The impact of state and local taxes, fees and charges on housing
According to many witnesses, the taxes and fees that apply to housing
transactions and construction add significantly to housing costs. While
Commonwealth taxation settings are often regarded as adding to housing demand
(and, in a market with supply constraints, housing costs), state and local
taxes were identified by witnesses as adding directly to the supply-side costs
This chapter considers the effect of state and local taxes on housing
affordability, including state stamp duties on conveyances (referred to
henceforth simply as 'stamp duties'). The overwhelming weight of evidence
received by this committee suggested stamp duties are a highly inefficient and
inequitable means of taxing land and improvements, and also undermine home
purchase affordability. Flawed as stamp duties might be as a form of taxation,
states and territories remain heavily reliant on the revenue they provide.
Acknowledging this, some witnesses noted that any removal or reform of stamp
duties would likely require a shift to a different revenue source. Attention in
this respect generally settled on a possible broadening of land taxation,
including its extension to owner-occupied property. The committee also heard
arguments in support of broad-based land taxation on the grounds that its
application would help discourage excessive speculation and overinvestment by
investors and owner-occupiers.
This chapter also considers whether infrastructure fees and charges
levied by state and local governments, most commonly in relation to greenfield
housing developments, undermine housing affordability. In doing so, this
chapter also outlines and addresses concerns expressed by some witnesses
regarding the apparent lack of transparency and equity in the application of infrastructure
fees and charges.
The burden of state and local taxes, fees and
charges on new housing stock
Some submitters highlighted the costs that taxes and fees added to new
housing construction, and the extent to which these costs were ultimately
reflected in higher house prices. The taxes and fees referred to in this
respect included some Commonwealth taxes, notably the Goods and Services Tax
(GST). However, on the whole witnesses focused on state and local taxes, fees
Although not referring exclusively to state and local taxes, the HIA
told the committee that in 'absolute terms, new housing is the second most
heavily taxed sector in the Australian economy', out of a total 111 sectors.
The HIA argued that any national tax reform agenda should consider how to
reduce this tax burden.
Similarly, the UDIA emphasised the relatively high tax burden on new
housing and its impact on housing affordability:
A major contributor to the high cost of housing in Australia,
and subsequently affordability pressures in recent years is the escalating
level of taxes and charges on new homes. The development and construction
industry is one of the most heavily taxed sectors in the Australian economy,
with various government taxes and charges accounting for up to 44% of the price
of a new house in some cities. Many of these taxes are economically inefficient
and inequitable, further discouraging investment, contributing to Australia's
housing shortage, and worsening housing affordability.
The UDIA continued that while a large proportion of this tax was levied
by state and local governments:
...their replacement with more equitable and efficient taxes
will only be achieved with cooperation and leadership from the Commonwealth,
due to the vertical fiscal imbalance experienced between Australian
JELD-WEN provided more detail on the cost taxes and fees added to new
housing. Citing research by the Centre for International Economics, JELD-WEN
More than 35 per cent or in excess of $100,000 of the cost of
a new house and land package in the eastern state capital cities, consists of
the GST, development charges, stamp duty, land tax, building fees and charges;
in many cases, these indirect taxes and charges cascade throughout the
acquisition and development pipeline to final sale.
While each state and territory levies stamp duty on the transfer of property
on a progressive rate scale, rates and thresholds vary from jurisdiction to
jurisdiction. As the final report of the Henry Review noted, the average rate
of stamp duty across the states rose from 2.45 per cent in 1993 to
3.25 per cent in 2005, 'largely due to the non-indexation of the
scales in the face of property appreciation'. The highest rate of stamp duty,
the Henry Review further noted, was 7 per cent for residential
properties valued above $3 million in New South Wales.
Stamp duty revenues are volatile, because they are determined by the value and
volume of properties being transferred. While volatile, these revenues
consistently make up a very substantial proportion of the revenue raised by
states and territories. For instance, in 2007–08, stamp duties raised
$14.4 billion for the states and territories, more than
25 per cent of total state tax revenue that year (see Figure 6.1
below). In some states, stamp duties have at times been the single largest
source of revenue.
Figure 6.1: Revenue from conveyance
Source: Treasury, Australia's Future Tax System Review
final report (Canberra 2010), p. 254.
