We need a revolution, not an evolution – President’s Speech

Presented by President Michael Sheargold, UDIA NSW at the UDIA NSW February Luncheon, 20 February 2020.

Welcome everyone to the first UDIA NSW event for the year.

We start the year with the expectation that 2020 will be a watershed year for planning in NSW.

All cycles turn, homebuyers are back, and there is now clear evidence of a market recovery in NSW. UDIA NSW expects that demand will grow for new housing and we need to use this momentum to stimulate the broader economy.

Our state’s economic performance has been less upbeat. The RBA’s forecasts have been downgraded and we are faced with an unprecedent intersection of external forces that are battering confidence across the economy: extreme weather conditions, from droughts to floods to a horrific bushfire season; and the coronavirus, which has disrupted some supply chains and inhibited potential overseas investment.

There must be a galvanising drive for our governments to deliver more fiscal stimulus. NSW needs to see strong economic growth, more jobs and improvements to affordability.

The NSW Premier and Minister for Planning have recognised the need for change with the announcement in November of the need for major planning reform. We are greatly encouraged by the reform agenda to deliver ‘the simplest and most effective planning system in Australia’.

We are at a crossroads, where continuing with the status quo in planning will lead to lower supply and more housing affordability challenges. We need to see real change to a system which is struggling.

It currently takes 7-10 years to build a home because we have the most complex planning system in Australia.

It is critical that these timeframes are reduced, and our system is clear and simple to navigate:

    • We need to know that we can work within the strategic framework to secure a merit-based rezoning.
    • We need predictability in our developer charges because as a society we cannot choose to make development uneconomic or unaffordable.
    • We need transparency in our system, so we can submit Development Applications, and everyone can be accountable to timeframes. The number of DAs being submitted is dropping and the time it takes to process a DA is even longer – the average DA determination time has increased by 95 days since 2015 for DAs over $20 million in value taking an average of 357 days.

With continued lack of predictability, there are significant flow on effects to our economy. UDIA has recently completed research with EY, which shows the economic contribution of the NSW Residential Development sector contracted by $14.4 billion in 2018/19 and had an imputed loss of over 32,715 jobs. The planning system has become a key barrier to jobs and growth, and this is harming the State’s economy.

The Urban Development Institute of Australia (UDIA) NSW is the state’s leading development industry body, representing more than 500 member companies and agencies across the public and private sector.

Planning reform is economic reform. Government has a choice to invest in the industry, or continue to watch the downward trend in approvals and completions, which will lock a generation out of the housing market. With the NSW Government’s focus to “Kickstarting Productivity”, what better industry than the development sector which represents 7.2% of the NSW economy to deliver jobs growth and productivity gains.

There is now a large hole in NSW’s housing supply pipeline, which has fallen by 36% since the peak. It is led by the contraction in Sydney’s apartment supply pipeline, with approvals now down 57% and completions forecast to be only 15,000 dwellings in 2020 – half the number achieved in 2018.

And from a greenfield perspective, the Department of Planning’s Greenfield Development Monitor shows there are currently only 10,800 zoned lots remaining in the North West and South West Growth Centre. And this supply of zoned land is not getting restocked, there are currently 23,500 potential dwellings that have been released, but not yet rezoned.

Given this hole in the supply pipeline, there is one imminent deadline which is inhibiting growth in our industry. Currently, infrastructure contributions are due to be uncapped in 132 days on 1 July 2020. The uncapping has caused considerable angst in the industry, and we are pleased that the Premier has announced that she will fix the infrastructure funding system, but the extension of the contributions cap is needed now.

In Western Sydney, cumulative infrastructure charges will exceed $120,000 if we continue down the path of uncapped section 7.11 and the SIC charges. This increase would see section 7.11 moving from $30,000 to exceeding $90,000 in parts of Western Sydney in a period of 3 years, a 200% increase. The slide shows the work we did with SMEC to run the numbers for a subdivision in each state and an uncapped s7.11 in Western Sydney would be double the developer charges for the highest of the other states.

Even our regions are not exempt from exorbitant charges. The Western Corridor in Newcastle is facing a doubling of infrastructure charges with Council seeking to bypass the IPART process, and West Dapto, in the Illawarra is facing contributions of $52,950 per lot, a 150% increase from when the $30,000 cap applied.

There are only three possible outcomes from a hike in developer charges:

1. Residual Land Value decreases – but it’s unlikely wholesale land vendors will want to sell at a close to 40% discount, so supply will slow.

2. Developer margin decreases – in my experience this has already occurred to a certain extent but the is a floor on this as financing is conditional on hurdle rates, If the bank or financier does not see an adequate allowance for profit and risk then the money won’t flow and supply will not occur.

3. Or lastly and most likely – housing price increases and we continue with another generation locked out of the housing market.

Extending the contributions cap provides security and certainty. It will allow the market to properly adjust over the medium term to enable continued supply onto the market. As taxes and charges approach 35% of the price of a new home, we are seeking certainty in charges, with a cap of $60,000 for greenfield areas that includes section 7.11 and SIC for three years. With emerging and growing regional challenges, we also need a solution that will enable our key regions near Sydney in the Hunter, Central Coast, Illawarra, and Shoalhaven to continue to grow.
The Urban Development Institute of Australia (UDIA) NSW is the state’s leading development industry body, representing more than 500 member companies and agencies across the public and private sector.

We know recapping is not a long or a medium-term solution, however it is required to ensure affordable housing supply in the short term. And for the medium and long term my own personal view is that we require a revolution rather than an evolution of the current taxation, rating and infrastructure funding framework which is letting down the development industry as well as the broader community.

We have the opportunity to work with the government on their reform agenda and improve our system. And to that end we are campaigning to “Make Planning Work” this year, with a focus to:

    • Make Planning Responsive
    • Make Planning Fast
    • Make Planning Simple
    • Make Planning Predictable.

We contribute $101 billion in economic output for the State and over 246,000 jobs. We want to continue to grow the economy, to draw people back into the state who we have lost through interstate migration. Our planning system has been holding us back – UDIA is providing clear, well-researched policy to government and have been campaigning at the highest levels to deliver change.

It is a lofty goal, the government has outlined, to deliver ‘the simplest and most effective planning system in Australia’ and it is a goal that we applaud, and as the old saying goes if we shoot for the stars and miss, we may end up on the moon.

Well as long as the moon is zoned, serviced and has a bureaucracy with a can-do attitude that can turn around any DA in 60 days, then you can count me in.

– ENDS –

Image: UDIA NSW President Michael Sheargold at the February Luncheon.