keen to secure a long term outcome to the extension of construction hours.  This solution would allow for work on Saturdays and quiet work on Sundays, particularly on larger sites located away from sensitive receivers (local residents).

3. New pathway for high value high yield residential developments

Industry is ready, willing and able to get stuck in and deliver housing supply.  The real constraint is the current state of the NSW planning system.  Finance is available.  Workers are vaccinated.

We propose a centralised pathway for the assessment of high yield high value housing projects.  These could well be assessed by Council staff led by DPE and a crack regional assessment team (one per District).

In the meantime, NSW DPE staff could show the way by undertaking some SSD assessments for high yield residential projects (with relatively small amendments to the SSD SEPP to allow for this).  This could easily be justified given the very real housing supply and affordability issues NSW currently faces.  Having senior DPE planners oversee the process would be particularly useful in getting responses from State Government agencies which so often delay the process for months.  Critically, decisions would be made by the Independent Planning Commission or the Independent Regional Panels.

4. Outdated strategic plans should be discarded or by-passed

The Strategic Planning system in NSW has been a disaster for housing supply.  The key Regional and District strategic plans were published in 2018 by the Greater Sydney Commission.  This was pre-bushfires, pre-floods, and pre-COVID – yet they shape and limit decision making across the planning system across Greater Sydney today.

They set housing targets which were well below what Greater Sydney required, and this resulted in Councils thinking that they had done their job – while everyone else could see sky-rocketing housing prices and chronic under supply.

The strategic plans actively discourage local re-zoning proposals.  DPE has sought to make re-zonings easier the navigate, but the recent changes do not address the need for a pathway which is not consistent with these out dated strategic planning documents.

Getting the Strategic Plans to push in the same direction as DPE, the Minister and the Premier will be critical to turning the housing supply crisis around.