Most greenfield development success stories come from release areas with concentrated ownership or development patterns. For example, Oran Park (GDC), Edmondson Park & Fairwater (Frasers), The Ponds (Landcom), Gledswood Hills (Sekisui) are all regarded as good examples of master planning and all of them were largely developed by one developer. 

Whereas greenfield areas with well publicised challenges commonly have fragmented land ownerships. Marsden Park, Austral and Leppington are examples that come to mind.

Enabling infrastructure, like roads and stormwater drainage systems, is needed to incentivise developers in greenfield areas with fragmented land ownership. In concentrated ownership release areas, works in kind that offset state and local contribution charges allow enabling infrastructure to be delivered earlier, and at a lesser cost, compared to fragmented areas where Council is the primary provider of new roads and drainage basins.

It may not come as a surprise then that Councils in NSW do not have a good record of providing enabling infrastructure in release areas with fragmented ownership.

But, why?

For starters, Councils have to acquire more land than they need because of lot division patterns and they have to pay more than they have budgeted because of the Just Terms Act. But I believe there is a more significant factor at play - which is saying something because the two reasons I mentioned are pretty significant.

A keen Council can develop a land acquisition strategy that targets parcels of land that are easier and less expensive to acquire. But you know what they cannot plan for? Not having any money.
​
This is the point where I introduce you to (what I call) the cycle of doom for a new suburb.

This ominously named diagram is designed to show the chicken & egg cycle that leads to pervasive infrastructure delivery issues in fragmented new release areas. 
 
Enabling infrastructure is required to make it easier for developers of all scales to develop their landholdings. In most cases, developer contributions are a Council’s only source for funding this enabling infrastructure. But when no development has occurred…no development contributions have been collected. 

At this point, a Council will need to borrow money to fund this enabling infrastructure.

Councils are not doing that. 

In our 2022 survey of Councils, 73% of the responders said they had not borrowed to fund enabling infrastructure.

But, why?

Let's get the easy explanations out of the way first. Many Councils are not aware of best practice in encouraging development, or simply do not have the risk appetite to follow through with best practice. Borrowing and spending millions can be daunting and the famously risk averse Council system does not take to it with enthusiasm. 
​
However, I do not believe those are the main explanations and they are certainly not the subject of this article. 

​The issues around Council Borrowing

The final report from Productivity Commission’s 2020 review of infrastructure contributions in NSW – the report that is now sitting collecting dust – made a fleeting mention of the issues around Council borrowing:

"Borrowing would have a negative effect on councils’ debt service ratios because revenue from infrastructure contributions is not counted as income when lenders determine a council’s borrowing capacity. Borrowing for infrastructure in contributions plans can therefore disproportionally reduce capacity to borrow for other projects."

The debt service cover ratio referenced above is calculated as follows:

The debt service cover ratio measures the availability of operating cash to service debt including interest, principal and lease payments. It must be greater than 2 for Tcorp to allow Councils to borrow from them.

The problem with the above calculation is as stated in the quote from the Productivity Commission’s report – development contributions income is not included in a Council’s operating result, but the cost of servicing a debt taken to provide enabling infrastructure in a contributions plan is included in the debt service cover ratio.

Presumably, development contributions income is not considered because the forecast income may not actually be collected if the planned development does not occur. Although I would like someone to point out a greenfield release area to me that saw less development than was forecast.   

While the debt service cover calculation may not always lead to a loan for enabling infrastructure being rejected, it will almost always jeopardise any other borrowings Council has planned. This is a significant deterrent for most Councils.

I know of two major Sydney Councils in the north west and south west growth regions that could not borrow specifically due to the debt service cover ratio considerations. These two instances alone would have led to a considerable amount of greenfield housing being sped up.

My anecdotal experience in discussing this matter with folk from Councils and the development industry tells me there is widespread agreement for allowing development contributions income to be included in the debt service cover ratio, specifically for infrastructure related borrowings.  

While it is true that the forecast income from a contributions plan may not eventuate, the delayed delivery of enabling infrastructure will have a strong role in ensuring it actually does not eventuate.
​
With all of this in mind, it seems like an absolute no brainer that the debt service cover ratio calculations are changed by TCorp to include development contributions income. It is a simple change that could directly result in earlier delivery of a lot of greenfield housing.  

