Developer Charges Threat To Housing Affordability 1

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4th December 2009, 01:42pm - Views: 567





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Media Release    





4

December 2009

Developer Charges

Threat to Housing Affordability

 

Statement by Mr Wilhelm Harnisch, Chief Executive Officer

Master Builders Australia, the peak body for the building and construction industry, today called on

all levels of government to urgently redress

the damaging

outcomes from current inequitable

developer charges policies before housing affordability once again becomes a front page story.


Mr Wilhelm Harnisch, CEO of Master Builders Australia said, “Developer charges are one of the

fastest growing taxes in Australia that flow through to higher prices for newly built homes, making

them less affordable and depressing building activity.


“Unreasonably high developer charges have contributed to the current housing undersupply

situation which in turn has exacerbated broader social problems such as a higher house prices, a

lower level of home ownership, and undersupply of rental housing leading to higher rents.”


Master Builders Australia has put these concerns in a detailed submission to the Henry Review of

Taxation and has made 13 key recommendations to restrict the ability of councils and state

governments to impose economically harmful charges; to enhance the accountability and

transparency of the process; and to expand the capacity of these governments to raise revenue

through more rational means.  

[For details see attached: Master Builders’ recommendations for reform of Developer Charges]


Mr Harnisch

said, “Historically,

urban infrastructure provision for housing development has been

funded through a combination of local council rates and state/territory government general taxes,

but state and local governments have imposed high developer charges that over time have risen to

unprecedented and hurtful levels.  


It is a problem recognised by the Federal Government and the Reserve Bank Governor.


The Deputy Prime Minister, Julia Gillard has described developer charges as “a significant supply-

side” barrier to housing (Media Release; 11/06/09).  The Federal Housing Minister Tanya Plibersek

recently said that greedy state governments and local councils were partly responsible for the

shortage of affordable first homes (The Australian; 3/11/09; page 1).


Mr Harnisch said, “While we welcome the Commonwealth Government’s

$500

million

Housing

Affordability Fund initiative

to encourage state and local governments to specifically offset the

impacts of these rising developer charges it does illustrate the striking illogicality of the current

arrangements and the urgent need for reform, a view supported by the Reserve Bank Governor.”

…/2

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-2-


The Governor of the Reserve Bank Glenn Stevens, in a speech to the Anika Foundation (28/7/09)

and in his appearance before the House of Representatives Standing Committee on Economics

(14/8/09), said: 


A very real challenge in the near term is the following: how to ensure the ready availability and low

cost of housing finance is translated into more dwellings, not just higher prices”, and


“…this ought to be the time when we can add to the dwelling stock without a major run-up in prices.

If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will

be very disappointing, indeed quite disturbing’.


“The Reserve Bank view is that the optimum way to improve housing activity on a sustainable basis

is to reduce supply-side impediments that raise the costs of construction, and that reducing

infrastructure charges will lift housing supply and lower the cost of housing in the medium term. 


Master Builders calls on all levels of government to work together in urgently redressing this

housing affordability challenge during the early phase of the housing recovery and not wait for the

inevitable news headlines of new homebuyers being locked out of homeownership because of high

developer charges costs.  It will be too late and of little comfort to new homebuyers to be told by

governments that it regrets the situation and that it will call for yet another inquiry into the problem.



Contact:

Wilhelm Harnisch, CEO, 0402 039 039

Peter Jones, Chief Economist, 0403 440 838

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Attachment


Recommendations for Reform of Developer Charges

 


1. Disallow developer charges that undermine housing affordability objectives

At present developer charges can be imposed by local councils without reference to the spill-over

negative effects – affordability, building activity, housing supply, rent levels, congestion – that have

an impact beyond council boundaries. All councils seeking to impose developer charges should be

required to receive state government authorisation, based on an assessment that the proposed

charges do not undermine the broader economic objective of housing affordability.

It would be

beneficial to have a nationally consistent approach, agreed to by the Council of Australian

Governments, that stipulates the affordability criteria and makes clear that developer charges will

not be authorised without an assessment of their impacts on housing affordability and housing

supply. The Commonwealth government, with its direct interest in maintaining affordability, should

monitor and enforce compliance with the state government level administration of COAG-agreed

affordability criteria. 


2. State & Territory government infrastructure charges subject to affordability assessment

The principle of denying infrastructure charges that undermine broader economic objectives should

also be extended to state and territory governments. Developer charges imposed by state

government departments and utility providers should in the first instance be subject to assessment

by State Treasuries to ensure that housing affordability and supply is not being undermined.

The states should be required to share all data on infrastructure charges with the Commonwealth,

which in turn should monitor and enforce COAG-agreed criteria for maintaining housing

affordability. State or territory governments imposing developer charges found to be excessive

should be penalised by the Commonwealth government through a reduction in transfer payments

as an incentive to be economically responsible.


3. Establish an official Infrastructure Charges InfoHub 

It would be beneficial to establish an official Infrastructure Charges InfoHub, consisting of easily

accessible tables on the internet that lists levels of developer charges and allows comparisons

among jurisdictions and over time. Particularly useful information would be:


Charts comparing all local councils’ developer charges at the aggregate level.

Charts comparing all local councils’ developer charges per housing unit.

Charts comparing developer charges for particular developments.

Charts comparing state and territory governments’ developer charges at the aggregate level.

Charts comparing state and territory governments’ developer charges per housing unit.

Charts comparing state and territory governments’ developer charges by utility type.

Charts comparing each of the above over time.


These transparency measures would be a powerful tool in enhancing accountability and helping to

expose anomalous charging. Interactive charts on the InfoHub could easily rank all Councils and

all state and territory governments according to the level of developer charges.