While acknowledging the reliance of states and territories on stamp duty
revenue, many witnesses were critical of the effect stamp duties had on housing
affordability and economic productivity. The REIA, for example, argued that
...represent additional costs to property transactions, thereby
discouraging turnover of housing and distorting choices between renting and
buying, and between moving house and renovating. Individuals who move more
frequently would pay more taxes than those who move less. Others, who would
have to buy or sell if they changed jobs, could be deterred by these costs thus
reducing labour mobility. These distortions lead to...sub optimal outcomes,
reduce investment in the property market and impede labour mobility.
The Residential Development Council (part of the Property Council of
Australia) also argued for the abolition of stamp duties. It noted the various
inefficiencies and distortions created by stamp duties, including distorting
the decisions people made about where to live.
Like the REIA, a number of submissions highlighted not only the costs
stamp duty imposed on the purchase of housing, but also the negative impact on
labour mobility and productivity more broadly. For instance, in her submission,
Associate Professor Yates suggested that stamp duty 'can discourage
turnover, influence housing decisions and inhibit mobility'.
Similarly, AHURI referred to the 'disincentive to residential mobility for
existing home owners wishing to sell and purchase another property especially in
higher valued areas'.
The UDIA explained that stamp duties:
...distort the efficient allocation of housing and land by
penalising owners for moving to properties that best suit their needs. This has
the effect of damaging economic productivity by constraining labour mobility,
as the Productivity Commission recently reaffirmed in its study on Geographic
Mr John Hawkins also highlighted how stamp duties can distort decision
making in a way that negatively impacts on housing affordability:
The relevance for housing affordability is that by
discouraging people from moving houses, it tends to lead to people remaining in
houses that do not suit them. For example, an older couple whose children have
left home may prefer to live in a smaller house which a growing family would
prefer to vacate. But the stamp duty could deter both of them from moving.
Stamp duties may also encourage first home buyers to buy a larger house than
they need at the time to avoid paying further duty should they require a larger
home as their family grows.
HomeStart Finance pointed to the difficulties stamp duty created for low
to moderate income first home buyers. Stamp duty, it argued, is regressive in
the sense that:
...the most vulnerable customers—low-moderate income first home
buyers—are least able to afford it, or afford to save for it. The imposition of
this tax at the time of purchase creates a significant disincentive both for
first home buyers and overall property market transactions.
The HIA drew the committee's attention to the fact that stamp duty is
often applied multiple times along the process of a new home being brought to
market: at the point of sale of land to developer, the sale of land from the
developer to the builder, and the final sale of a house and land package to a
purchaser. The HIA noted:
This transaction and taxation process which can apply to the
new home building sector is essentially treating new housing as 'trading stock'
and is unique to this sector. In other industries, for example the used car
industry, the 'commodity' is regarded as holding stock and does not attract
stamp duty until the sale to the ultimate consumer. For the new home building
sector, the taxes paid whilst approvals are being sought during the development
phase can be significant and should be addressed by either a cut in rates or an
State government land taxation
Witnesses also provided evidence suggesting that more broadly applied
land taxes might help improve housing affordability, or at least provide a more
efficient form of taxing housing than stamp duties.
In Australia, land value taxes are levied at the state and territory
level. As the Henry Review explained, there are currently three taxes on land
The first is property conveyance duties (stamp duties) levied
on the transfer of land and buildings. In 2007–08 they raised $14.4 billion for
State governments. A significant proportion of this revenue is raised on the
transfer of building values, rather than of land. The second is local
government rates levied on land (and also on building values by some councils).
They raised $10.2 billion in 2007–08. Finally, State government land tax
(mostly levied on unimproved land values) raised around $4.3 billion in
For the purposes of this chapter, 'land tax' is taken to refer to state
government land tax, unless otherwise specified.
All jurisdictions except the Northern Territory levy land tax, and
depending on the jurisdiction the calculation is based on either the
'unimproved' or 'site' value of the land. While the rate of land tax varies
from state to state, it is generally only levied on commercial and
investor-owned residential land. Owner-occupied land is exempt from land tax in
all jurisdictions. As the Henry Review noted, the exemption of owner-occupied
housing 'removes around 60 per cent of land by value from the tax
base'. The Henry Review concluded that the exemption:
...is likely to have particular influence on land for
residential property. The exemption of owner-occupiers rules out around 75 per
cent of residential land and, for the remainder, high thresholds in some States
effectively exempt many small-scale investors. As land can shift in and out of
the tax base depending on who owns it, it is unlikely that the tax will be
fully reflected in lower land prices for residential property. The portion of
tax that is not reflected in lower land prices is borne by investors through
lower returns, or by their renters through higher rent. This means the tax, to
some extent, has been passed forward to workers and the owners of capital.