Impact on the housing market​

A lot of of the measures that would make a meaningful impact in improving housing supply are complicated and difficult to implement. Not this one. This is a no brainer.
Now, I am not going to try and tell you fixing issues with Council borrowing will solve the housing crisis. I will not even try to tell you that increasing housing supply will solve the housing crisis.

Sydney is a world class metropolitan and it will always be more expensive than third world cities like Brisbane (I jest).

However, that is not to say that there is absolutely nothing to be done to improve the housing situation. Even as NSW Government's priorities change to 'building up, not out', well planned and delivered greenfield housing remains an important part of the housing sector.

If you too are fascinated by challenges related to infrastructure funding, please reach out for a chat because not enough people want to talk to me about it.
​
Suyash Pareek
Director,
NXS Planning
suyash@nxsplanning.com.au

During May 2022 we distributed a survey to 44 local councils in NSW asking them a range of questions related to infrastructure contributions in NSW. The intention of the survey was to obtain direct responses from those responsible for the management of infrastructure contributions within council on how they are dealing with issues under the following broad categories:

1. NSW Government's reforms to infrastructure contributions (Part 1 article)
2. Challenges in forward funding enabling infrastructure (Part 2 article)
3. Council's administration of infrastructure contributions (this article)

The survey covered Councils in a range of growth settings and locations; we heard from metropolitan high growth Councils in both infill and greenfield settings, high growth regional Councils, as well as regional Councils that face a different set of challenges due to low population growth.

This article is part 3 in our series and will cover responses about general changes in contributions planning including the contributions cap and staffing. 

NSW’s local contributions system is not working for Councils

We asked Councils to rate the severity of challenges they face in relation to infrastructure contributions from 0 to 10 (10 being the highest severity). Here is what they said:

The response came back at a very high weighted average score of 7.32. The response could also be construed like this: NSW Councils are, on average, not achieving 73.2% of what they expect from their contributions program. This should be sobering reading for any infrastructure planning practitioners out there.
Those in the community not across the details of the proposed contributions reforms may think the reforms being dropped is a good thing. While some controversial elements of the reforms like the RIC and the Land Value Contribution needed more work (a lot more in case of the RIC), there were a lot of quick wins in what the NSW government planned to deliver. The results above should validate the need for changes in NSW’s contributions system.
How can this be fixed?
The elected NSW Government of 2023 needs to make action on infrastructure contributions a priority. The recent and extensive consultation conducted by DPE should provide an excelling starting point for the government.
We then asked Councils to identify their biggest challenges. Here is what they said:

We were told the two biggest challenges are the contributions cap and contributions staffing. Land costs also rated highly but we have discussed possible solutions for Councils in depth in previous articles.
It is difficult to be too strong when describing how much of an abject policy failure the contributions cap has proven to be. The decision to place an arbitrary cap on local contributions to prevent overcharging was always a shortcut to doing a comprehensive review of the contributions planning framework. After all, if contributions plans were to be prepared within the confines of a well working, fair and rigorous legislation, why would a cap be needed?
Notwithstanding the existence of the cap, the decision to not allow it to be indexed with inflation is almost indefensible. Consider this fact – since the cap was put in place in 2009:

• CPI has increased by 32%
• ABS Road and bridges index has increased by close to 43%
• VG’s land value index has increased by 128%

In other words, while the cap has remained fixed, the cost of building roads and basins has gone up by around 43% (likely more), and the cost of purchasing land has easily more than doubled.
Councils have the option to submit an application to IPART for a review of their contributions plan if they want to levy above the contributions cap. Unfortunately, this is far from a quick process. 
The table below lists the IPART review timeframes for contributions plans within the North West Growth Centre. 

The median duration for review is 19 months, keeping in mind this figure does not include the time required to prepare a plan for IPART review. In the context of a new release precinct with high demand for housing, the time required to complete an IPART review can prove very expensive for Councils.
Developers win by somehow only paying $20,000 or $30,000 per lot in contributions during 2022, however, the community loses by not getting the infrastructure they need on time, or ever.
How can this be fixed?
An urgent review of the contributions cap should be undertaken by the state government. The review should consider the following options:

1. Investigate circumstances where the contributions cap can be removed altogether.
2. If a cap is still retained in some areas, a new cap amount should be adopted, along with a provision to index the cap in line with a suitable index.

