News from the front desk: Issue No 331 – On zoning changes and “winning the lottery”

NSW’s new planning minister Anthony Roberts has been in the papers this week, with the announcement that an expanded “priority precincts” program would occur around rail stations to foster development.

The aim is to get more homes in areas that have better access to infrastructure, transport and jobs. This occurs through upzoning that allows for more intensive uses of land – say, high-density residential apartment towers rather than low density single storey homes.

Mr Roberts said he wanted to make it an attractive proposition for those people in their single storey homes near a train station to sell up.

“If you are going to get your house bought, or you want to sell your house because you actually live near a railway station… I want this to be, and this government wants it to be … like winning the lottery,” he told the Sydney Morning Herald.

How fair, though, is it that these beneficiaries of government decisions be provided with what is essentially a windfall gain – something that has occurred through no action of their own? Should they “win the lotto”? Shouldn’t a sizeable portion of that increased value go towards public services?

It’s an interesting question that’s been touched on this week with arguments around value capture in regards to transport infrastructure, following the release of a report by the Grattan Institute and a rebuttal piece published here by Curtin University academics including Professor Peter Newman.

The idea here is that by putting in a piece of transport infrastructure the government is enabling an increase in land values (separate from any land use change), and that taxing that uplift – a windfall gain – makes sense as a way to help fund the infrastructure.

But how this is done has caused consternation amongst experts.

For example, figuring out what the actual uplift is, how it is recovered, and who should pay can be difficult.

Professor Corinne Mulley, University of Sydney

Professor Corinne Mulley, chair in public transport at the University of Sydney’s Institute of Transport and Logistics Studies, is chief investigator on an Australian Research Council project looking at land value uplift.

“Most of my work has been in trying to identify how much uplift you get and when it happens,” Mulley told The Fifth Estate.

“My personal view is that you’re stabbing in the dark in terms of value capture if you don’t know how much uplift you have got.”

Mulley said, on balance, the Grattan Institute report was right: “It’s really difficult to impose an artificial boundary around transport infrastructure.”

For example, on the Gold Coast, there has been a levy on everyone in a defined catchment area near the light rail.

“I’m not a great fan of that. The work I’ve done shows how much uplift you get varies over space.”

So charging a fixed amount isn’t equitable, and may have adverse equity impacts.

“We don’t want to make poorer members of the community pay more.”

One method Mulley said may work for residents who hit the jackpot was leaving the capture until property changes hands.

She noted there were cases in London where people were making £2 million in personal gain on property sales, thanks to a train station built with public money.

Land use change the big driver

But it’s not just the train station’s proximity that’s leading to increased value, it’s changes to zoning enabling more intensive development making land values rocket up.

“The biggest change in land value appears to come from changing zoning,” Mulley said.

“What’s happening in Sydney and elsewhere is a recognition that public transport services work more efficiently and sustainably with high populations in close proximity to new stations.”

The implication of this is that you should densify around stations, which is what the NSW government is working to do.

Residents John Allen, Lisa Stokan, Jerome Wicks. Picture: Phil Rogers

But how do you then capture that increased value, which often represents millions? Think of, for example, the 25 Castle Hill neighbours in Sydney’s north-west that banded together to get an estimated $100 million “megalot” sale for their homes, thanks to rezoning under the priority precincts program and the announcement of a new metro station. That’s $4 million for each individual home, when the average going price was around $1 million.

And just last month Domain reported on other megalot sales where homeowners in the same area were getting up to 10 times what they’d originally paid for their homes.

These residents surely must feel like they’re winning the lotto, and while some incentive to sell up must be given, receiving multiple times a property’s worth (before zoning and transport intervention) surely isn’t the best way forward in an environment that has seen serial underinvestment in public transport, not to mention a severe lack of affordable housing.

What about a licensing system?

So what can be done? A report released this month by SGS Economics & Planning has put forward an interesting proposition, arguing for a licensing scheme for development.

Developers would be charged a licensing fee, additional to infrastructure taxes or other development levies, that would be calculated on the uplift in value generated through more intensive use of land made possible by development consents or rezonings.

In Victoria, which the report used as its basis, it said up to half a billion dollars a year could be raised.

“Rather than conceptualising betterment as a negative taxation issue – that is, the government taking away part of the wealth of a property owner – it can be seen as the sale of development rights to proponents granted privileged access to markets that must be regulated for the sake of economic efficiency,” the report argues.

According to report co-author Dr Marcus Spiller, it’s similar to fees charged for access to other government regulated markets like liquor distribution, commercial fisheries and broadcasting bands. And if the proceeds are shared with local councils it could become an incentive to promote development and combat NIMBYism.

“As price takers, developers would pass the cost of the licence fee back to the sellers of development sites,” he said.

“The licence fees would therefore capture part of the uplift in land value created by the granting of development approvals”.

The fee would need to be set at an “appropriate level” to still encourage people to sell to developers.

