Uncapped tax on new housing supply will make housing unaffordable
GUEST OBSERVER
A Planning Circular recently issued by the NSW Government outlining changes to the cap on local infrastructure contributions is likely to increase the cost of housing and exacerbate the housing affordability crisis.
The Planning Circular issued on 27 July 2017 by the NSW Government outlines the removal of caps on local infrastructure levies in stages from January next year.
The current caps of $30,000 in greenfield areas and $20,000 in infill areas will increase by $5,000 each in three stages thereby adding $15,000 to the cost of each dwelling by 1 July 2019. After 1 July 2020 the caps will be removed entirely and local councils will be able to propose whatever charges they want.
Ironically these increases were initially announced by the State Government as part of the ‘Housing Affordability Strategy for NSW’ package released on 1 June 2017. Rather than reducing housing costs to help with affordability, the increases will simply be passed on to the purchasers of new homes.
Already some Urban Taskforce members have put a moratorium on acquiring new sites for development as the extra tax on their projects and uncertainty is making them financially unviable and risky. What is needed is more supply to help with affordability but the state government seems to be doing the opposite by adding even more levies to the cost of housing.
There are proposals to have IPART assess a council’s contribution plan and particularly to focus on Essential Infrastructure. Our concern is just how detailed the government’s instructions to IPART will be about what is essential and whether the proposed costs are reasonable. There will also be tests about reasonableness, nexus and apportionment to ensure an individual development only contributes fairly to infrastructure costs.
The February 2014 Practice Note on Local Development Contributions lists 7 criteria that will be used by IPART to evaluate contributions plans. Our concern is that the criteria do not include anything about the impact on housing affordability with the implication that IPART could approve $100,000 levies per lot if the essential works were reasonable.
With the government also encouraging high levies for affordable housing along with further levies for light rail projects it is hard to see how any new housing will not be far more expensive. The continual stacking of more levies onto new housing will either dramatically increase the cost of that housing or make new housing projects economically unviable so less housing is supplied.
Former Governor of the Reserve Bank of Australia, Glenn Stevens, who issued a report to the NSW Government on housing affordability on 1 June 2017 raised concerns about the costs of local infrastructure and raised the question: ‘is the infrastructure being unnecessarily “gold plated”?’
The NSW Government needs to be very careful in removing the current caps on infrastructure levies if it wants to help with housing affordability and housing supply. The current indications from the industry are that either housing costs will escalate or housing projects will become unviable and not proceed. Neither outcome will be good for those wanting to purchase a new home.
Chris Johnson is chief executive officer of property development industry group Urban Taskforce and can be contacted here.