Shortage of skilled staff

Councils have long known how difficult it can be to find contributions planner. Now we have the numbers to back it up.

73% of the Councils we surveyed said they face a shortage of contributions planning staff. Feedback from the 18% ‘other’ responses indicated that even though they have finally built contributions capability at their Council, they would be in a difficult position if any staff were to leave.
​
On a weighted average basis, Councils rated the staffing shortage at a 7.45 out of 10. 

As mentioned earlier, staffing challenges in contributions planning is not new information. People in the planning industry have known about the shortage for years. Admittedly, better processes would alleviate some of the need for more staff, but the unanimity of Councils responses to questions about skilled staffing shortages shows there are structural issues behind the staff shortages.
​
We asked Councils to self-reflect on things they were falling behind with. This is what they said:

Perhaps it is a lack of skilled staff that is preventing Councils from preparing a plan to fully fund, stage and sequence the delivery of infrastructure prior to a rezoning? Perhaps if Councils had more staff, they could actively explore the benefits and consequences of NSW government’s low-cost loans to forward fund infrastructure?
How can this be fixed?
A review of skilled staffing shortages in the field of infrastructure planning should be conducted. It should consider the reasons for the shortage and possible solutions such as:

1. Training courses to upskill planning staff
2. Increased focus on infrastructure funding in tertiary courses
3. Incentives to attract more staff to infrastructure planning

​
If you have any further questions about the discussion in this report, or would like to use data from the survey, please contact me at the details below.

Suyash Pareek
Director, NXS Planning
​
0452030400
suyash@nxsplanning.com.au

Media Release from UDIA NSW
Survey reveals need for amendments to infrastructure contributions reform23 Sep 2022To fix the housing shortage and create great places for people to live, one of the biggest challenges facing NSW and its Councils, is the need to continuously fund, deliver and maintain infrastructure. Unfortunately, the NSW Government’s Infrastructure Contributions Reform that was designed to help fix these problems, has been deferred and the problems facing Councils partly explain why.
In a comprehensive survey of Councils by UDIA NSW Member NXS Planning, the Local Government Infrastructure Contributions Survey revealed the numerous issues Councils face including:

• Inability of Councils to fund infrastructure.
• When the funding is eventually available, the infrastructure will be built many years after it is required.
• Uncertainty surrounding what reforms will be implemented and when.

“Our survey shows that Councils have significant concerns about Infrastructure Contributions Reform, especially in resourcing the changes and providing funding to both provide and bring forward community infrastructure,” says Suyash Pareek from NXS Planning.
Councils are continually facing an uphill battle to fund infrastructure and the delay of the implementation of the reforms is causing issues with forward planning of Contribution teams work programs to deliver infrastructure. Gaps in the delivery of enabling infrastructure by State and Local Government is holding up three quarters of the supply of new lots according to UDIA’s Greenfield Land Supply Pipeline Report released last year, so industry cannot deliver the new housing we need in NSW.
The NXS Planning report also revealed another issue with 73% of Councils facing a high shortage of skilled staff, particularly in smaller Councils which are limited in terms of resources and budgets.
“Infrastructure Contributions Reform is essential if we are to fix the housing shortage and create great places with the community infrastructure they need. However, the current proposals do not do enough to support Councils,” said UDIA NSW CEO Steve Mann.
Mr Mann said, “Councils are a key part of infrastructure contributions reform and more needs to be done to get them on board including:

• A self-replenishing fund to bring forward local infrastructure;

• Creating empowered regional (UDP) committees that decide on the allocation of funding;
• Providing funds for regional large scale community infrastructure.”

UDIA calls on whoever wins the NSW State Election to make this reform a priority and ensure Infrastructure Contributions Reform is taken forward ASAP with amendments made to provide more support to Councils.
–ends—
For information on the survey: Contact Suyash Pareek at Suyash@nxsplanning.com.au or to read more about the survey, visit www.nxsplanning.com.au/articles
Media Enquiries:
Deanna Lane 0416 295 898 or dlane@udiansw.com.au

​

During May 2022 we distributed a survey to 44 local councils in NSW asking them a range of questions related to infrastructure contributions in NSW. The intention of the survey was to obtain direct responses from those responsible for the management of infrastructure contributions within council on how they are dealing with issues under the following broad categories:

1. NSW Government's reforms to infrastructure contributions
2. Challenges in forward funding enabling infrastructure
3. Council's administration of infrastructure contributions

 
The survey covered Councils in a range of growth settings and locations; we heard from metropolitan high growth Councils in both infill and greenfield settings, high growth regional Councils, as well as regional Councils that face a different set of challenges due to low population growth.
 
