Better value from greenfield urban infrastructure in Victoria

Posted November 22, 2017

  • Local government
  • State government
SGS Economics and Planning Greenfield Growth

Current arrangements for approving new housing projects in Melbourne’s outer suburbs are wasting the available funds for infrastructure. This means that households moving into these areas must wait longer than necessary for many services including schools and adequate arterial roads.

Dr Marcus Spiller and Bill Forrest recently released a report which estimates that State Government outlays about $50,000 for every new home in Melbourne’s greenfield growth areas to supply arterial roads, schools, public transport, health care facilities and other regional-level infrastructure, as well as part funding of local facilities like sport and recreation centres.

At $50,000 per dwelling over a thirty-year period, State Governments can expect to invest $11 billion in present value terms to set up this infrastructure for the growth areas.

This $11 billion cost is partly offset by the Government’s Growth Area Infrastructure Charge (GAIC) which is levied on landowners when farmland is rezoned for housing development. The GAIC produces about $6,100 per dwelling. The remainder is paid for by the general taxpayer.

Spiller and Forrest estimate that the councils in the growth areas will deliver local infrastructure programs at the rate of around $38,000 per home, amounting to a present value investment of $8 billion over 30 years. This cost is in part defrayed via statutory Infrastructure Charges Plans which raise about $23,000 per dwelling. The remainder is paid by the ratepayer.

The recurrent costs of providing services related to this infrastructure are then funded from taxes (Federal, State and Local) and user fees and charges.

Fragmented patterns of land release mean that best value is not being generated from the multi-billion dollar investment which State Governments and Councils are making in infrastructure to serve growth areas.

Allowing development to occur simultaneously across several fronts means that the triggers for delivery of roads, schools and other facilities are being tripped in multiple locations at once. As a result, available capital funds for infrastructure must be spread thinly, and new communities must wait longer than necessary for adequate services and facilities.

SGS Economics and Planning Marcus Spiller

To give an example, Wyndham is one of Australia’s fastest growing municipalities. There are more than two dozen, effectively independent, development areas across the municipality. Our research shows that state and local governments could save upwards of $300 million in present value terms by implementing better growth management mechanisms in these areas.

— Dr Marcus Spiller

These improved mechanisms should avoid ‘rationing’ land release as this could put upward pressure on land costs. Rather, we recommend that a preferred sequence of land release should be established for each growth corridor so that education, road, public transport and other agencies can plan their investments in the most efficient way. Developers would be free to propose out of sequence projects, but they would be required to compensate the infrastructure agencies for any extra cost that this might cause.

This approach would transfer the risks of fragmented development to the parties who are best placed to manage them, namely, the private proponents of new housing on the fringe.

More information

Principal author - Dr Marcus Spiller, Principal and Partner, SGS Economics and Planning

Co-author - Bill Forrest, freelance consultant, previously at Wyndham City Council, E:

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