Infrastructure Contributions Reform Roadmap

THIS IS AN IMPORTANT UPDATE FOR OUR VALUED CLIENTS ACROSS NEW SOUTH WALES REGARDING CONTRIBUTIONS

On 2 December 2020 we provided our analysis of the NSW Productivity Commissioner’s Final Report into the Contributions System. The NSW Government has now reviewed the Report and has released a Roadmap for Reform and agreed to adopt all 29 recommendations. The timetable will see the reforms in place by mid-2022.

The reforms signify significant changes to the funding of infrastructure across NSW and present substantial changes for developers. Here’s what we know, what we don’t know, and what it means for you, so far:

Planning Proposals

  • Draft Contributions Plans will now be prepared using a new standard template and must be exhibited at the same time as the Planning Proposal. Councils are likely to defer preparation of the draft Contributions Plan to proponents presenting a potential added cost to Planning Proposals. It is not known whether a draft Planning Agreement will replace this requirement.
  • A new statutory charge will be fixed to the land title requiring land contributions be paid at (the first of) either the sale of the land or subdivision development application. This obligation can be satisfied through monetary payment or dedication of land but not the provision of works. It appears that this contribution is being dealt with separately to infrastructure contributions with regard to payment timing (see below). A case study is to be prepared for consultation with the development industry.
  • A new Ministerial Direction will require planning proposals to demonstrate consideration of efficient use of land, including opportunities for dual-use and joint-use.
  • A new Practice Note will establish performance-based benchmarks for open space planning. We assume this will be based on the Draft Greener Places Design Guide. The Guide is already a source of concern for developers with Councils imposing the numerical standards rigidly.

Development Applications

  • Contributions Payments will be deferred to Occupation Certificate stage consistent with measures introduced during COVID-19. This measure will provide benefits for developer cash flow and should present a development feasibility upside.

Contributions Plan Preparation

  • A new Practice Note will guide land valuation plus a new land value methodology and published indices.
  • Standardised benchmark costs will be prepared by IPART and indexation will consistently use the Producer Price Index (Road and Bridge Construction – NSW). Contributions Plans will separately identify land indexation.
  • A new Practice Note will indicate Contributions Plans can only include works from the ‘essential works list’.
  • Interest costs associated with borrowing to forward fund infrastructure delivery will now also be included in Contributions Plans.

Contributions Plan Review

  • IPART will no longer review Contributions Plans as a default position. New Terms of Reference will be developed with the Commissioner indicating affected parties could request a ‘by exception’ review. Our view is that this has the potential to increase rather than decrease the role of IPART. We await the detail to be included in the new Practice Note.

Planning Agreements

  • The role of Planning Agreements will be clarified as intended for “the delivery of infrastructure to support development that is out-of-sequence or unexpected” and “to facilitate the direct delivery of development-contingent infrastructure or impact mitigation works”. We would have liked to have seen this role expanded to include provision for Planning Agreements where developers propose a ‘better outcomes’ solution.

Local Contributions

  • A maximum S7.12 levy will be introduced based on development typology (capped at $10,000 per additional dwelling for houses (detached, semidetached, townhouses); $8,000 per additional dwelling for all other residential accommodation; $35 per square metre of additional GFA for commercial uses; $25 per square metre of additional GFA for retail uses; $13 per square metre of additional GFA for industrial uses). The Commissioner had indicated a change in the rate from 1% to 3% however this distinction does not appear in the NSW Government response so the status of this aspect is unknown. We presume that the fixed maximum levy will be subject to some form of indexation however this is not known.

Regional Infrastructure Contributions

  • New SIC’s will apply to all development in Sydney, Central Coast, Hunter, and Illawarra-Shoalhaven. This change captures new development in existing SIC areas as well as development in these geographies that has never been subject to a SIC before:
    • In Greater Sydney as a fixed rate according to typology ($12,000 per dwelling for houses (detached, semi-detached, townhouses); $10,000 per dwelling for all other residential accommodation; $10 to $15 per square meter for industrial; $20 to $30 per square meter for commercial; $30 to $40 per square meter for mixed uses).
    • In Central Coast, Hunter, and Illawarra-Shoalhaven as a fixed rate according to typology ($10,000 per dwelling for houses (detached, semi-detached, townhouses; $8,000 per dwelling for all other residential accommodation; $10 to $15 per square meter for industrial; $20 to $30 per square meter for commercial; $30 to $40 per square meter for mixed uses).
  • The Commissioner had indicated that existing SIC’s would continue to apply with the new arrangements only applying elsewhere however the NSW Government response suggests a transition to the new rates for any SIC determination made from 1 July 2022.
  • A new Transport Contribution will apply to development within transport service catchments associated with “new major transport infrastructure” to be determined by TfNSW. The Commissioner had indicated a minimum charge of $5,000 per dwelling however the rate does not appear in the NSW Government response so the status of this aspect is unknown.
  • A new Biodiversity Contribution will apply to land that is biodiversity certified for any SIC determination made from 1 July 2022.

Affordable Housing Contributions

  • Section 7.32 contribution programs will be evaluated to determine their effectiveness and efficiency in the future. We hold the view that unlike other contributions which are tied to the demand generated by development, affordable housing is a social benefit, thus it should not be subsidised by the development industry and should be funded directly by Treasury. We trust this will form a consideration of any future evaluation.

Metropolitan Water Services Developer Charges

  • Absent from the industry since 2008 these charges will return. The Commissioner had indicated a charge of $2-3,000 in the Hunter Water and $5-12,000 in the Sydney Water service catchments could for apply to a new greenfield dwelling house from 1 July 2026 however the rate does not appear in the NSW Government response so the status of this aspect is unknown.

It is clear that the NSW have their work cut out for them to implement the reforms so expect significant opportunity for engagement throughout 2021. We will keep our valued clients informed as the reforms continue.

If you’d like to know more please contact our Planning Manager – Nathan Croft on 0419 845 089.

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