Calls by the National Housing Finance and Investment Corporation for greater transparency and accountability in the use of development contributions to fund urban infrastructure are well justified. But arguments for a return to traditional funding models based on taxes and recurrent user charges should be treated with caution. They could simply transfer wealth to development site owners with no gain in housing affordability.
In a recently released research paper, the National Housing Finance and Investment Corporation (NHFIC) laments the rise of development contributions as a means of funding infrastructure in residential growth areas. The paper concludes that these contributions have ‘shifted the cost burden of local infrastructure from state governments and local councils to end users’, implying that they are culpable in diminished housing affordability.
Numbers on the scope and scale of the infrastructure that goes into a new greenfield community are notoriously difficult to find. However, Infrastructure Victoria (2019) estimated the cost of infrastructure to support growth on the urban fringe in Melbourne at between $126,000 and $259,000 per dwelling. This is an all-inclusive estimate except for the facilities and services built into individual house lots and the cost of providing public open space.
Using these figures as a base and adding in a provision of $5,000 per lot for open space contributions, a broad funding mix can be identified. This includes an assumption that the cost of providing major roads is divided 40/40/20 between state taxes, development contributions and local rates, and the cost of providing community infrastructure is shared 50/50 between development contributions and local rates. In round terms then:
- 30 per cent of the all-inclusive cost of providing infrastructure in growth areas is funded through developers building roads, pathways, drains, parks etc on-site and transferring these assets free to Councils
- 20 per cent from cash or in-kind development contributions for ‘off-site’ assets
- 20 per cent from recurrent user charges levied by utility companies on households after they have taken up occupancy of the new community in question
- 20 per cent from general State revenues, and
- 10 per cent from local rates.
As NHFIC points out, this mix is the product of significant policy changes over the past five decades, not only in Victoria but across the nation. Since the late 1960s, there has been a rebalancing of funding sources requiring developers to:
- complete all on-site infrastructure before lots could be registered and sold, and
- make cash or in-kind contributions to the provision of shared off-site infrastructure.
Traditional methods of paying for infrastructure, through taxes and recurrent user charges, now account for only about half the total funding task.
NHFIC says that this rebalancing stemmed from councils struggling to keep up with the infrastructure funding task in the burgeoning new suburbs of the 60s and 70s. But this is only part of the story.