Further, it is likely that, in the long run, much of the burden of the tax is
shifted to renters, as rents adjust to ensure that investors achieve an
adequate return. This may be inequitable, as renters generally have low income
Other submitters, including the Tenants' Union of NSW, suggested that
the exemption of owner-occupied housing from land tax encouraged overinvestment
in owner-occupied housing.
Professor Frank Stilwell argued that a uniform land tax applied to the value of
all land would help 'drive out the speculative element of the market', thereby
bringing land price inflation under control:
Indeed, if the government captured the economic surplus that
is currently privately appropriated by landowners, it would only make sense for
people to hold land for its use value—whether for housing, agricultural or
other commercial purposes. There could then be no significant speculative gain,
and land ownership would not be a vehicle for capital accumulation. Land price
inflation would then be relatively stabilized.
The current forms of land tax implemented by State
governments do not achieve this outcome because the land tax rates are low and
the exemptions are very extensive. A more comprehensive, nationwide land tax
system would need to replace or supplement these State taxes.
Mr Cameron Murray also argued in favour of land tax reform, suggesting:
Increasing taxes on land in proportion to its value at its
highest and best use provides enormous incentives to construct new housing even
if it reduces rents and prices.
For his part, Professor Dodson suggested that a more sophisticated land
tax system would be able to capture the increase in land values, and
redistribute it for 'infrastructure or affordable housing purposes'.
AHURI also noted that, in varying measures depending on the
jurisdiction, land tax is only levied on the value of the land of investment
properties above a certain threshold. For example, in Victoria land tax only
applies on the excess value of $250,000 of rental properties held by an
investor. This arrangement, it suggested:
...is potentially responsible for the lack of large property
investors in Australia. Residential property investment is characterised by a
dominance of 'mum and dad' investors who mainly own one investment property
(Berry 2000). In 2006–07, 1,542,712 individuals declared an interest in at
least one rental property; 77 per cent had an interest in only one
rental property and 91 per cent in one or two properties...
stamp duty and land tax reforms
The Henry Review recommended the removal of stamp duties and, in
recognition of the revenue needs of the states:
...a switch to more efficient taxes, such as those levied on
broad consumption or land bases. Increasing land tax at the same time as
reducing stamp duty has the additional benefit of some offsetting impacts on
The Henry Review further recommended that given the efficiency benefits
of a broad land tax, 'it should be levied on as broad a base as possible.'
Both the UDIA and the REIA recommended replacing stamp duty with 'more
efficient' taxes, such as a broader GST.
While arguing in favour of abolishing stamp duty, the REIA took issue with the
Henry Review's recommended replacement of stamp duty with a broad-based land tax:
The Henry Review recommended that a land tax was an efficient
means of replacing the revenue forgone from abolishing state stamp duties. In
reality this is not the case. In practice it is likely that a significant
proportion of the economic incidence of the tax is passed forward to consumers
or backwards to investors adding distortions and reducing the efficiency of the
tax and detracting from the claimed simplicity, equity and sustainability of
While acknowledging that stamp duty is a major source of revenue for
state governments, the HIA maintained that it is nonetheless a 'highly
inefficient tax'. It suggested the:
...implementation of reforms which remove inefficient taxes
that specifically affect housing, such as stamp duty on conveyancing, and
replace the government revenue with more efficient taxes, improve housing
affordability. Furthermore, such reforms are also likely to have broader
economic benefits that deliver higher living standards to Australian
A national tax reform agenda should develop a strategy and
timeframe to replace stamp duty with more efficient taxes such as a broader
based and/or higher rate of GST or a well-designed land tax. A Federally-led
tax reform strategy is the only option for ensuring such change occurs.
AHURI argued that replacing stamp duties with reformed land taxes would
improve the efficiency of the housing market and housing affordability generally.
