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Urbanised has just released its new research program that will provide specific insights into development activity at a Council level. Here’s the high level findings and it looks like the market is in for a correction - but how big that correction will be depends on a few major Government decisions and the financial institutions.
Read MoreThe 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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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/
If you have been reading the paper or listening to the radio anyone would think that Sydney has filled up over the last month.
Anyone interested in recent history would know that the problem was triggered in the early 2000's with the proclamation that "Sydney was full" by the then Premier. Infrastructure spending went into a holding pattern for a decade.
There are serious economic consequences from the "Sydney is full" slogan and it requires a more serious not alarmist discussion. I'm sure that if the question was recast as "Would you like to cut immigration back and see the value of your assets depreciate, economic growth fall and fewer jobs?" you would illicit a totally different response from the ones being peddled at the moment. Just ask the Japanese about the link between population growth and economic prosperity - where asset values plummeted over 11 years and the economy was in a deflationary funk.
The last time policy was framed within the "Sydney is full" paradigm in a short period of time we were producing the same number of houses as Adelaide and the state was bottom bouncing on Australian economic performance tables. This lasted for years. People are going to want to move to Sydney (or Melbourne) because they are all too aware that these cities have more opportunity and, in the longer term, will more likely put them and their families into a better financial situation than would otherwise be the case.
Australia has a competitive advantage in its institutional structure that could help solve the issues we are confronted with now. Our federal structure of government has served us well in the past and there is research to show that federal systems lead to better economic outcomes than other systems. Federalism was all the rage when the Hawke Government rejuvenated the Council of Australian Governments. There were discussions on whether our federation was competitive, co-operative or a marble cake model. There were also discussions on how the various levels of government could work together and policies were developed accordingly.
COAG has tapered off since the introduction of the GST, discussions on federalism have subsequently been relegated to the back blocks of policy discourse and have been replaced by arguments on how the goods and service tax revenues should be divided. Our federal system of government provides the opportunity to get all levels of government together to solve major policy issues. Immigration and settlement is now one such area and warrants consideration.
There is little doubt that Sydney is experiencing growing pains and the ambitious infrastructure program of the NSW government needs to continue. The plans developed by the Greater Sydney Commission on the three cities is a way to make Sydney operate more efficiently. However, there are bigger issues at hand that could be addressed through COAG. There needs to be a refocus on federalism if we are going to seriously address the issues. Bring all three levels of government - the Commonwealth (because they set immigration levels), the States (because they have the infrastructure responsibilities) and local government (because they are at the settlement coalface) to sit down and agree on a settlement strategy linked closely with regional development incentives.