He said because developers could factor the fee into their costs, and thus how much they were willing to pay for land, it wouldn’t dampen housing construction.

While the rate at which the fee is set is a matter of policy, the report said a rate of up to 50 per cent might be seen as reasonable, “particularly if phased in over a long period (say 5 to 10 years) to allow currently embedded price expectations to work their way through the market”.

The plan has drawn the ire of the Urban Development Institute of Australia’s Victorian executive director Danni Addison, who said the plan would “without a doubt” raise the price of housing.

The City of Parramatta has put out a discussion paper on how it can fund infrastructure in the Parramatta CBD, proposing that up to 50 per cent of the value created for some rezoned residential developments (though not commercial) would be returned to the council to fund infrastructure.

The news was welcomed by the Committee for Sydney’s Dr Tim Williams, who said it had “a good economic and planning basis” but has concerned the Urban Taskforce.

Chief executive Chris Johnson said Parramatta was “misusing” the planning system to generate funds for infrastructure.

Value capture is an important part of the funding landscape

Mulley, meanwhile, welcomes innovative approaches such as value capture, recognising them as important in the context of governments trying to balance the books.

“Public transport projects are really expensive and governments are constrained in their budget,” she said.

“As the chair of public transport [at the University of Sydney] of course I would like to see more money put into public transport, but I realise there are constraints.”

It would, for example, be unpopular to raise higher taxes just to pay for public transport or to take budget from health or education, for example.

But value capture, particularly if the funds raised could be hypothecated into a fund dedicated to, say, public transport improvement, could receive much more public support.

Whether governments would go down this route remains to be seen, though.

“Treasury don’t like this approach. They like to spend money as they see fit.”

The Fifth Estate contacted the NSW Department of Planning to ask if value capture would form part of the basis of the expanded priority precincts program.

It responded: “Subject to feasibility and on a case-by-case basis, the intent would be to share some of the value uplift and make sure that the wider community benefits from each proposal.”

Union threatens to take ACCC chair to court over WA privatisation spruik 

The ACCC chair Rod Sims could be heading to court. Well that’s if the Electrical Trades Union gets its way.

It has referred Mr Sims to the public service watchdog for breaching the public service code of conduct, as well as seeking legal advice as to whether he could be subject to formal legal proceedings under laws such as the Competition and Consumer Act, or action by the Commonwealth Ombudsman.

So what’s he done?

In the lead-up to the WA election, Mr Sims was on the front page of the West Australian saying consumer prices would fall under a privatised electricity regime – five days before the election.

“If Western Power was privatised that would lower power prices because the new owner would be more efficient,” the West Australian reported Mr Sims as saying.

Privatising the grid was one of the biggest issues in the WA election, with the Liberal Party vowing to sell it off to reduce debt and Labor promising to hold onto it.

The way the ETU sees it, Mr Sims’ actions “amounted to the use of his position as a senior public servant to campaign for a political party”. (We’re trying not to think here of FBI pronouncements damaging to Hilary Clinton in the lead up to the US election, but the bare bones of this case look intriguingly similar.)

Sims’ argument, the union says, was an opinion, not fact, pointing to the experience of consumers in the fully privatised Victorian and South Australian energy markets, where prices rose after privatisation.

“It is not professional for Mr Sims’ opinion, in his official capacity as the head of a statutory body, to be delivered via the medium of a front-page article in a major news outlet several days before a state election is due to take place,” a letter to Public Services Commissioner John Lloyd from ETU national secretary Allen Hicks reads

“The choice of such a medium is inherently political, and the political implications of making such a comment would have been readily apparent to Mr Sims when he chose to do so.

“His comments of March 6 represent an unacceptable politicisation of a senior public servant and the agency that he heads.

“Governments, opposition parties and the public cannot continue to have faith in departments and their senior staff who feel it is appropriate to insert themselves in an official capacity in election campaigns to favour one candidate.”

Does the ETU have a point?

A recent article in The Conversation by Professor John Quiggin from the University of Queensland argued the case for the renationalisation of the grid.

“After 25 years, the promised outcomes of reform – cheaper and more reliable electricity, competitive markets and rational investment decisions – are further away than ever,” he said.

But another piece by political economy lecturer Lynne Chester, said prices were a result of complex regulatory processes that didn’t discriminate between private and public companies.

On the matter of efficiency, however, she said there was no evidence to suggest private companies operated more efficiently, and there was evidence to the contrary.

Sims’ opinion may be a little more nuanced that the West Australian made out, though. Last year he was in the papers arguing that privatisation of monopoly assets needed to be done with the right regulation in place in order to get the best outcomes – a statement he said the ETU had used out of context in order to argue against the sale of the electricity grid in WA.

Our energy expert in WA has told us that prices weren’t likely to go up if the grid were privatised (though didn’t say they’d go down either) but in the context of the budget debt it made sense to sell.

What do you think? Has Sims overstepped the mark?

Send your thoughts or opinion piece to editorial@thefifthestate.com.au

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