UDIA NSW names high performing councils

UDIA NSW is pleased to see that two of the best performing councils as identified in our Council Infrastructure Performance Monitor FY20 for the Sydney Megaregion have stepped up to match the government’s $75.9 million in funding.

UDIA NSW acknowledges The Hills Shire and Blacktown City Councils in leading the way and delivering urgently needed infrastructure projects for their communities. This will support the development of approximately 40,000 homes, 115 hectares of employment land and 1,000 construction jobs.

In addition to delivering new and improved parks, sporting fields, roads and cycleways thanks to the NSW Accelerated Infrastructure Fund (AIF), other projects are also under way in Sydney’s North West.

“UDIA NSW encourages the NSW Government to consider ways in the forthcoming budget to free up the $3bn in infrastructure contributions that Councils have collected, as shown in our research. We need to look at infrastructure differently and prioritise enabling infrastructure – water, sewer, power, roads and bridges which leads to shovel ready development. This will deliver a double dividend of infrastructure jobs now and housing and jobs in the years to follow.” said Steve Mann, CEO, UDIA NSW

“Having strongly advocated for the AIF, we are delighted that it is delivering the results we knew it would.” he added.

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Urgent action needed with land supply rapidly running out across NSW

In its pre-budget submission to the NSW Government, UDIA NSW (UDIA) set out the significant challenges to both the greenfield and apartment markets and made key recommendations for the 2021-22 NSW Budget.These challenges, if not immediately addressed, will become a major drag on the NSW economy, with a potential loss of 90,000 jobs and $50bn of economic output by early 2023.

“The successful and timely support for the development sector would deliver both the greenfield housing and the apartments that are needed over the next two to three years. This would provide time for significant structural changes designed to deliver greater productivity in the planning system, such as infrastructure contributions reform to take effect, protecting tens of thousands of jobs and maintaining tens of billions of dollars of economic output.” said Steve Mann, CEO, UDIA NSW.

Greenfield house sales are experiencing a significant uplift due to strong pent-up demand, but supply of newly serviced land is not keeping up. The combination of a lack of newly re-zoned land and delivery of enabling infrastructure, means that if immediate action is not taken to fix the lack of greenfield serviced land supply, new housing construction will grind to a halt over the next couple of years.

UDIA Recommendations:

The best way to solve the problem is to create a new fund focused on enabling infrastructure as part of a wider Jobs and Affordability (JAffa) Program. The fund would distribute grants in two ways:

1. Provide incentives for Councils to forward fund their local enabling infrastructure projects, utilising the infrastructure contributions they are already collecting. The Productivity Commissioner has recommended making it easier for Councils to borrow via NSW Treasury Corporation (TCorp), and this has been accepted by the Government. We recommend that the legislation required to facilitate this change be implemented as part of the 2021/22 budget. At the same time, to create momentum, the NSW Government should provide a Council grants program for specific pieces of enabling infrastructure for the final 10% of the cost of infrastructure. UDIA believes that a total grant fund up to the value of $100m over three years would help deliver around two thirds of the Council’s existing enabling infrastructure projects, catalysing the spending of $1bn of infrastructure funding.

2. Provide direct funding for key regional road and water projects like the Housing Affordability Fund (HAF). Historically, the HAF has earmarked in the region of $100m per annum. We believe that this level of funding will need to continue with a total fund of $300m over three years helping to deliver around 10,000 homes and protecting 12,000 jobs per year.
The JAffa program should be established to help solve the historic lack of infrastructure co-ordination. Many greenfield housing developments require roads and water infrastructure to enable housing delivery. The program needs to assess the benefits of pieces of infrastructure wholistically including the place making it enables.

The NSW apartment sector is struggling with approvals down nearly 64% from the 2016 approval peak and commencements down 47%, dragging NSW down to seventh place in terms of dwelling starts according to the CommSec State of the States report. UDIA forecasts that, based on the current trend, there will be between 15,000 and 27,000 apartments completed per annum in the next few years in NSW, a drop of up to two-thirds, causing job losses of between 34,000 and 59,000 compared to 2018.

The current challenges in the apartment market are making it very difficult to obtain pre-sales and therefore finance for apartment projects. While the Government’s proposed reform of Stamp Duty to a Property Tax has the potential to provide some stimulus to the apartment market, it will not have a major effect on pre-sales. We need to support jobs now in this key sector for our economy, with apartment projects taking 2-3 years to reach completion.