Our last article (here) looked at Council’s responses to questions related to the proposed infrastructure contributions reforms. Even though the reforms have been watered down by changes to the essential works list being placed in limbo and the wasted potential of the LVC, our survey showed they will still have a high impact on most Councils and require significant resources to implement. There are also signs that some Councils are delaying projects until they have certainty around the reforms.
 
This article is part 2 in our series reviewing results of the survey and will look at the ‘enabling infrastructure’ section. 

 
Providing lead-in, or enabling infrastructure (roads, basins), early in new release areas with fragmented land ownership patterns serves a crucial purpose in kickstarting development and unlocking new housing supply. Meanwhile, in an infill setting where a Council has an adopted contributions plan to provide new social infrastructure to accommodate population growth, quite a bit of angst can arise if Council does not acquire land to deliver the facilities on time.

A key concern in these situations is ensuring there is forward funding available to Council to complete the required land acquisitions. This has been a problem for Councils in NSW and it is not something Councils think will be solved by the reforms.

​With the reforms not helping faster delivery of enabling infrastructure, here is what the Councils believe are the barriers to forward funding infrastructure under the current system. 

It has long been a well-accepted fact amongst contributions practitioners that what a contributions plan collects for a project and what it costs to actually put the project on the ground are two very different numbers. This shouldn’t be the case but a multitude of reasons like inept indexation methods for works, and inaccurate land values which don’t represent actual costs have been a fixture of contributions plans for a long time.
 
What is actually needed to fix the forward funding problems, (or to enable enabling infrastructure)? A very high-level breakdown should look something like this:

1. Get sufficient contributions, early.
2. If contributions cannot be collected early, borrow.
3. To not spend significantly more than the anticipated land acquisition cost.

 
Get sufficient contributions, early
 
The Productivity Commissioner set out to help Councils in getting the contributions early by proposing a new Land Value Contribution (LVC) which would get the land to Councils at the time of sale or development (getting the land to Councils early) and any monetary contribution would be based on the sale price of the land or a bespoke valuation (to provide Councils adequate funding).
 
However, the model for LVC that was eventually exhibited was inadequate, which meant the PC’s intention is not going to be fulfilled. This way, the primary mechanism in the reforms for allowing faster delivery of enabling infrastructure has been bought to ground. Although there were a few things off with the LVC proposal (for e.g. heritage and constrained land that wouldn’t be making a contribution being counted as part of the contributions area), in my opinion, the major issues were the 20% cap on contributions and using the Valuer General’s land values as a method for calculating the contributions.
 
How can this be fixed?
 
It is imperative that the state government rework the proposed LVC model. The 20% cap on LVC should be removed; if planning authorities have approved a higher than 20% proportion of public land in a rezoning area that demonstrates efficient design, why should the land contribution be capped at 20%?
 
The other important change to the LVC would be to use a land valuation source other than the Value General’s land valuations, which are well known to be off the mark, as a method to value land in the land value contribution area. A more sensible proposition would be to use the following:

1. The sale price, if the contribution is paid at sale of the land, or
2. In all other cases, a precinct specific valuation of the land, prepared by a suitably qualified land valuer at the time of the rezoning and indexed at regular intervals using a custom land value index prepared for the area by a suitably qualified consultant.

 
There may be some valuations differences between englobo land valuations and market values once development has significantly progressed, however, these are not pertinent to our setting of early land acquisitions for enabling infrastructure.
 
A more attractive LVC could also be used as a carrot for Councils to put an adequate land acquisition program into place for a new release areas. Would it be too harsh if the LVC is only made available to Councils who have prepared and/or exhibited such a land acquisitions program?
 
If contributions cannot be collected early, borrow
 
The LVC is only proposed to be adopted for new release areas, which still leaves a fair amount of greenfield land that needs to be acquired by Councils under the current contributions arrangements.
 