Such reforms would:
...speed up development in areas that are more expensive and
reduce land values in the inner cities making purchases in these areas
Mr Eslake also called for a shift from stamp duties to broad-based land
taxation, with a view to encouraging the more efficient use of land:
That would include replacing stamp duty on land transfers
(which are 'bad' taxes on many grounds, including that they discourage people
from changing their dwellings as their needs change) with more broadly-based
land taxes (ie, no exemptions for owner-occupiers, but with appropriate
transitional provisions) and possibly higher rates for undeveloped vacant land
in established urban areas.
AHL Investments Pty Ltd ('Aussie') recommended a reduction in stamp duty
over time, potentially shifting to a broad property tax to replace the revenue
lost by state and territory governments. Aussie suggested, however, that this
...need to be progressively implemented to minimise the impact
on existing property owners. This would require special consideration to be
given to houses of lower value and to those that have recently paid stamp duty
under a different rate regime.
Prosper Australia recommended abolishing stamp duties and implementing a
broad-based land tax that should be levied at a federal level and then fully
rebated to the states.
Appearing before the committee, Prosper Australia was asked how a land tax
would apply in situations where an income-poor person owned a family home on
high-value land. The example of a pensioner sitting on $1 million block of
land but not earning any income from it was put to Prosper Australia, and
whether a land tax would price that pensioner out of her home. Mr David
Collyer, Prosper Australia's Policy Director, replied:
Not necessarily. We, collectively, could remove the burden
from her either by deferring it or by increasing pensions if that proved to be
an issue. You cannot do these things in isolation. The idea is not to impose a
new tax on everybody and not change other taxes. The purpose of a land tax is
to give you the opportunity to remove other taxes that we know are very bad for
us. We are not trying to increase the government tax take; we are trying to
rebalance or reposition taxation.
out of stamp duty in the ACT
As noted by Mr Hawkins, while state and territory governments have
generally not embraced stamp duty or land tax reform in response to the Henry
Review, the ACT Government has moved to replace stamp duties over time with
'more efficient and fairer charges on land values'.
Following the Henry Review, the ACT Government in fact conducted its own
taxation review, with the final report released in May 2012. Like the Henry
Review, the ACT Taxation Review was highly critical of stamp duty:
This tax is fundamentally unfair, in that it raises around a
quarter of the total taxation revenue of the Territory from around
9 per cent of the people whose circumstances may impose the necessity
to move to different accommodation. For this tax, around 38 cents of the
economic value is lost for every dollar raised.
The ACT Taxation Review recommended that stamp duty be abolished, with
the revenue replaced by a broad-based land tax. The Review further recommended
the application of a transition period of 10 to 20 years, 'to ameliorate the
impact of the change on households'.
Subsequent to the Review, the ACT Government announced that it would abolish
stamp duty over a 20 year period starting from mid-2012, with the revenue
foregone to be replaced by an increased land tax (in the form of general rates,
which the ACT Government, unlike other states and territories, levies itself).
The committee believes stamp duties are an inefficient, productivity-damaging
form of taxation, which ultimately increase barriers to home ownership. As has
been established across multiple inquiries and reviews, including the Henry
Review, stamp duties discourage land from being allocated to its most efficient
use, distort housing choices and undermine housing affordability. The committee
also notes evidence that stamp duties reduce peoples' choice and flexibility in
relation to their housing situation—including to downsize as circumstances
change, move closer to work, and so on. This, in turn, damages labour mobility
and hurts economic productivity more generally.
Currently, stamp duties constitute a significant source of revenue for
the states and territories, and it would be unrealistic and even irresponsible
to advocate their abolition without acknowledging that a replacement source of
revenue would be required. The committee considers the Henry Review recommendations
a good foundation for discussion on the need to move from stamp duties to
broader, more efficient forms of taxation. As part of this discussion, the
committee believes that states and territories should consider broadening the
base of existing land taxation.
