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Just 724 new apartments were built last year, down from around 4000 previously
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this post was submitted on 06 Sep 2023
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Obvious bias notwithstanding, I do think it's interesting. The LNP-lead Council has just reduced infrastructure charges on a number of apartment developments. The LNP claim that the excessive cost of building is the reason developers are not building, and that by reducing the charges drastically, they'll be able to build more.
I actually haven't seen much addressing this from Labor. But the Greens have heavily criticised this move, saying that the infrastructure charges are necessary to help fund important Council initiatives, like repairing roads, operating buses, and building bike paths. Next time your local councillor says they can't do something because they don't have the funds, you should remember this moment, the Greens say.
It's worth noting that in the past, the LNP has mentioned that infrastructure charges are capped by the State Government, and at least hinted that they would like to charge more if they could. It's very odd (if you try to assume good-faith) that at one point they would be lambasting their inability to charge more, and then later turning around and slashing the charges for private developments by as much as 75%.
The opposing viewpoint is that the reason apartment building is slowed is because developers are incentivised to maximise profit, and thus they are disincentivised from building too many apartments at once, creating an artificial scarcity and keeping home prices high. Developers are land-banking to the detriment of society as a whole.
There are multiple ways of countering the land-banking, if indeed that is the cause of the problem. One solution I've seen either the Greens or people who are Greens-aligned (I can't remember which) suggest is a levy on any land where a project has received DA approval if the build has not started after a certain amount of time.
Another more free-market approach would be to reduce the need for these small number of high-profile developers capable of building large apartment buildings, by creating a wide-spread change to allow medium density development everywhere. Medium-density townhouses and small apartments are far more accessible to individuals and smaller-time developers, which would move the housing market away from the oligopoly that it is currently and more towards perfect competition, making it harder for that land-banking to occur. (In addition to all the other societal benefits of medium-density development compared to either low-density or high-density.)
I find this hard to believe. Every time council releases land, or the state government increases allowable density, developers are licking their lips and inundating councils with applications. Why submit an application, with the architect and application costs to get a DA to sit on, if they want to create artificial scarcity. Just don't sit on the land without a DA.
The reality is, since covid, building companies have been collapsing left right and centre due to supply chain issues which has led to way higher building materials costs. Projects builders have started are now operating at a loss and causing builders to go bust. Furthermore, the lack of building supplies means projects can't proceed, despite the record demand for construction work. It's really one of those rare situations where a highly in demand industry is in recession.
Just just way more convenient and fits the narrative to, once again, put it down to pure corporate greed.
I think more than likely it's a bit of both. The land-banking criticism has been around since before COVID, so COVID cannot be used entirely to explain it. What we often see as evidence for the benefits of broad changes to the zoning system is how frequently developers will try to build something above the height limit in high-density areas, with Council regularly approving it—because they essentially have to approve it in order to keep up with demand.
But prices have definitely gone up, and that's a problem. It's not exactly clear that reducing infrastructure charges is a good response though, because that's just going to make it harder for the Council to build the infrastructure necessary to make higher density housing provide a good quality of life. They're also not a particularly large percentage of the overall cost, so the impact of reducing them on the actual affordability isn't enormous. The problem needs to be addressed above the Council level.
I think your first paragraph nails it. Developers are holding off development not to introduce artificial scarcity, but to maximise development. So they keep the land empty until either they can convince the council to approve a higher density, or a change in state government gives them an avenue to bulldoze through the council roadblocks.
At least in NSW a single graph is needed to show this relationship: https://www.planning.nsw.gov.au/policy-and-legislation/housing/housing-supply-insights/quarterly-insights-monitor-q1/trends-in-housing-supply the correlation between number of approvals and number of constructions is basically exact. Which means, the roadblock to construction is council approval, not corporate greed or developers gaming the system to generate artificial scarcity or any other conspiracy you can think of.
I do agree that removing infrastructure charges is not a solution. From my perspective, this won't do anything since developers aren't blocked because of costs, but either materials supply or council blockades. Removing infrastructure charges solves neither of these issues.
It depends the infrastructure costs required for the new development is more than what they recover. If it's less and reducing them encourages more development then it gives them more revenue overall.