Developer Contributions ‘Inflating New House Prices’

Developer contributions are having an inflationary effect on housing affordability and impeding supply, according to new research.

The National Housing Finance and Investment Corporation’s (NHFIC) research report on developer contributions has found that the infrastructure charges are increasingly acting like a “tax on new housing”.

Developer contributions, or infrastructure charges, are levies charged by local and state governments to help pay for local infrastructure, focusing on water, drainage, footpaths, parks and community facilities.

NHFIC cites the unpredictability and opaque nature of infrastructure charges as a core issue in developers’ feasibility studies.

It also says often this charge becomes an on-cost for homebuyers or end-users, impacting housing affordability significantly.

According to NHFIC, developers have to factor in infrastructure charges at around 10 per cent of total development costs—but generally higher in New South Wales, and up to $85,000 per greenfield dwelling development in some areas.

Greenfield developer contributions (per lot)

_{^Source: Developer Contributions report, NHFIC}

Housing Industry Association chief executive of industry policy Kristin Brookfield said development contribution schemes had become a significant hindrance.

“This is partially due to the large range of infrastructure now included and the gold-plated standards being sought by local and state governments,” Brookfield said.

“A conscious decision to shift the majority of the upfront costs on to new housing developments emerged in New South Wales almost two decades ago … Sydney is the most expensive [but] other states have taken the same approach and we are starting to see costs increase in most other states.”

Brookfield said the upfront charge was the least efficient way to recover infrastructure costs and was impacting the costs of new homes.

“The HIA would support further research to assess the unintended impacts of high and poorly functioning development contribution systems nationally and the implications these taxes are having on new homebuyers,” she said.

NHFIC said it was a “concern that the application, scope and administration of developer contributions is a relatively opaque area of public policy” and that there was little information available to compare states and territories.

An analysis of Sydney councils showed up to 88 per cent of all funds raised through developer contributions between 2017 and 2020 were earmarked for social infrastructure.

Around one-third, on average, was earmarked for essential infrastructure with a stronger nexus to new housing developments.

According to NHFIC, improved policy co-ordination and optimising risk to share cost arrangements between councils and developers would increase new housing supply.