The committee further notes that such issues will likely be addressed in
the forthcoming Tax White Paper. On the assumption that it is likely the White
Paper will also underline the inefficiencies associated with stamp duties, the
committee acknowledges that that the White Paper's authors may be better
positioned to recommend reform directions. With this caveat in mind, the
committee notes that it has heard no compelling arguments for maintaining stamp
duties in their current form. On the basis of evidence received, the committee
also believes that the phasing out of stamp duties should probably occur in
tandem with land tax reforms so that the impact to state revenue is
Beyond the political challenge of any transition from stamp duties to
broad-based land taxation, the committee acknowledges that such changes would
likely involve significant equity issues, not least for 'asset rich, income
poor' households and retirees. This in itself is no reason to eschew reform in
this area. The ACT Government's recent stamp duty reforms may provide a
template—or at least a starting point—that other governments might consider in
pursuing stamp duty reform. Moreover, while issues of equity are not
insignificant, they are by no means insurmountable. Mechanisms for deferring
land tax liabilities, or exemptions for owner-occupiers who would be unfairly affected
by a broadening of the tax, are available to governments. Indeed, liquidity
relief provisions that allow for the deferral of land value tax liabilities are
already sometimes used in relation to local government rates.
Meaningful reform is difficult, but it is no less important for being
so. The committee believes that if the will exists, it will be possible to
phase out stamp duties in a way that is revenue neutral, equitable and has a
positive impact on housing affordability.
While reform in this area is in the final analysis a matter for the
states and territories, the committee believes the Commonwealth needs to engage
with (and, as appropriate, provide leadership to) the states and territories in
a coordinated reform process. This engagement would be based on a recognition
that the implementation of such reforms should ideally take place as part of a
broader process of taxation reform, possibly in response to the Tax White
The committee recommends that state and territory governments phase out
conveyancing stamp duties, and that as per the recommendations of the Henry
Review, this be achieved through a transition to more efficient taxes,
potentially including land taxation levied on a broader base than is currently
Infrastructure charges on new housing developments
For new housing developments, the costs of supplying infrastructure are
substantial, and often add significantly to the price paid by the homebuyer.
The question of who should bear these costs, and how and when, was raised by a
number of witnesses. For many, current infrastructure charging regimes, as
administered by state and local governments, appeared inequitable and
Infrastructure charges, as defined in the final Housing Supply and
Affordability Reform (HSAR) report produced by the intergovernmental HSAR
Working Party, are:
...fees levied on developers (or purchasers in some instances)
by local government as well some state governments to fund basic (or nexus)
infrastructure (such as local roads and water mains) necessary for land
development. In some instances, infrastructure charges are also levied for
major infrastructure (arterial roads and pumping stations) and social
infrastructure (parks and libraries). Local councils are generally empowered
through planning and development legislation to collect contributions from
developers for infrastructure.
There are two main types of infrastructure: 'social' and
'economic'. Economic infrastructure can be further categorised as 'basic' or
'major/trunk' infrastructure. Who pays for the infrastructure, and how, should
be determined by the type of infrastructure and whether the costs can be accurately
apportioned to those who benefit from the infrastructure.
In its submission, AHURI explained how developers were required to cover
infrastructure costs (directly or indirectly), and how in turn these costs
added to the overall costs of new housing:
Developers may be required to pay significant levies and
contributions to councils either for basic infrastructure (such as roads,
water, sewerage, gas and electricity connections), which may be constructed by
the developer and handed over to the relevant authority, or for costs incurred
by the local government in providing new infrastructure, or by requiring
developers to contribute land for public open space or facilities.
Developer infrastructure contributions represent the largest
quantifiable planning related cost in Australia, exceeding $100 000 per lot in
designated metropolitan growth areas of NSW and around $45 000 per lot in parts
of Queensland (Gurran et al. 2009). These costs have increased markedly in a
number of capital cities—in Sydney they have increased from around 3.5 per
cent of the cost of a house price in the mid-1980s to 16.9 per cent in 2007
(Gurran et al. 2009).
In their joint submission, Mr Borrowman, Associate Professor Frost and
Dr Kazakevitch also pointed to research that quantified the costs
associated with the shift towards user-paid infrastructure funding approaches
in new housing developments. This research showed the cost burden was
particularly pronounced in Sydney:
Hsieh, Norman, and Orsmond (2012) estimate that in 2010
government charges (excluding GST) levied on developers amounted to around
$60,000 per greenfield dwelling in Sydney, and between $20-30,000 per
greenfield dwelling in other cities.
