Developers attack councils over infrastructure fees

By Paul Hemsley

Australia’s property development lobby has resumed hostilities with state and local governments over what they claim are “exorbitant charges” imposed on new building projects through collective schemes that are meant to help fund council services and projects they say would usually just be funded by rates.

The charge against governments imposing “hidden charges” on new housing and building projects is being led by the Urban Development Institute of Australia (UDIA), which claims the levies are adding as much as $65,000 to the cost of a new home and propelling the housing affordability crisis to new heights by locking young families out of home ownership.

According to the UDIA, state and local governments across Australia have started to impose the extra charges because they believe that costs for services can be offset by slugging profits on the transfer of land ownership in the form of a “community contribution”.

The issue of charges on developers has been a prominent one in New South Wales where rate pegging is a continuing financial headache for cash-strapped councils that have now been forced to find alternate sources of revenue.

Charging extra money on the transfer of new developments has been an attractive option for NSW councils because it allows quick access to money to help fund services, infrastructure and maintenance.

UDIA national president Julie Katz said rates in some council areas were inadequate to provide the level of service for libraries, child care centres and community centres that residents expect.

Ms Katz said these services were now in part being paid for by developers who are being forced to pass on increases of $65,000 onto home buyers.

“There are a range of inefficient, unfair and excessive government taxes and charges driving up the cost of new housing throughout Australia,” Ms Katz said.

Ms Katz said the level of infrastructure charges could ultimately make the difference between a new housing development going ahead or not.

According to the UDIA, such charges are not applied transparently, and can therefore be higher than the cost of the infrastructure they are supposed to fund.

Developers argue that the real kicker is that extra government charges act to scare off new home owners and businesses from buying in a local government area where they are levied with the likely consequence that there will ultimately be fewer rate payers for councils to tap.

Ms Katz is not alone in fighting the charges.

Urban Taskforce of Australia chief executive officer Chris Johnson also believes extra charges are counterproductive for councils because of the potentially smaller rate base they could create.

But Ms Katz said that councils have argued that they don’t have adequate rates from their existing rate base and are therefore taking the needed amounts from the price of land.

Mr Johnson likened the extra fees “a bit of a Papua New Guinea cargo cult.” He said councils see a developer and then decide to add $100,000 to each housing unit and “that way we’ll get all our roads and services built”.

Mr Johnson said as a consequence the developer will say that houses can’t be sold at those high prices, so nothing happens.

“Our concern is that often governments and councils want far greater standards than are required, roads that last hundred years, and that they often try to openly charge the local developer rather than the broader group of people that are going to get the benefit from the infrastructure,” Mr Johnson said.

However Mr Johnson told Government News that the NSW government has realised that this issue has stopped housing supply in the state and has therefore allocated in its previous Budget $500 million to council infrastructure to help get projects off the ground.

“So that’s a clear acknowledgement that the marketplace can’t just add this to the cost of each house and that someone needs to step in,” Mr Johnson said.

The UDIA has also taken its own step towards trying to combat the problem by calling for the establishment of an inter-governmental agreement to ensure that local infrastructure charges are benchmarked between jurisdictions, and applied transparently.

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