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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