Given all the challenges Councils face in forward funding infrastructure, it is hard to justify their response to our next question:

For those not familiar with the initiative, the NSW government offers low interest loans to Councils, with the option to recoup interest costs via Contributions Plans, where applicable. Councils are able to use the loan to fund enabling infrastructure in areas where sufficient contributions have not been collected.
 
The application process for the loans is managed by Treasury and it can be intensive. Furthermore, the methodology to recoup interest needs to be approved by IPART where the plan collects contributions above the applicable cap in the area. Nevertheless, it is fair to say that the importance of providing enabling infrastructure in rezoning areas, particularly areas with fragmented land ownership, means these low-cost loans should be a more widely used tool for Councils.
 
Furthermore, the state government should not be releasing Growth Areas until there is a comprehensive plan, endorsed by all levels of government and the industry, to fully fund, stage and sequence the delivery of infrastructure and utilities to support growth.

However, this process is more complicated than we can afford to explore in this article. For e.g. Councils can only borrow funds for the infrastructure land but they maybe forced to acquire larger parcels that contain the land. We will take an in-depth look into this issue in a future article. 
​
How can this be fixed?
 
Councils in rezoning areas, particularly those with significant portions of fragmented land ownership, should be required to provide an ‘enabling infrastructure delivery program’ prior to the rezoning. This program should be backed by a cashflow analysis prepared by Council with consideration to the development staging, works in kind opportunities and Council’s infrastructure delivery timeline.
 
Councils should be encouraged to fund any shortfalls identified during this process with low-cost loans from the state government.
 
To not spend significantly more than the anticipated land acquisition cost
 
Even if a new, well-functioning, LVC has been adopted, the Council has prepared a program of land acquisition, and borrowed to fund the gap between contributions income and acquisitions costs, the reality is that many Councils will not be able to complete acquisitions efficiently.
 
Why? Just Terms Compensation Act 1991.
​
A major factor contributing to the under collection of contributions for the purposes of land acquisition is the significant additional costs encountered when an acquisition must be completed via the Just terms Act. Although most Councils will collect an allowance for Just Terms acquisitions as a percentage of the total land costs in the plan, it is of no use in the early stages when enabling infrastructure needs to be delivered, because little to no contributions have been collected under the plan.
 
Notwithstanding, the allowances IPART has approved for Just Terms acquisitions in contributions plans significantly underrepresent what the additional cost can be in fragmented ownership release areas.
 
The importance of landowners having a recourse to avoid unfair acquisition practices from governments should not be understated. However, it appears, at present the Just terms mechanism is unduly biased towards the landowners in the case of contributions plans acquisitions.
 
Only 9% of the Councils we surveyed were against any modification to the Just Terms Act, although most were unsure of what these modifications might be (hence the high ‘other’ response).

Is it too unreasonable to ask why the Just Terms Compensation Act even applies to contributions plans acquisitions? Is it not enough that the contributions plan has been prepared in accordance with legislation, has been exhibited to future landowners and developers, and then been scrutinised and approved by IPART?
 
But that could be a very hard political sell.
 
How can this be fixed?
 
A more sensible approach to resolving disagreements between governments and landowners over the value of the land identified for acquisition under a contributions plan would be to scale back the Valuer Generals’ involvement to the following simple steps:

1. In case of a complaint to the VG by a landowner or a Council, the VG will appoint a land valuer to conduct an independent valuation of the subject property.
2. Council will be required to pay the landowners cost where the independent valuation is closer to the valuation presented by the landowner.

 
More to come
 
We have still got more responses to present from our survey to Councils. The next piece in the series will look at more problems with infrastructure contributions in NSW and just how severe they are for Councils.
 
If you have a question about our survey or some feedback on the discussion in this article, please feel free to get in touch with me.
 
