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NSW Department of Planning, Industry and Environment
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The NSW Government is delivering an unprecedented investment in infrastructure to keep our communities connected and our economy moving.

 

We are reforming the infrastructure contributions system to create a better system that is fairer and benefits everyone. Our changes deliver the infrastructure we need to support new homes with the transparency and consistency the community and industry need.

 

The key elements of the reforms package are:

  • amending the local government rate peg to reflect population growth
  • ensuring section 7.11 contributions are cost reflective and based on efficient costs
  • providing an alternative approach to collecting contribution to fund public purpose land
  • requiring infrastructure contributions plans to be developed upfront prior to rezoning of land
  • retaining the simplicity of section 7.12 levies but with a higher maximum rate for residential development
  • improving rigor in the application of planning agreements
  • introducing a broad-based regional contributions per dwelling in Greater Sydney, the Central Coast, Hunter and Illawarra-Shoalhaven, in place of special infrastructure contributions
  •  restoring water charges for Sydney Water and Hunter Water, which are currently set at zero; and
  • simplifying the system with digital tools, adopting benchmark costs and use of standardised templates.

 

Land value contribution

The new land value contribution will:

  • share the costs of public purpose land with everyone who benefits from the rezoning;
  • provide an alternative approach to collecting contributions for land that funds earlier acquisition of land; and
  • incentivise the dedication of land to local government for public purposes.

 

Why are we making changes?

The cost of land is rising and this has put upward pressure on contribution charges and can lead to revenue shortfalls for local government. This is exacerbated in greenfield areas when land costs rise earlier than the actual development, often before a rezoning is finalised. Land costs comprise an average of 54% of total infrastructure costs in greenfield areas. This includes land used for drainage, transport, and open space.

 

One of the problems with the current system is the full costs of the development are not known at the beginning of the project. This leaves the developer having to accommodate the cost of the local infrastructure with no consideration of these costs by the landowner.

 

We have heard countless times from industry the unfair scenario where a landowner gets the windfall, and the developer pays for unexpected development costs, the heightened price of land, plus levies.

 

Our changes will mean the landowner who benefits from their land being rezoned for development will contribute towards the cost of buying land for local infrastructure when their land is either sold or developed.

 

What are the changes?

It's a new approach to contributions that aims to support councils in getting the land that is needed for public infrastructure like parks, drainage, etc.

 

It was created for precincts/large areas that are being rezoned where land is being converted from rural to urban uses.

 

We're asking the landowner who benefits from the rezoning to contribute to the cost of providing the land needed for local public infrastructure.

 

The obligation to contribute to the costs of land acquisition is created when the land is rezoned but the requirement to make the contribution is triggered when the land is either sold, or developed, whichever comes first.

 

Currently, the costs of the land acquisition and the construction of infrastructure are all borne by the developer when they develop the land. This mechanism will share some of the cost with the landowner who is benefitting from their land being rezoned.

 

How are we doing it?

A land value contribution provides councils with an alternative approach to collecting contributions for new public land that supports future urban development and new homes. It is an alternative approach to the section 7.11 method of collecting contributions for land. It is specifically designed for greenfield release areas.

 

New release areas, sometimes called ‘greenfield development’, have a high demand for new infrastructure such as roads, stormwater drainage, and open space. There is often very little or no existing infrastructure in the area.

 

These councils experience high levels of population growth, bringing with it more demand for infrastructure and other services.

 

The contributions plan will be prepared when the rezoning is prepared – it will identify the land that is needed for the local public infrastructure purpose.

 

The obligation to contribute to the costs of land acquisition is created when the land is rezoned but the requirement to make the contribution is triggered when the land is either sold, or developed, whichever comes first.

 

The landowners will then contribute to the cost of local infrastructure. This will be done by a payment to council or the dedication of land of the same value.

 

We created a technical working group of local government and key industry stakeholders who provided valuable time and advice on the proposed changes. With the working group we put together two worked examples (the sites are Schofields and Menangle Park) of how the land value contribution will work. Read the examples and more about the land value contribution in the explanatory paper on the planning portal.

 

Benefits of the reform

Infrastructure contributions can only help fund the upfront capital costs of building new infrastructure, not the ongoing maintenance costs. The reform to the rate peg will improve councils balance sheets, allowing them to maintain the infrastructure and services required to support housing supply, economic growth, and great places.

 

The NSW Productivity Commissioner recommended this, as councils need a reliable income source to meet the costs of providing services to their community.

 

Developers delivering housing in greenfield housing developments will benefit from improved infrastructure delivery. Greenfield areas have limited or no infrastructure and therefore require intensive infrastructure delivery from councils, including open space, local roads, footpaths and stormwater drainage. Without this infrastructure, development cannot proceed.

 

In this regard, the development industry contributes to investment in infrastructure. Overall, the development industry contributes to the cost of infrastructure required to support their development, the remainder of costs is borne by the broader community through other revenue sources such as council rates and State revenue.

 

The community will benefit through improved infrastructure provision and better places. The reformed contributions system will ensure the right infrastructure is delivered at the right time and in the right place to support our growing communities.

 

Transitional arrangements

Once the legislation is passed, the new infrastructure contributions system is expected to be in place by 1 July 2022. A land value contribution may be introduced for land that is rezoned for urban purposes after this time.

 

What are the next steps for land value contribution?

We will:

  • review all feedback received during the exhibition period
  • continue to work with Technical Working Groups on issues raised during exhibition
  • put in place legislative and regulatory amendments
  • develop further communications on how to apply land value contributions; and
  • build capacity and expertise through training and development programs.

 

If a land value contribution is adopted, contributions for works or towards land not included in the land value contributions area, can still be required under a section 7.11 plan.

 

The land value contribution will only be applied to land subject to future rezoning after the reforms commence.

 

Feedback and consultation

We have written an explanatory papers setting out the proposed changes to land value contributions with supporting documents. Please visit the planning portal to view the documents. The public exhibition has closed.

 

Page last updated: 14/01/2022