The UDIA told the committee that the current means of funding infrastructure
placed the cost burden on the new homebuyer up-front, when in fact that
infrastructure had a long-lasting benefit to the community as a whole. The
issue, it argued, was one of equity, balance and transparency.
Similarly, Aussie argued that under current infrastructure funding regimes, the
initial purchasers were in effect required to fund the benefits of future
Dr Lawson and Professor Berry also expressed concern regarding:
...the high development costs of new housing on a constrained
urban fringe, where revenue strapped local governments lack the capacity to
develop infrastructure in advance. Upfront development fees directly impact 'first
generation' purchasers, rather than being shared across a wider spatial area
and longer time frame.
In its submission, the HIA provided a detailed argument against existing
arrangements for funding social and community infrastructure through what it
regarded as a 'complex array of levies charged throughout the residential
development process'. In doing so, the HIA drew a distinction between
'development-specific infrastructure items' within the boundaries of a
development, such as local roads, drainage, sewerage, power supplies and so
on—which it agreed should be provided by the developer as part of the cost of
development—and community and regional infrastructure which is 'ancillary to
the direct provision of housing for a larger population and provides a benefit
to the broader community'. This latter category, the HIA argued, should not be
funded by developer contributions:
The excessive costs levied from the developer are passed on
to new homebuyers who in effect partially or wholly fund infrastructure items
from which the whole community derives benefit. The cost of community
infrastructure should be met by general revenue rather than an inequitable tax
levied on new homebuyers.
Removal of the excessive infrastructure charges incurred
during the production of new homes will lower the final purchase price to
consumers, thereby improving the relative cost differential between new and
established housing and increasing demand for new homes. The additional supply
of housing would assist to restore the housing supply imbalance.
The UDIA argued that developer contributions should be 'charged
proportionately to the benefit received by the beneficiary of the
infrastructure, and should be transparent in their calculation and
application'. It suggested that currently this was often not the case, with
excessive infrastructure charges undermining housing affordability:
Developer contributions are frequently opaque and unjustified
in their application, and there may be no clear connection between the cost of
the infrastructure provided and the contribution, to the extent that the
contribution may be well in excess of the cost of the infrastructure it is
supposed to pay for. Additionally in many cases developer contributions are
used to pay for infrastructure that benefits the wider community (for example
trunk roads and utilities infrastructure upgrades). In this case, developers
and ultimately new home buyers are being forced to subsidise the rest of the
The UDIA argued that a further problem with current approaches to
infrastructure funding was that sometimes there was an incentive for local
...set unnecessarily high engineering and construction
standards in order to minimise their ongoing maintenance and replacement costs.
Where these reduced costs aren't reflected in lower council rates, new home
buyers effectively end up paying for their infrastructure twice, once through a
higher up front house price, and again through recurring rates.
According to Mr Eslake, state and local governments' policies for
charging for the provision of suburban infrastructure were a key reason for the
failure of the housing stock to keep pace with population growth in recent
years. These policies, Mr Eslake suggested, 'have made it increasingly
difficult for the private sector to supply new housing, especially at the more
affordable end of the spectrum'. In particular, onerous requirements on
developers for the provision of infrastructure and services in new housing
estates, and the shift from a debt-financed to up-front model of funding this
infrastructure, had priced home buyers out of developments that would otherwise
While this is consistent with a 'user pays' philosophy, and
appeases the growing voter aversion to public debt, it has meant (especially in
New South Wales, where developer charges have risen to much higher levels than
in other States) that developers find it increasingly difficult to produce house-and-land
packages at prices which are affordable for first-time buyers and still make a
profit, so they have reacted by building a smaller number of more expensive
houses targeted at the trade-up market.
JELD-WEN argued that the high fees and charges on new land purchases,
many of which had been imposed in the years since 2000, had:
...distorted home buyer preferences away from job-generating
new housing to established housing. In the mid-1990s, more than a quarter of
owner-occupiers opted for a new dwelling; by the late 2000s, the share of
purchases for new housing had almost halved.