Suyash Pareek (0452030400)
Director, NXS Planning
suyash@nxsplanning.com.au

This article is Part 1 of a series that proposes to examine the infrastructure funding challenges faced by Local Governments in NSW, informed by direct survey responses from NSW Councils. Our hope is that these articles will stimulate an exchange of ideas and discussion amongst the infrastructure planning community that leads to meaningful change. 
​
During May 2022 we distributed a survey to 44 local councils in NSW asking them a range of questions related to infrastructure contributions in NSW. The intention of the survey was to obtain direct responses from those responsible for the management of infrastructure contributions within council on how they are dealing with issues under the following broad categories:

1. NSW Government's reforms to infrastructure contributions
2. Challenges in forward funding enabling infrastructure
3. Council's administration of infrastructure contributions

The survey covered Councils in a range of growth settings and locations; we heard from metropolitan high growth Councils in both infill and greenfield settings, high growth regional Councils, as well regional Councils that face a different set of challenges due to low population growth.

This article will look at what is likely to be the most topical issue in infrastructure planning circles currently - the proposed reforms to infrastructure contributions in NSW.

So....are we still reforming infrastructure contributions?​

During October 2021, DPE (then DPIE) released details of proposed infrastructure contributions reforms (reforms) in a public exhibition package. Technical submissions from Council staff were due by mid-December 2021 and Council endorsed submissions were extended until early March 2022 to account for Council elections.

Since the exhibition period ended, we have had a change in NSW's planning minister (see DPIE > DPE) which has led to increased speculation about the reforms being placed on the backburner. Infrastructure planning conversations are rife with rumours and hearsay alternating between the reforms proceeding and reforms being shelved.

The commencement of the reforms is scheduled for 1 July 2022. However, we are already in June of 2022 now, and 1 July is only a month away. Meanwhile, there has been no announcements or details received from the NSW Government about the results of the exhibition period or the status of the proposed reforms. DPE staff seemingly are no clearer than the rest of us about what will happen with the reforms.

So why does this lack of clarity matter? Well, because the reforms matter. A lot.

Results from our survey showed that 64 per cent of Councils think the reforms will have a 'high' impact on the management of infrastructure contributions at their Council in one way or another. Only one Council anticipated a low impact. Given the high stakes, one can imagine why Councils would like more clarity on whether the reforms actually happen or not.
​
These were not intended to be minor housekeeping reforms; they were supposed to be a wholesale restructuring of infrastructure contributions in NSW. What was originally proposed in the reforms would result in significant changes to key areas of infrastructure contributions influencing the amount and type of funding Councils receive. However, the detail provided in the October reforms has since taken some heat out of the reforms.

(The percentages do not add up to a 100 because multiple responses were accepted for some questions)

The amendments to the essential works list to reduce its scope are on top of most Councils mind but maybe less so since they were kicked down the road for 3 years or more. (Quick side note - Does anyone know how this impacts the new IPART review model? Supposedly the new review system worked because of the narrower essential works list. Does the new IPART review system still go ahead without the amendments to the essential works list? I asked IPART staff and they were just as much in the dark as the rest of us.)

The results showed us that regional Councils were particularly looking forward to the S7.12 reforms. This is because S7.12 is more suited to the infrastructure renewal projects regional Councils often undertake. Although replacement of the percentage levy with a capped and indexed rate adds more complexity to the system (contrary to the principles put forth by the productivity commission), the increased income still makes S7.12 a more attractive proposition.
​
Unsurprisingly, the lack of interest towards the Land Value Contributions (LVC) really stands out. This is further demonstrated by Council's response to the question below.

Only 3 Councils said they find the proposed Land Value Contribution (LVC) of any use. The remaining either said 'No' or that the LVC would need to be amended before they adopted it. For more details on why this is the case, I would like to direct you to an article I published in November 2021 which talked about why the LVC (as it is currently proposed) is woefully inadequate.

Perhaps the most significant reform proposed is the new Regional Infrastructure Contribution (RIC) framework. However, we will publish a dedicated article on the RIC because the current proposal demonstrates sheer lack of accountability and provides alarmingly little detail about how the significantly increased income will be spent.
​
To further highlight the impact of the reforms, every single one of the Councils we surveyed said they would have to amend their Contributions plans and/or policies when the reforms are adopted.

This is significant. As people who are familiar with contributions in NSW will know, Councils are not in the habit of regularly updating their Contributions plans.
​
Needless to say, the reforms will likely bring a significant administrative burden for Councils seeking to implement them, with 82 per cent of respondents indicating that they are concerned about the resources required by their Councils to implement the reforms.