The information

would be of use to policy makers at all levels of government in developing and assessing policy

effectiveness; to the building and construction industry in assessing the fairness of particular

charges; and to academia and the media in assessing matters of public interest.

The costs of

establishing such an information base would be minimal — a collation of data that already exists at

different levels of government, but the benefits to accountability, competition, transparency and

trust would be enormous. The National Housing Supply Council, recently established and funded

by the Commonwealth government to “aggregate and assess data on housing supply and

demand,” is a possible host for such internet transparency measures. The Council of Australian

Governments has agreed to the establishment of a Working Group of state, territory, and

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Commonwealth officials to ensure that data pertaining to housing affordability is supplied

to the Council.

There is a strong case for local government officials to be added to this

Working Group so as to enhance the information flow on infrastructure charges.

The Australian

Bureau of Statistics should be tasked with measuring developer charges on an annual basis as a

discrete revenue source for both local and state government, again allowing temporal and

geographical comparisons. 


4. Mandatory public disclosure of developer charges

Some states currently allow councils to strike agreements with developers with no requirement for

public disclosure of the level of taxes charged. In the interests of transparency and accountability,

and to reduce the risk of anomalous charging, the level of developer charges should always be

publicly disclosed. The developer charges imposed by state governments should also be publicly

disclosed.

This requirement would allow developers to make comparisons

with comparable

developments, enable councils to examine the charging regimes of other jurisdictions, and allow

the general public to assess the reasonableness of charging levels.


5. Greater Commonwealth funding of local government 

The Commonwealth government should investigate reforming intergovernmental fiscal

arrangements to provide local government with greater funding certainty and reduce the pressure

on local councils needing to pursue developer charges. Although a shift towards greater

Commonwealth funding would exacerbate the current level of vertical fiscal imbalance, this needs

to be considered against the greater efficiencies that can be derived from centrally imposed taxes. 

It should be noted that an increase in Commonwealth funding that did not result in a diminution of

developer charges would simply lead to a higher level of tax overall. This would be an adverse

outcome for the building industry and homebuyers.

Any increase in Commonwealth funding for

local government should be accompanied by an enforceable undertaking by local government

authorities that developer charges be accordingly reduced.


6. Increased use of general revenues to fund infrastructure

to better reflect user-pays

principles. Consistent with the recent acknowledgements that infrastructure provision provides

benefits across the community rather than exclusively to the narrow spectrum of new home buyers,

an increased use of general revenue by local and state governments to fund infrastructure

provision should be considered. The greater use of general rates revenue or broader state

revenues would reflect the broader community benefits of infrastructure provision, and ameliorate

the free-rider effect that many are currently enjoying.


7. Increased consideration of debt-financed infrastructure

Where appropriate, local councils or state governments should finance infrastructure provision

through debt financing

which can allow the costs of infrastructure to be shared with future

beneficiaries. The global financial crisis has increased the challenges associated with accessing

credit for both private and public sector, but the current practice of placing the entire cost of

infrastructure which may last decades onto new home buyers is inefficient and leads to housing

undersupply.


8. Abolish rate caps and review rate exemptions

Some state governments, most notably New South Wales, impose rate caps that restrict the ability

of local councils to raise revenue across the community to pay for infrastructure. This places more

pressure on councils to raise revenue through developer charges. Removing rate caps would allow

the costs of infrastructure to be shared more evenly across the community, instead of being

concentrated on new home buyers. The Commonwealth Government, as a victim of the effect of

rate caps, has an interest in pressing State governments to remove rate caps. State governments

also need to examine the extent to which restrictions on local councils’ revenue bases, such as

rate exemptions, can add to the pressure for increased reliance on sub-optimal revenue measures.



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9. Reconsideration of the upfront provision of all infrastructure

Historically the provision of infrastructure was spaced over time with the provision of vital

infrastructure up-front and the supply of less immediate needs coming later as the capacity of the

council or government to pay improved. In recent years many councils have insisted on the full

panoply of infrastructure to be provided upfront, which adds to the pressure for higher developer

charges. A consideration of a more patient provision of infrastructure is an option for local councils

and state governments.


10. End harmful cost-shifting between levels of government

The practice in past years of Commonwealth and state governments shifting responsibilities (and

costs) on to local governments without due process or compensation has added to the pressure on

councils to increase developer charges. An end to this form of cost-shifting would relieve some of

the pressure on councils. In 2006 Australian governments at all three levels agreed to implement

important principles to address this issue –

the Inter-governmental Agreement Establishing

Principles to Guide Inter-Governmental Relations on Local Government Matters. Adherence to

these principles would mitigate the prospects of unreasonable cost-shifting and reduce one source

of pressure on local councils to impose excessive developer charges.


11. Place developer charges  on the Council of Australian Government reform agenda

The Council of Australian Governments should deal with developer charges as a specific agenda

item. This issue is directly linked to all three levels of government, making COAG the most

appropriate forum for solutions to the problems that have arisen.

COAG is also the appropriate

body to consider effective means to counter the cost-shifting between levels of government that

adds to pressure for increasing developer charges.


12. Change in timing of developer charges

At present, the payment of infrastructure levies in some jurisdictions is required prior to the

generation of any land/property sales, which can cause significant cash flow difficulties for

developers. Official bodies responsible for setting developer charges should consider addressing

this by aligning the payment of developer charges with sales of the properties.


13. Australian Local Government Association representation on the Ministerial Council 

The Australian Local Government Association (ALGA) should be represented on the Ministerial

Council (Group of Commonwealth, state and territory treasurers). The representation of ALGA on

the Ministerial Council would allow local government revenue raising concerns to be raised directly

with the other levels of government. This may help to address concerns about appropriate levels of

Financial Assistance Grants, fiscal equalisation, and cost-shifting by Commonwealth and state

governments to local governments.








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