New framework for development contributions in NSW

The NSW Government is forging ahead with its proposal to fundamentally change the development contributions system in NSW, with the release of an extensive package of detailed material for public consultation. The Environmental Planning and Assessment Amendment (Infrastructure Contributions) Bill 2021 is currently on hold during the consultation phase, but is anticipated to reactivate early next year.

The Government's proposal aims to implement the recommendations of the Productivity Commission's review of the contributions system in 2020, with some refinements to address stakeholder feedback to date.

There are some complexities in the new system, and it is anticipated that further work will be needed to ensure the system operates as intended. However, the reforms offer an opportunity for more predictability in development contributions, more equitable distribution of contribution obligations and the benefits of uplift in rezoned land values, and the more timely delivery of enabling infrastructure to unlock development potential.

Key changes to local infrastructure contributions

Local contributions are monetary or land contributions towards the cost of providing local public amenities and services in a local area, which recognise the extent that the need for those amenities and services is generated by the development which triggers the contributions.

Local infrastructure contributions for a particular development are imposed by reference to –

• cost formulas for identified infrastructure and land needs, which are intended to address forecast development and population growth in the relevant area, and are set out in a contributions plan (section 7.11); or
• a percentage levy on the estimated development cost (section 7.12).

The proposed reforms will:

• expand the range of scenarios in which a development contributions plan must be prepared concurrently with a rezoning proposal, to better align strategic planning with infrastructure needs;
• specify differential levy rates for different types of development and in different areas of the State, and provide more realistic indexation rates;
• encourage councils to forward fund local infrastructure, by allowing more pooling of collected contributions and the recovery of interest on infrastructure borrowings via contributions plans;
• require more frequent reviews of contributions plans, and simplify minor amendment processes, to assist in maintaining the currency of contributions plans and better alignment with strategic planning;
• impose information and reporting requirements for affordable housing contributions, to promote transparency and accountability for these contributions; and
• include a revised "essential works list" which is used to calculate local contributions and benchmark costing for those infrastructure works (with advice from IPART).

A new land value contribution

The proposed reforms introduce a new kind of local contribution – the land value contribution (LVC). The LVC provides an alternative means for councils to recover contributions for the acquisition of land for public purposes. This represents by far the largest proportion of overall local contribution costs.

A council would establish an LVC for rezoned land in a contributions plan, preferably at the time of rezoning, which identifies parts of the rezoned land which are needed for public amenities and services to support development of the rezoned land. Owners of the rezoned land are then required to contribute a proportion of the value of the identified land – either by dedicating the identified land to the extent they own it (and receiving a credit for any value of the land in excess of their required contribution), or by paying their proportion of the overall value of the identified land.

The contribution requirement must be satisfied before the first sale of any of the rezoned land post rezoning or as a condition of development consent for any of that land (whichever comes first).

The LVC is a form of value capture for land owners who achieve a windfall gain from the rezoning of their land, and is intended to reduce the risk that contributions will not keep pace with the rising price of the land where those contributions are provided to fund the acquisition of that land.

A RIC to replace the SIC

Currently, the State Government can introduce requirements for "special infrastructure contributions" (SICs) to fund State and regional infrastructure, typically in growth areas. However, SICs apply only in a handful of designated contributions areas, the basis for the SIC contribution rates is difficult to discern, and most local environmental plans require "satisfactory arrangements" for State and regional infrastructure contributions as a precondition to development consent, which effectively creates a "shadow SIC".

Many proponents have found the current system difficult and time-consuming to navigate, contribution requirements very high and difficult to predict, and enabling infrastructure delivery processes opaque and inefficient.

The proposed reforms introduce a "regional infrastructure contribution" (RIC), with a more transparent contribution rate, a much broader-based application (in terms of area covered and types of development affected) and a governance committee to manage the RIC fund (involving Treasury, Infrastructure NSW, the Department of Planning, Industry and Environment, and key infrastructure delivery agencies).

The RIC would have three components:

• the Regional Infrastructure Contribution (RIC (base contribution)) – this is a flat contribution which applies to new urban development within a designated "RIC region" (currently proposed to include Greater Sydney, Lower Hunter, Illawarra-Shoalhaven and the Central Coast) – currently proposed rates are set out in the table below;
• the Transport Project Component (Transport Component) – this is payable only for applicable development within the catchment of a specified major transport project; and
• the Strategic Biodiversity Component (Biodiversity Component) – this is payable only for applicable development within specified areas which have the benefit of a strategic biodiversity certification.

Proposed RIC (base contribution)

Although a set of uniform rates will be used for the RIC (base contribution), the NSW Government will determine the amount of the Transport Component and the Biodiversity Component on a case-by-case basis, having regard to:

• (for the Transport Component) – the cost of the relevant transport project, the project's objectives, the nexus between the project and the development, and the developer's "capacity to pay"; and
• (for the Biodiversity Component) – the development’s impacts on biodiversity, and the extent of conservation lands required to offset the development’s impacts and manage landscape-scale threats to biodiversity.

Proponents may also partner with the NSW Government through an Infrastructure Delivery Agreement (IDA) to offset part, or all, of their RICs. These are similar to existing VPAs and works-in-kind agreements, which allow developers to deliver key infrastructure in connection with their development and so bring forward infrastructure delivery necessary to unlock the development of land. There will also be an established credit scheme, though the current proposal is to limit credits to stages of a single development. Draft Guidelines for Infrastructure Delivery Agreements outline principles and criteria for entry into IDAs.

When will it happen, and what's next?

The NSW Government is aiming to have the amending Act passed in early 2022, and proposes that:

• most of the reforms would commence on 1 July 2022;
• the "essential works list" will be revised when the reforms are reviewed in 2025; and
• the RIC will be phased-in, from July 2022 through to July 2024.

Submissions on the public consultation package close on 10 December 2021.

As you might expect with such a significant reform, there are many opportunities for comment, and we understand DPIE is keen to receive feedback. Please get in touch if we can assist with working out more of the detail or preparing a submission.