Anecdotally, our discussions with Councils over this past year have indicated that Councils are holding off on preparing contributions plans until there is more certainty around exactly what is happening with the reforms. To our surprise however, that is not what the Councils told us in the survey.

It would appear that many of the Councils are sensibly choosing to progress with contributions plans instead of delaying new planned development. Digging into the results a bit more, we found that these are generally high growth Councils that are better resourced than low growth regional Councils. A pattern does emerge when we analysed responses to the question below from Councils who said they are holding off on work.

Many of the same Councils that are holding off on work are considering replacing a S7.11 plan with a new S7.12 plan under the reformed legislation. All of these Councils are either located regionally or on the fringe of metropolitan Sydney. The appeal is obvious - the new S7.12 plan will come close to matching the income of a S7.11 plan with less restrictions around the projects it can fund and no right of appeal is available to the developer.

As this article has (hopefully) shown, the reforms are a complex beast. Even though they have been watered down by changes to the essential works list being placed in limbo and the wasted potential of the LVC, our survey shows they will still have a high impact on most Councils and require significant resources to implement. There are also signs that some Councils are delaying projects until they have certainty around the reforms.

Which is why it is so important that some sort of status update from the NSW government is provided to Councils and the development industry. The lack of official guidance from the NSW government is generating uncertainty throughout the industry and is paralysing decision making by Councils impacting infrastructure contributions.

We hope an announcement will be made imminently to provide guidance to our industry.

More to come

This first article has barely scratched the surface of the valuable data we collected as part of our survey. The next article in the series will look at one area that the reforms did not address adequately - forward funding infrastructure.

If you have a question about our survey or some feedback on the discussion in this article, please feel free to get in touch with me.
Suyash Pareek
Director,
NXS Planning
0452030400
​suyash@nxsplanning.com.au

The Department of Planning, Industry and Environment (DPIE) is currently exhibiting its package of reforms for the local and state infrastructure contributions system in NSW. The exhibited package of reforms includes deviations from the recommendations provided by the Productivity Commission’s (PC) review of infrastructure contributions in NSW.
​
One of the critical recommendations from the PC review was the introduction of a Land Value contribution (LVC) to the local contributions system. Details regarding the implementation of the system were not provided by the PC review as the idea was developed late in the review process. The amended regulations currently on exhibition and the LVC exhibition paper provide more details on the implementation of this new contribution. 

Key principles of the LVC, as currently exhibited, are:

• It will be a monetary contribution imposed on landowners in a rezoning area at sale or development of their land, whichever comes first.
• The decision to adopt a LVC regime for a rezoning area will be at the discretion of the Council.
• The monetary contribution will be a percentage of the subject land’s value proportionate to the percentage of public land in the Land Value Contributions Area (LVCA).
• The maximum LVC rate that can be collected is capped at 20% of land value.
• The LVCA is identified in a contributions plan for the area as land that is being zoned for more intensive development and contributes to an increase in demand for public purpose land.
• The value of land for the purposes of determining a LVC will be the most recent value published by Valuer-General in accordance with the Valuation of Land Act 1916, section 6A.

The LVC as it is set out in the exhibition package presents attractive benefits for Councils and developers alike. Briefly, they are:

• Opportunity for Councils to acquire land early, allowing them to make the purchase before all of the post rezoning price increase has kicked in.
• LVC being a charge based on a beneficiary pays principle is paid by the landowners. This results in a more equitable distribution of the windfall from land value escalation due to a rezoning. 
• A fixed rate charge, with a maximum cap, provides more certainty to the landowners and developers alike. 

That being said, there are two key issues with the proposed LVC that, in my opinion, would deter Councils from adopting a LVC for a future rezoning area. This article provides a discussion of these key issues. 

Key Issue 1: 20% Maximum Rate
​
A cap on land contributions in addition to a cap on overall contributions could be considered an unnecessary restriction for most Councils. Where a Council can remove the cap on overall contributions after IPART’s review of the contributions plan, there should be no need for a cap on land contributions since IPART has determined that the plan follows efficient land use planning and infrastructure design.

Placing a cap on the LVC could be severely detrimental to Council’s ability to fund land acquisitions in greenfield areas. This point is illustrated by the following case study of a newly released greenfield area. 