for new approaches to infrastructure funding
Professor Beer explained that in New South Wales, Victoria and
Queensland the homebuyer will pay substantial amounts toward off-site
infrastructure, an approach which on the one hand adds to housing costs, but on
the other ensures the adequate provision of infrastructure. In South Australia,
however, the opposite situation prevailed, where in many cases no adequate
infrastructure was provided. Professor Beer suggested new thinking was required
as to how 'we can finance infrastructure over the life of the property rather
than putting all the costs either on the general taxpayer or on the first home
Professor Beer suggested, for example, that local councils should be able to
raise bonds to fund infrastructure:
They can raise a bond—which obviously they get at a very low
rate relative to some forms of commercial credit—which they can pay off over
time. So, there is intergenerational equity, because it is not the first
generation of home purchasers who have to pay that enormous cost; it is
actually spread over the 20, 30, 40 or 50 years of the life of that
infrastructure. It is equitable spatially, because those who are living at the
fringe and choosing to move into that housing and are getting the benefit of
that new housing pay for it. It can also be equitable for those living in the
city areas, because they are not paying for it and also, if they are going
through a process of urban regeneration, they can actually create their own
bond and pay for the redevelopment of their urban infrastructure in ways that
may be needed by using a similar sort of device. And it is not one generation
that pays for it, because they are not the only generation to benefit.
Similarly, Mr Michael Basso argued that the shift toward
developers paying for infrastructure in new estates, rather than local
...a significant impact on the price of land, which has flowed
through to the cost of existing properties, pushing prices up across the board.
Developers obviously build these infrastructure costs into their prices meaning
buyers need to pay significantly more upfront, money that will generally be
borrowed and cost them significantly more in interest over time. Given the
flow-on effect into existing house prices, every property buyer is essentially
paying this extra amount in perpetuity and this is ultimately ending up in the
banks' coffers through interest charged on the loans. It would make a lot more
sense for councils to absorb this cost through some form of development bond
and have residents repay the cost through council rates.
While much of the evidence received was focused on the costs imposed on
developers by current infrastructure charging arrangements—and in turn the
impact this had on housing prices—the Brisbane City Council argued that it was
required to bear much of this cost itself. Specifically, the Council told the
committee that the imposition of state-wide regulated maximum infrastructure
charges in Queensland placed the Council under considerable fiscal pressure.
It suggested that under the prevailing arrangements in Queensland, the Council
was effectively subsidising infrastructure costs:
At the present time, council subsidises new house lots by an
average of some $10,000 to $15,000. The standard charge has been set across the
state at $28,000 by the state government. We are currently charging $27,000 per
allotment. As I said, we believe the user pays charge would be in the order of
about $35,000 for a lot of housing but in some parts of Brisbane the user pays
charge is in the order of $55,000 to $65,000. So in that regard we are
subsidising development using general rates revenue. While it does add to the
cost of housing, without the supply of essential infrastructure such as water,
sewerage and access to transport, there is no product that can be sold so it is
something that really adds value. If it is not there, the development has no
The HIA suggested that alternative infrastructure funding mechanisms
could provide better affordability outcomes for new home buyers. Mechanisms suggested
by the HIA included government infrastructure bonds and the Tax Increment
Financing model, wherein government is able to draw tax revenues from increases
in value within prescribed Tax Increment Financing areas to cover the up-front
costs of infrastructure.
Mr Eslake also suggested that an alternative approach to infrastructure
funding might to use 'levies on the increments to the value of the land which
result from such investments'.
Youth Action NSW referred to the McKell Institute 2012 report, Homes
for All, which argued that the levies and charges charged to developers by
local governments were, in Youth Action NSW's words, 'dramatically impacting on
the housing supply in New South Wales'.
Drawing on the McKell Institute's report, Youth Action NSW argued:
Tax Increment Finance (TIF) schemes should be implemented in
order to redistribute infrastructure costs. A TIF scheme allows local
authorities to borrow money in order to advance infrastructure growth. The
money can be sourced from the public or private sector. The construction of
infrastructure will increase site values and local tax revenues, along with
providing incentives for local communities to support growth.
In order to improve equity and affordability outcomes, the UDIA
recommended that governments:
...favour funding and financing approaches that spread the cost
of infrastructure out over extended time frames, rather than impose it up
front, such as through developer contributions.
