(Image: Private Media)

This is day six of The Dirty Country: Corruption in Australia. Read the whole series here.

Land zoning and the planning and development decisions that flow from it have traditionally been one of the greatest sources of local and state government corruption in Australia, especially in major cities. Occasionally misconduct around zoning has extended even to the federal government.

Zoning is fundamental to Australian society at a macro and micro level. A controversial Reserve Bank paper in 2018 argued that zoning and development restrictions “have contributed materially to the significant rise in housing prices in Australia’s largest cities since the late 1990s, pushing prices substantially above the supply costs of their physical inputs”.

It found that, for example, “zoning restrictions raise detached house prices by 73% of marginal costs in Sydney”. The comparable figure in Melbourne was 69%, 42% in Brisbane, and 54% in Perth.

Sign up for a FREE 21-day trial and get Crikey straight to your inbox

By submitting this form you are agreeing to Crikey's Terms and Conditions.

The authors argued that the substantial benefits of zoning and planning restrictions were outweighed by their enormous costs. But much of the benefit accrues not to the public, of course, but those who can profit from residential development.

Attached to the paper was a list of examples of the micro effects of zoning changes across the country: prices of properties on one side of a Penrith street doubling compared with those on the other following rezoning; a 10-fold increase in the value of Victorian agricultural land rezoned for urban growth; a five-fold increase in the value of an industrial block in inner-western Sydney when rezoned for residential; a relaxation in zoning restrictions in St Leonards quadrupling a property’s value.

The paper also cited a study by Paul Frijters and Cameron Murray showing how rezoning 13,000 hectares in south-east Queensland between 2008 and 2010 raised their value by $700 million. It also showed that more than $400 million of that was captured by landowners.

Murray and Fritjers have been the most assiduous explorers of the way land zoning and development processes have been relentlessly gamed by a class of vested interests composed of property developers, politicians, bureaucrats and regulators to deliver spectacular profits at the expense of the community. That issue forms one set of Murray and Fritjers’ Game of Mates, a remarkable compendium of the variety of ways in which vested interests game political, bureaucratic and regulatory systems to siphon off profits at the expense of ordinary Australians.

So egregious has been the abuse of zoning and planning laws that some governments have been compelled to take serious measures to address it. As the High Court noted in upholding NSW’s laws banning political donations by developers: “The Independent Commission Against Corruption (“ICAC”) and other bodies have published eight adverse reports since 1990 concerning land development applications. Given the difficulties associated with uncovering and prosecuting corruption of this kind, the production of eight adverse reports in this time brings to light the reality of the risk of corruption and the loss of public confidence which accompanies the exposure of acts of corruption.”

Not merely did NSW ban property developer donations — a ban that a number of Coalition MPs tried to circumvent, costing them their careers — but the state government has established a requirement for panels of experts — now called local planning panels — to assess major development applications for all Sydney councils, Wollongong and the Central Coast of NSW, effectively removing elected officials on local councils from assessing major developments.

That by no means circumvents all corruption in the planning approval process or in zoning decisions: major developments are assessed at the state level and, as recent events in NSW around the relationship between disgraced former MP Daryl Maguire and Premier Gladys Berejiklian have demonstrated, the really lucrative property decisions are those that relate to planned major infrastructure.

A future airport, like that being built in western Sydney, or a major new road offers opportunities for major landholders to dramatically increase the value of their assets or acquire others before their value rises or zoning changes are made, generating windfall profits in the hundreds of millions.

That creates a strong incentive for landholders to pressure, or pay, MPs to lobby their own colleagues in key positions such as the planning ministry and associated bureaucrats, to deliver the required decisions. That’s why Maguire is under investigation in NSW in relation to, inter alia, his furious lobbying of officials and ministers to secure road access and rezoning that would increase the value of a block of land owned by Louise Waterhouse near the western Sydney airport. It was one of many schemes by Maguire to influence zoning and infrastructure decisions made not at the local but the state government level.

But the NSW planning process changes point the way towards some core issues underpinning the regulatory philosophy for dealing with corruption.

The installation of mandatory local planning panels is a kind of nuclear option. In effect, the NSW government has admitted that a democratic planning process at the local level will inevitably lead to corruption and perceptions of corruption no matter how tightly regulated it is, or how powerful ICAC is, or how closely watched councils and their staff are.

Democratically elected decision-makers have therefore been replaced with outside experts whose independence means they are unconnected with the potential beneficiaries of zoning decisions.

Murray argues that such “randomisation” of decision-makers can upset the “game of mates” by removing decision-making from the glittering circle of the well-connected. But he goes further. In a submission to the now-suspended NSW ICAC inquiry into lobbying in 2019, Murray articulated a broad philosophy around regulation of corruption. He rejected the traditional prescription of greater transparency around lobbying such as more extensive and detailed lobbyist registers and meeting diaries for ministers, suggesting that that would merely serve to advertise the success of certain lobbyists in reaching decision-makers and advertise to politicians the benefits of moving into lobbying after public life.

Murray suggested the entire process of influencing decision-making should not be seen as a series of discrete “purchases” of outcomes that the participants understand are ethically transgressive, but as a result of a shared worldview between beneficiaries and decision-makers in which “politicians and bureaucrats will often internally believe that helping those in their social circles is what is good for society as a whole, as they keep getting signals and feedback telling them this is the right thing to do, and they are armed with compelling stories about why this is so.”

As a consequence, mere transparency is insufficient, because no one is ashamed of doing what they see as socially worthwhile.

Instead Murray suggested restructuring the rules of the game to disrupt the incentives: replacing decision-makers with independent external experts, for example, or extending “cooling-down periods” for people leaving public life. But Murray is especially keen to reduce the benefits decision-makers can deliver by ensuring the whole “honeypot” of lucrative rezoning and planning decision is removed.

The way to do this is to ensure the “market price of the property rights that come from rezoning [is] to be fetched from property owners who wish to use their land at the higher-value rezoned use”.

Murray has regularly invoked the ACT as the only jurisdiction that does this — charging 75% of the market price for new property rights created by rezoning.

There’s a rigour to Murray’s reasoning, but it’s a confronting one for advocates of transparency and the motherhood-like insistence that “sunlight is the best disinfectant”.

Only by removing the incentives and by erasing the role of democratically elected officials can one of the longest-standing and most ubiquitous forms of corruption be effectively checked. It’s a logic that must be addressed in any debate about how to properly check the pervasive soft corruption of Australian politics.

Should Australia’s zoning and planning rules be restructured? Send your thoughts to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.