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Infrastructure Charges Send Property Prices Soaring

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Homebuyers are being slugged with a little-known infrastructure 'tax' that is adding up to $131,000 to the price of a new home, QUT research has found.
Infrastructure charges are levied by local government on property developers to assist in paying for essential services and infrastructure for new developments like roads, water and sewerage.

These charges are "over-passed" to homebuyers by nearly four times as much, pushing up prices of both new and existing homes, the study found.

QUT Property Economics lecturer and PhD researcher Dr Lyndall Bryant found house prices in Brisbane increased by an average of $3.95 for every $1.00 of infrastructure charge levied on property developers.

"In Queensland the maximum infrastructure charge for a new three or more bedroom house was set at $28,000 in 2011," Dr Bryant said.

"My research found that the 'over-passing' ratio for new house prices is 469 per cent, and 356 per cent for existing houses.

"Applying the 2011 maximum infrastructure charge, this suggests the price of a new house increases by as much as $131,320 and the price of an existing house by $99,680.

"This means that this one government charge could add nearly $1,000 a month to the average 30 year mortgage."

Dr Bryant analysed the impact of infrastructure charges on 27,752 house and 13,739 lot prices in Brisbane from 2005 - 2011, securing the first empirical evidence of infrastructure charges impacting property prices in Australia.

"In fast-growing areas governments don't have the funds to build all the infrastructure new housing estates need and existing communities refuse to pay for it by way of higher rates and taxes," Dr Bryant said.

"So infrastructure charges are levied at the time of developmental approval. Property developers claim it is uneconomical for them to pay these charges and pass them on to homebuyers, making new houses unaffordable for many.

"As new housing becomes more expensive due to the charges being over-passed, it also drags up the price of existing housing in the area.

"The new infrastructure has to be paid for somehow and the research doesn't find anyone is especially to blame for the increase to house prices, but what is clear is that all homebuyers in the community are bearing the burden of these supply chain costs.

"This study suggests the current policy of infrastructure charges is an inefficient tax that adversely affects housing affordability, with homeowners ultimately paying many times the actual cost of the urban infrastructure, with the banks being the winners, benefitting from the increases to mortgage payments."

Dr Bryant said the rate of over-passing of the charges, which were "effectively a tax", was far higher in Australia than had been observed in the United States.

Research in the US had shown house price increases of an average of $1.60 for every $1.00 spend on infrastructure charges. This was thought to be due to the "McMansion" nature of the Australian housing market in comparison to the US study areas.

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Article originally posted at: https://https://theurbandeveloper.com/articles/infrastructure-charges-send-property-prices-soaring