Providing a better development contributions system in NSW: Productivity Commission Report released

Infrastructure contribution plans should be developed upfront as part of the zoning process

Contribution plans should be developed concurrently and exhibited with planning proposals to optimise infrastructure costs. This will allow infrastructure planning to be part of the broader strategic planning process and will send clear cost-based signals to property developers.

While this recommendation is sensible, it will be important to ensure that implementing it would not hold back the rezoning process.

A direct land contribution when rezoning should be introduced for landowners to fund public infrastructure

A major issue identified by local councils is the time lag between collection of contributions and land acquisitions which those contributions are intended to support, which can create funding shortfalls, and a major risk for timely infrastructure delivery. The Report proposes a "direct land contribution" which requires all landowners to contribute to "a common share of land" required for public purposes either by direct dedication or by monetary contribution.

The obligation will be enforced through a statutory charge which would be created at rezoning but it will not be payable until land is sold or developed, whichever occurs first.

It is not clear how this recommendation would work in practice. For example, it is not clear how the amount of contribution required of a landowner could be calculated equitably, to reflect the density of development which their landholding will generate at this early stage in the development lifecycle.

Allow councils’ general income to increase with population by reforming rate pegging

While the NSW local government rate peg takes into account increases in prices, it does not allow for increases in the volume of services. The Office of Local Government is progressing changes to the calculation of rate pegs which will allow councils' general discretionary income to grow with population, so that general population costs can be removed from infrastructure contributions.

The Report has also called for IPART to establish benchmark costs based on efficient delivery, and review the essential works list to ensure that only development-contingent items are funded by infrastructure contributions.

Payment of contributions should be permanently deferred to the occupation certificate stage

As a COVID-19 response, payment of contributions has been temporarily deferred to the occupation certificate stage to encourage more development projects to commence. The Report has recommended that this deferral be permanent.

Subdivision certificates are generally regarded as a more secure hold point for the collection of contributions than occupation certificates because, usually, only a council can issue them. Planning authorities who traditionally relied on a prohibition on the issue of a subdivision certificate as a form of security in their VPAs will need to revisit their security arrangements to ensure that they remain adequate.

Increase the maximum rate for section 7.12 fixed development consent levies

The Report has identified that section 7.12 levies are less cost reflective than section 7.11 contributions and are best suited to areas with low infrastructure need or where a 7.11 contributions plan would be too costly.

The maximum 7.12 levy for non-residential development should be maintained at the equivalent of 1%. Additionally, a 7.12 levy should be on a per dwelling basis for residential development, and per square metre of floor area basis for non-residential. These levies should be equivalent to 3% of capital cost for residential development and 1% for non-residential. On this basis, the proposed maximum rates are:

• $10,000 per dwelling for houses (detached, semi-detached, townhouses)
• $8,000 per dwelling for other residential accommodation
• $35 per square metre for commercial uses
• $25 per square metre for retail uses
• $13 per square metre for industrial uses.

Section 7.11 contribution plans should use benchmark costs

The Report has recommended that IPART develop and maintain standardised benchmark costs for local infrastructure that reflect the efficient cost of provision.

The Report has also recommended that infrastructure not on the essential works list should be funded by other means such as council rates, fees and charges. There are some issues with this recommendation that will need to be worked through, including to ensure that the application of the essential works list is equitable between councils.

Introduce contribution plans in regional areas – Greater Sydney, Hunter, Central Coast, Illawarra and Shoalhaven – to fund growth infrastructure

State contributions plans should be introduced to Greater Sydney, Hunter, Central Coast, and Illawarra-Shoalhaven. This is a much broader catchment for State and regional infrastructure contributions than current arrangements.

The introduction of regional infrastructure contributions in these areas is expected to raise approximately $630 million in revenue in 2024.

VPAs should not be used for monetary value capture on height and floor space increases

The Report recommends curtailing the use of State and local VPAs in connection with infill development involving height and floor space increases. Instead, it recommends that VPAs should only recover development-contingent costs of "out of sequence" development proposals not identified in strategic plans or for the direct delivery of land or works with a relationship to the proposed development. These reforms, together with adoption of the draft revised VPAs policy framework released in April 2020, could limit significantly the use of VPAs. 

Implementation of contributions digital tool within the NSW Planning Portal

The NSW 2020-21 Budget has committed $14.8 million to implementing a centralised digital tool within the NSW Planning Portal which will give the industry quick and easy estimates of contributions liabilities.