Amazingly, the NSW Government has belatedly made a big step forward in addressing the slow-motion crisis that is our housing undersupply.
The housing supply issue has gone off the boil a little in recent weeks, with growing evidence that net migration is falling swiftly back from its recent highs caused by the GFC and the Howard Government’s system of allowing student visas to become de facto bridges to permanent residency. But that merely means the gap between housing demand and housing supply will stop growing at an accelerating rate. There’s a long way to go before the gap actually starts shrinking.
And while the NSW Government was up to its old tricks on social housing, announcing “a $2.6 billion investment in social housing” much of which was actually Commonwealth funding, its raft of initiatives on housing actually address some of the structural impediments that have prevented the housing market from responding effectively to rising demand.
The two key elements are the stamp duty exemption for dwellings bought “off the plan” up to $600,000, and the new cap on developer charges announced last Friday.
The stamp duty exemption (and the discount for downsizers or housing bought during construction or completion) reflects that Governments have woken up to the problem of simply stimulating demand through their efforts to improve affordability, and are now focusing on directing demand to where it is most productive – new housing supply.
The exemption has already copped criticism because of the threshold and the claim that a lot of housing and apartments aren’t bought off-the-plan.
The $600,000 threshold will have to be looked at if the exemption is going to stay in place longer than its scheduled two years – and if it works, it should be kept. Indeed, it could form the basis of a major, Henry Review-style overhaul of land taxation. But at the moment, industry figures Crikey spoke to don’t believe it’s too low.
And David Bare, the Housing Industry Association’s NSW Executive Director, pointed out to Crikey that in fact the majority of new housing is bought off-the-plan. “If you go to any development site, even if the process appears seamless to the buyers, they sign two contracts — one for the land, the second for the house, which might be based on the display home.” According to Bare, the inclusion of vacant land in the exemption and discount is also important, given previous discounts only related to housing. The exemptions and discounts should be particularly appealing to volume builders. “The members I’ve spoken to about this are really excited about this,” Bare said.
The new cap on development levies that local councils can change — at $20,000 per block — will not merely cut costs — some NSW councils are charging up to $40,ooo — but provide greater certainty for developers and improve their chances of obtaining finance, because they know the maximum levy that they’ll face per block.
Nathan Rees introduced a $20,000 cap but enabled the Local Government Minister to give exemptions to councils, rendering the cap meaningless. Under the approach announced last Friday, councils that want to charge more will have to appeal to IPART, and justify the costs on the basis that the infrastructure for which the levy is being charged is directly related to the proposed development – not to future developments or to improve the amenity of existing communities. If IPART agrees, the council will be able to charge higher rates for the development, but won’t be able to hit developers themselves. “There’s a very strong governance process overlaying this, although a lot of the details haven’t been worked out yet with councils,” said Bare.
The result is that developers can approach finance sources with greater certainty about the taxes they’ll face.
Roozendaal has also announced funding of up to $35m to assist and incentivise local councils to speed up Development Approval processes and better coordinate them with their other planning processes.
The result is a shift away from simply throwing money at the problem of affordability to addressing structural impediments — long-term ones like the fragmented and bureaucratic Development Approval Process and ever-higher charges for developers — and ones that have cropped up more recently, such as Australian banks’ post-GFC aversion to financing property development.
While dying governments are usually associated with policy debacles and profligacy, Eric Roozendaal has proved the exception in at least one key area.