Similarly, BIS Shrapnel argued that the cost of infrastructure
associated with new development is often borne by developers and thus new
residents, despite the benefit being enjoyed by the broader community. It
A shift in focus could result in a more equitable sharing of
infrastructure costs across all who benefit from them. There exists a role for
government to play in funding and providing the necessary infrastructure here
and the right balance must be struck between developers and government as to
who foots the bill. This would help reduce developer contribution costs and
thus help limit the ultimate cost of new housing development.
reviews of infrastructure charges
It should be noted at this point that the issues raised in this inquiry
regarding infrastructure charges have been covered extensively in previous
review processes, including the HSAR final report and the Henry Review.
The Henry Review addressed infrastructure charges in some detail. It
found that infrastructure charges 'can be an effective way of encouraging the
efficient provision of infrastructure where it is of greatest value and of
improving housing supply'. However, it also found that poorly administered
infrastructure charges—particularly charges that are complex, non-transparent
or excessive—'can discourage investment in housing, which can lower the overall
supply of housing and raise its price'. The Henry Review recommended that COAG
review infrastructure charges to ensure they were transparent and
'appropriately price infrastructure provided in housing developments'.
The issue of infrastructure charges was subsequently reviewed by COAG's
HSAR Working Party. In 2012, COAG agreed to the recommendation made in the HSAR
final report that infrastructure charges should be consistent with four
principles agreed by the HSAR Working Party, covering efficiency, transparency
and accountability, predictability, and equity (as outlined below). COAG also
agreed to note the best practice guidelines for applying the infrastructure
charging principles, as developed by the HSAR Working Party.
The HSAR report suggested that infrastructure charges should only be
used when infrastructure serviced a particular development, or when the
infrastructure serviced a number of developments but it was nonetheless
possible to apportion costs based on the demand each development placed on the
infrastructure. It suggested that infrastructure should be funded through
general revenue in the instance it serviced a number of developments, and it
would be 'extremely difficult or not possible to accurately apportion the costs
because the benefits of the infrastructure are widely distributed'. It also
suggested that such charges should not be levied in cases where direct user
charges could be applied.
The final report recommended that to the extent infrastructure charges
were used, they should at least be:
efficient—charges should be for infrastructure required
for the proposed development or for servicing a major development;
transparent and accountable—charging regimes should be
supported by publicly available information on the infrastructure subject to
charges, the methodology used to determine charges and the expenditure of
predictable—charges should be in line with published
methodologies and charging schedules (with clarity around the circumstances in which
charges can be modified after agreement); and
equitable—where the benefits of infrastructure provision
are shared between developers (land owners), the infrastructure charges levied
on the developer should be no higher than the proportional demand that their
development will place on that infrastructure.
The committee notes that many of the issues raised and recommendations
made by witnesses in this inquiry regarding infrastructure charges have been
canvassed in previous inquiry reports, including the Henry Review and the HSAR
final report that COAG agreed to in 2012. The committee also recognises that
the question of how infrastructure is funded raises complex equity issues.
Expressed in the most basic terms, these issues come down to who should pay for
new infrastructure and when they should pay it: should new home buyers bear the
cost, either up-front or over time? Or should the broader community bear the
cost, particularly when it is established that the benefits from that
infrastructure are shared by the wider community?
There are no simple answers to these questions. However, the committee
does note that the final HSAR report recommended that COAG agree to the HSAR
Working Party's four principles for infrastructure charges—efficiency,
transparency and accountability, predictability, and equity—and that COAG note
the associated best practice guidelines produced by the Working Party. In light
of COAG agreeing to this recommendation, the committee believes it would be
beneficial for state and territory governments to report through COAG (and
preferably through the recommended ministerial council for housing and
homelessness) on what changes, if any, they have since made to ensure
infrastructure charges are consistent with these four principles. This would
help ensure that progress is being made in this area, and encourage
transparency, information sharing and the take-up of best practice approaches
to infrastructure charges.
Several submitters raised the possibility of using Tax Increment
Financing or bonds to fund infrastructure in new housing developments. The
committee believes that, if nothing else, alternative approaches to
infrastructure funding may merit further consideration by state and local
The committee recommends that all states and territories report to the
Council of Australian Governments (COAG), preferably through a new ministerial
council on housing and homelessness (see recommendation 2), on what policy
changes, if any, have been made to ensure infrastructure charges are consistent
with the four principles agreed through COAG in July 2012.
The committee recommends that state and local governments investigate
the possibility of using Tax Increment Financing and other innovative finance
mechanisms to fund infrastructure for new housing developments.
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