Lowes Creek Marylands Case Study
​
The Lowes Creek Marylands (LCM) rezoning was finalised by DPIE in July 2021, making it a relevant case study as a recently completed rezoning. The precinct was released under the Precinct Acceleration Protocol with collaborative planning between DPIE, Camden Council and developers of the precinct.
As shown by the Table below, public land which would be funded by a contributions plan for the area forms approximately 31% of the hypothetical LVCA that would apply. Estimation of public land acquisition costs using land values from surrounding release areas shows the land acquisition for public land is roughly 29% of the cost for the LVCA (land costs being a lower percentage can be attributed to discount factors for heritage curtilage and flood affected land). 

Therefore, in this hypothetical scenario, Camden Council would lose a third of the income it needs to acquire public land because of the maximum 20% LVC limit. 
DPIE’s rationale for suggesting a 20% maximum limit on the LVC rate is not without merit. More efficient use of public land by encouraging colocation and other efficient infrastructure design principles reduces the cost burden on both Councils and Developers. However, the 20% public land aim must be achieved through the planning process. Achieving the aim via limiting the contributions is akin to putting the cart before the horse. 

Key Issue 2: Valuer General’s land values for calculating LVC
​
It is proposed that the LVC provided in a land value contribution certificate for the subject land is calculated by multiplying the percentage rate of the LVC and the most recent value of the land published by Valuer-General (VG) in accordance with the Valuation of Land Act 1916, section 6A. The VG assumes the land is vacant and values it on its highest and best permitted use, based on current zoning and planning restrictions determined by councils. 

Problem is that the VG is usually a way off. 
​
The graph below contains an analysis of the difference between the sale prices and VG land values for publicly available residential land sales in Leppington this year. Since the VG has not released its July 2021 land values yet, July 2020 VG land values indexed using ABS’ Residential Property Price Index have been used for the comparison. 

The VG land values for analysed sales range between 20% and 41% below the sale price, with a median difference of 35%. This is a troubling disparity which could hamstring Council’s ability to acquire public land in time to build enabling infrastructure in release areas. 
The LVC exhibition paper notes that the VG values are not market values of the land [2], however, no explanation is provided as to why it is preferred over market values. The PC review suggests that the LVC was intended to be based on the sale price of the land [3]. This would be a more reliable way to collect land contributions that are reflective of Council’s land acquisition costs. LVC collected at the DA stage could be calculated using a Council’s land valuations for each precinct. Alternatively, land owners could be asked to provide a site-specific land valuation with their DA application. These would be more accurate than a Council’s precinct wide valuations, but the requirement may be too onerous for some land owners.
The loss of income due to lower than market rate valuations compounded with loss of income due to the maximum LVC cap has the potential to create significant funding shortfalls for Councils.  
Other issues

• Definition of LVCA – the LVC exhibition paper seems to only exclude developed land from being counted in the LVCA. It is important that any land (including heritage and/or constrained land) that will not be required to make a LVC is excluded from the LVCA as they will also not be rezoned for more intensive use of the land. 
• Just terms allowance – considering Council’s will likely look to acquire land at the below market VG land values, importance of a just terms allowance being collected under the CP is increased. It is not clear whether the LVC system will allow for this. 
• There is a risk that land values will adjust to include the new charge. This could result in the LVC being passed on to developers which goes against a key principle of the LVC. 

Concluding Thoughts
Managing the fundamentally conflicting interests of local governments, ratepayers and the development industry is a difficult task that has scuppered previous attempts at reforming the contributions system in NSW. Nevertheless, DPIE have shown they are willing to persevere and will adjust the final package based on feedback from governments and industry alike. If the LVC is intended to be provided to Councils as an alternative land contributions mechanism, we believe the key issues raised in this paper must be addressed by DPIE. 
NXS Planning specialises in planning advice regarding the infrastructure contributions system in New South Wales. Alex and I have experience in managing contributions planning projects with the development industry and working within contributions planning teams at local government and DPIE. As such, if you would like to further discuss the issues raised in this article, please feel free to reach out to me via LinkedIn or email (suyash@nxsplanning.com.au). 
Suyash Pareek
[2] Land Value Contributions Exhibition Paper, Page 11
[3]  Review of Infrastructure Contributions in New South Wales – Final report, NSW Productivity Commission, Page 56