Key takeaways from government response to Productivity Commission's Review of Infrastructure Contributions in NSW

The government response was released on Friday, 5 March 2021. In summary, the government has accepted all of the recommendations of the NSW Productivity Commission – a somewhat extraordinary outcome.

The government response will require a slew of legislative changes. Some of the key changes are:

• Changes to rate pegging: Local councils will be able to grow their rate revenue as their population increases – a logical and long overdue reform which should relieve some of the pressure on developer contributions to cover funding gaps.
• Introduction of a “direct land contribution”: This will be a requirement for a landowner whose land is rezoned to pay money, or dedicate land, which will be secured by a charge on the land. The payment/dedication will be required to be made either on sale or development of the land.
• Permanent deferral of payment of all section 7.11 contributions to occupation certificate stage.
• Substantial increase in the maximum section 7.12 charge for residential development, which will be converted from a percentage of construction cost to a per dwelling charge (with the aim of tripling the current maximum of charge of 1% for residential development). This is significant because a council does not need to demonstrate nexus or apportionment for a section 7.12 contribution.
• Ending the use of planning agreements for “value capture”: The Draft Planning Agreement Practice Note 2020 will be adopted. We note that this will require many local councils to amend their adopted VPA policies, as a significant proportion of these policies currently explicitly require value capture.
• Adopting a broad-based regional infrastructure charge to replace ad hoc SICs.
• Adopting a separate category of transport contribution for major development, in addition to regional and local contributions.
• Adopting a special category of biodiversity contribution for areas subject to biodiversity certification.

The Productivity Commission also made some interesting points about affordable housing contributions, essentially suggesting that they appear to be an inappropriate means of addressing the issue of affordable housing. The Commission adopted the view that that local contributions should be used to fund development-contingent costs, being costs that would be avoided is a development did not go ahead, and noted that affordable housing does not fall within that definition.

The report questioned whether affordable housing was even an appropriate issue to be addressed through the infrastructure contributions system. However, as the use of affordable housing contributions is relatively new, and take up has been slow, the Commission simply recommended that councils should report on these types of contributions and a future evaluation of affordable housing contributions should be undertaken to determine their effectiveness and efficiency. The government accepted this recommendation.

From our own experience in major long term residential projects, we are concerned that affordable housing contributions are adding significant uncertainty to the future cost and viability of such projects. While a planning agreement allows a developer to negotiate some certainty about future infrastructure contributions at the rezoning stage, affordable housing contributions represent a significant additional charge, which cannot be excluded in a planning agreement, and which could be imposed at the development application stage. We share the Commission’s concerns about the appropriateness of dealing with the issue of affordable housing as a development contribution and we look forward to further review of this issue occurring.

We anticipate that it will take at least 12 months for many of these changes to be given effect by legislative reform.

Limits on the power to require the provision of security under a development consent

Section 4.17 of the Environmental Planning and Assessment Act sets out the limited circumstances in which a council can require the provision of security as a condition of development consent. We are frequently seeing local councils requiring the payment of bonds that go beyond these limits. For example, a two year bond to guarantee the survival of street trees.

Section 4.17(6) to (10) provides:

(6) Conditions and other arrangements concerning security: A development consent may be granted subject to a condition, or a consent authority may enter into an agreement with an applicant, that the applicant must provide security for the payment of the cost of any one or more of the following—

(a) making good any damage caused to any property of the consent authority (or any property of the Planning Ministerial Corporation) as a consequence of the doing of anything to which the consent relates,

(b) completing any public work (such as road work, kerbing and guttering, footway construction, stormwater drainage and environmental controls) required in connection with the consent,

(c) remedying any defects in any such public work that arise within 6 months after the work is completed,

(d) in relation to coastal protection works (within the meaning of the Coastal Management Act 2016), either or both of the following—

(i) the maintenance of the works,

(ii) the restoration of a beach, or land adjacent to the beach, if any increased erosion of the beach or adjacent land is caused by the presence of the works.

(7) The security is to be for such reasonable amount as is determined by the consent authority.

(8) The security may be provided, at the applicant’s choice, by way of—

(a) deposit with the consent authority, or

(b) a guarantee satisfactory to the consent authority.

(9) The security is to be provided before carrying out any work in accordance with the development consent or at such other time as may be agreed to by the consent authority.

(10) The funds realised from a security may be paid out to meet any cost referred to in subsection (6). Any balance remaining is to be refunded to, or at the direction of, the persons who provided the security.

A bond for street trees for two years from the date of planting is essentially security for defects purposes, for which a six month limit applies.

Section 4.17(4B) is a relatively new provision that allows for conditions requiring “financial assurance” in the same way that this can be done under the Protection of the Environment Operations Act:

(4B) Conditions relating to financial assurance

A development consent may be granted subject to a condition of a kind described in Part 9.4 of the Protection of the Environment Operations Act 1997 to secure or guarantee funding for or towards the carrying out of works or programs required by or under the consent. The regulations may restrict the imposition of any such condition and may make provisions with respect to any such condition of the kind set out in that Part (including in relation to the calling on and use of any financial assurance).

This applies in limited circumstances, such as where works under a Vegetation Management Plan are required, and would allow security to be provided to guarantee performance of these works. It would not apply to circumstances such as street trees.