UDIA recommendations:

The ideal way to fix the apartment market in the short term is to find ways of converting existing apartment approvals into construction projects, by tackling the financing problem and reducing pre-sales barriers.

The Government should consider three options:

1. Provide loan guarantees in exchange for lower project pre-sales thresholds.

2. Reduce foreign investor surcharges on new build apartments, a move that we believe will stimulate the market and increase NSW Government revenues.

3. A $25,000 property tax loan scheme for apartments based on the Federal Government’s Homebuilder program but targeted at apartments and repaid by apartment owners as part of their property tax bill.

“UDIA NSW urges the NSW Government to consider its recommendations, which we believe would deliver excellent value for money for taxpayers, enable the property development sector to play its part in providing a bridge to the post pandemic recovery of the NSW economy and support housing affordability.” said Steve Mann, CEO, UDIA NSW.

UDIA NSW Council Infrastructure Performance Monitor FY20 released last week revealed that Councils in the Sydney Megaregion (Illawarra to the Hunter) were sitting on almost $3bn at the end of FY20 (up 6.8% from FY19) in infrastructure contributions and up from $2bn four years ago. UDIA has estimated that over $670m is earmarked for enabling infrastructure, water and roads, that if delivered could help unblock the greenfield supply pipeline. Unfortunately, under the current system, Councils are spending significantly less than they obtain from infrastructure contributions, with only 18% of Councils funding for infrastructure spent in FY20. Media Release with Report can be found here.

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Council Infrastructure Funding Performance Monitor for the Sydney Megaregion FY20

UDIA NSW research reveals that Councils are sitting on $3bn in infrastructure contributions that if spent efficiently, could improve housing affordability, create thousands of jobs and improve the quality of life for hundreds of thousands of people in NSW.

The timely and efficient delivery of enabling and social infrastructure is a significant concern for many UDIA NSW’s members, and this guides our research, policy and advocacy. The UDIA NSW Council Infrastructure Funding Performance Monitor FY20 reviewed Annual Financial Reports from Local Government Areas across the Sydney Megaregion to determine the levels of income and expenditure derived from development contributions.

Key findings:

  • $3bn from section 7.11 and 7.12 plans or from planning agreements was held by Councils across the Sydney Megaregion (Illawarra to the Hunter), at the end of FY20 – up 6.2% from FY19 and a huge 50% jump from the $2bn held four years ago.
  • While the money for infrastructure held by Councils has increased year-on-year infrastructure delivery has not kept up, with many councils spending significantly less than they obtain from developer contributions.
  • Communities urgently need the infrastructure to support development including open spaces, roads and community centres such as libraries.
  • Of the $3bn, $670m is currently held for enabling infrastructure such as roads and sewers, which if spent, would help deliver more homes and improve housing affordability.
  • Councils’ performance varies significantly, and we acknowledge that delayed expenditure may be for reasons beyond a Council’s control. However, UDIA NSW suggests that poorly performing Councils could benefit by learning from best practice.
  • The NSW Government should implement the reforms recommended by the Productivity Commissioner as soon as possible, to make it easier for Councils to borrow to forward fund infrastructure delivery.

“Unlocking new housing supply is a key to meeting demand and managing affordability over time. More needs to be done by the State Government to work with Councils to deliver greater productivity and build a stronger housing supply pipeline in NSW.” said Steve Mann, CEO UDIA NSW.

“The challenge and also importantly, the opportunity to deliver more infrastructure housing and jobs is to get more of these funds moving. Activating even $1bn of growth infrastructure funds would create in the order of 25,000 homes and support around 30,000 jobs per annum. The economic stimulus of this policy into the NSW economy would be between $9bn and $16bn.”said Steve Mann.

The report was conducted primarily to examine the relationship between rising contributions and the ability for Councils to deliver infrastructure on the ground. The report is broken down by GSC regions.

Councils showing high asset holdings can be waiting on additional funding to “unlock” the money and fully deliver projects.

Councils with high asset holdings are often those with high levels of development and/or have expensive infrastructure to deliver.

Infrastructure contributions are the fees property developers are required to pay and are one of the main tools available to councils to help fund local infrastructure to support growth.

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