What’s Holding the Property Sector Back?

Thursday, March 31st, 2016
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From federal policy uncertainty to complex planning and assessment rules to local government politics, policy related issues are having a massive impact on the property sector in Australia.

Furthermore, whilst the industry is currently undergoing a period of strength, doubts surrounding its ability to deliver a sufficient quantity of assets to meet long term demand remain.

Even in the middle of a cyclical boom, the sector built only around 27,300 houses and apartments within the Sydney metropolitan area last financial year, Urban Taskforce Australia CEO Chris Johnson says. Over the next 20 years, by comparison, the Department of Planning and Environment reckons the city needs an average of around 33,200 per annum. What’s holding the industry back?

Speaking predominately about the situation in New South Wales, Johnson says the answer revolves largely around planning.

First, there are the politics involved in development approvals. Whereas most modest scale developments are assessed by council officers in processes which generally work well, assessments of large scale developments often involve elected councillors who face pressures from vocal opponents of the project in question. Even at a joint regional council level involving state and local government representatives, many of the reports are written by councillors and are thus subject to political influence at a localised level, Johnson says.

Then, there is the length of time needed to obtain approvals and the number of conditions being placed on these. In terms of the former issue, a planning department report last year found that average approval times for developments worth more than $20 million stood at 256 days. On the latter issue, one typical case of a modest three-storey block of walk up flats in the Sydney suburb of Burwood saw no fewer than 110 conditions attached to the approval. When this is added to cumbersome processes regarding dealing with utilities and agencies, Johnson says this goes some way to explaining a gap which saw 90,183 approvals granted across all types of building in NSW in 2014/15 but only 51,703 occupancy certificates issued.

Finally, there are problems relating to uncertainty surrounding voluntary planning agreements and outdated rules regarding restrictive zoning. On the former issue, Johnson says there is a lot of ‘trading’ between councils and developers involving developers paying out in order to secure rights to build to greater heights. He says greater clarity and consistency is needed in this area.

In terms of outdated zoning rules, he says laws which restrict residential development near various forms of commercial development were set largely in a time period where many people worked in noisy, smelly industrial facilities. These laws, he argues, have not kept pace with improvements to environmental practices in commercial areas or the changing nature of employment opportunities and work.

Johnson says part of the solution to all this revolves around increasing the number of complying developments which are granted expedited processes of approval. He says there should be a straightforward code for multi-residential buildings of up to six to eight storeys in height, for example, with approvals for proposals which fit within this being granted in no more than 30 days. A one-stop shop arrangement for dealing with utilities and government authorities would also help, he says.

Finally, Johnson says the development assessment process should be depoliticised, and that planning systems should to a degree become less democratic with regard to the idea of necessarily having to make everybody happy.

“The planning system is about creating a future, and with the population growth we have got in Australia, that’s pretty bold and large scale growth that is going to occur,” Johnson said.

“Most people don’t like too much change and would prefer things as they are at the moment, so when you ask them, ‘do you think it would be good to have some 20-storey towers nearby the railway station?’ they will say ‘I’m quite happy with the way it is. I would prefer not to have them.’

“So I think if you are going to drive change, you need to be a bit less democratic about getting everybody involved in how you move forward into the future. I think there needs to be a simpler planning system that takes a lot of it away from the political field.”

Whilst there is broad agreement that planning can be improved, however, not all agree that this is the biggest area of concern at the moment. Urban Development Institute of Australia CEO Stephen Albin says the biggest areas of immediate worry revolve around the effect of last year’s tightening of capital adequacy ratios on the part of the Australian Prudential Regulatory Authority and uncertainty surrounding federal government policy in areas such as negative gearing and capital gains tax. These factors, he says, led to a loss of confidence which in turn impacted investment.

As for planning, Albin says states are lifting their game.

“The real issue we’ve got is all the uncertainty being created by the Commonwealth government,” he said. “The states are giving it a go. Some of the policies which are coming out federally are a bit of a problem.”

Despite strong activity of late, the property sector in Australia still faces barriers to unleashing its full potential.

Should planning reform continue and areas of policy uncertainty move toward resolution, however, the effect of these barriers will be reduced.

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