Development on Hold While We Wait for Infrastructure to Catch Up

 

The NSW Planning Minister announced that the new medium density code and all planning proposals would be put on hold in numerous Sydney Councils until infrastructure catches up. He has been widely criticised by industry groups and the media.

The criticism misses the mark and the decision can be justified. There is an infrastructure deficit combined with inappropriate development scale around parts of Sydney at the moment. Problem is, that putting development hold and doing infrastructure plans won't necessarily solve the problem completely. 

The Minister has called for infrastructure plans to be created before any planning proposals can be consider by effected Councils until mid 2020. Planning for infrastructure sounds great but someone has to pay for the infrastructure. If infrastructure charges grow, without any change in development yields, marginal projects (which there are more of in this market) will become unviable. 

If housing is going to continue to be delivered not only does infrastructure have to planned for, ways to fund it also need to be developed. Value capture is being touted as the antidote to infrastructure financing for governments. The problem with the discussion in Australia is that the value capture is charged up front (through Voluntary Planning Agreements) which is creating "unaffordable" housing because the charges are factored into developers' feasibilities and the homebuyer ultimately pays a higher purchase price. We have done some research that shows the average mortgage holder is paying $430 extra a month for 25 years on their mortgage to cover only the most basic infrastructure charges.

Maybe it's time to seriously look at what is done in the United States and start planning and financing infrastructure on a precinct basis.  Create a special purpose vehicle for a precinct (with Government and developers), raise bonds to pay for the infrastructure and then secure the bond by applying an additional special rate to the precinct (in the absence of an improved property value rating system) to repay the bond but amortise the cost of the infrastructure over the long term for property purchasers. The result could be more affordable housing and improvements to infrastructure.

There is no single planning panacea that will solve the current problems. Identifying that infrastructure is a problem is one thing but the real test will be in the response. At the moment, the response is mono-dimensional and predictable. What the Minister did was justifiable but new approaches need to be tested  to solve this one and develop a comprehensive response to improve affordability and infrastructure in Sydney.

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Development on Hold While We Wait for Infrastructure to Catch Up

 

The NSW Planning Minister announced that the new medium density code and all planning proposals would be put on hold in numerous Sydney Councils until infrastructure catches up. He has been widely criticised by industry groups and the media.

The criticism misses the mark and the decision can be justified. There is an infrastructure deficit combined with inappropriate development scale around parts of Sydney at the moment. Problem is, that putting development hold and doing infrastructure plans won't necessarily solve the problem completely. 

The Minister has called for infrastructure plans to be created before any planning proposals can be consider by effected Councils until mid 2020. Planning for infrastructure sounds great but someone has to pay for the infrastructure. If infrastructure charges grow, without any change in development yields, marginal projects (which there are more of in this market) will become unviable. 

If housing is going to continue to be delivered not only does infrastructure have to planned for, ways to fund it also need to be developed. Value capture is being touted as the antidote to infrastructure financing for governments. The problem with the discussion in Australia is that the value capture is charged up front (through Voluntary Planning Agreements) which is creating "unaffordable" housing because the charges are factored into developers' feasibilities and the homebuyer ultimately pays a higher purchase price. We have done some research that shows the average mortgage holder is paying $430 extra a month for 25 years on their mortgage to cover only the most basic infrastructure charges.

Maybe it's time to seriously look at what is done in the United States and start planning and financing infrastructure on a precinct basis.  Create a special purpose vehicle for a precinct (with Government and developers), raise bonds to pay for the infrastructure and then secure the bond by applying an additional special rate to the precinct (in the absence of an improved property value rating system) to repay the bond but amortise the cost of the infrastructure over the long term for property purchasers. The result could be more affordable housing and improvements to infrastructure.

There is no single planning panacea that will solve the current problems. Identifying that infrastructure is a problem is one thing but the real test will be in the response. At the moment, the response is mono-dimensional and predictable. What the Minister did was justifiable but new approaches need to be tested  to solve this one and develop a comprehensive response to improve affordability and infrastructure in Sydney.

To get more of this commentary sign up to Get Urbanised http://www.urbanised.net/subscribe/