Property Australia

Hidden taxes hurt homebuyers

Karen Jamal Karen Jamal September 7, 2021

Up to $85,000 in developer contributions add to the costs of building a new home, potentially impeding housing supply and reducing housing affordability, reveals new research from NHFIC.

 

Three key takeaways

  • The National Housing Finance and Investment Corporation says developer contributions can typically amount to 8-11% of total construction costs, making them a substantial contribution to the cost of building a new home.
  • Developer Contributions: How should we pay for new local infrastructure? finds developer contributions can amount to $42,000 in Queensland, $77,000 in Victoria and a whopping $85,000 in New South Wales.
  • Property Council chief executive Ken Morrison says the research uncovers the “hidden costs of housing” and “underscores the need for greater transparency”.

 

NHFIC’s report finds developer contributions for local infrastructure are inconsistent, lack transparency and have broadened in scope, adding more to the cost of new homes and potentially impeding new housing supply.

According to Nathan Dal Bon, NHFIC’s chief executive, the cost of funding local infrastructure has shifted from state governments and local councils to new home buyers, potentially adding to the cost of homes in greenfield developments and affecting new housing supply.

‘’The expanding scope of developer contributions increasingly act like a tax on new housing, which can impede new housing supply and reduce housing affordability for buyers and renters,” Dal Bon says.

Developer contributions, in theory, operate like a user-pays model, where levies paid by developers deliver housing-essential infrastructure. In practice, NHFIC finds, developer contribution charges “are complex and difficult to calculate”.

NHFIC’s government and industry consultation suggests developer contributions can be highly variable and unpredictable, which can lead to unanticipated costs throughout the development process affecting margins and impeding new housing supply.

NHFIC says developer contributions have also broadened in scope. Where once they funded basic essential infrastructure like water and drainage, now they are increasingly funding broader social infrastructure like community and recreation centres.

In New South Wales, Victoria and Queensland, developer contributions now help to fund the costs of new schools and hospitals – areas traditionally funded by state budgets.

NHFIC analysed Sydney council developer contributions, finding nearly two thirds, on average, and up to 88 per cent of all funds raised by developer contributions between 2017 and 2020 were earmarked for social infrastructure.

Funding a much wider array of social infrastructure through developer contributions delivers broader community benefits but confers fewer clear, direct and immediate private benefits to new home buyers, NHFIC’s report says.

“This means developer contributions increasingly act like a tax on new housing, which can impede new housing supply and reduce housing affordability for buyers and renters,” the report finds.

NHFIC also notes the lack of publicly-available aggregated data on developer contributions across most states and territories. “This makes it difficult to assess how developer contributions have increased over time and how they differ across jurisdictions, impeding proper policy evaluation.”

Some states, like New South Wales, require modest standardised reporting, which will be enhanced with recently-agreed reforms. Others, like South Australia and Tasmania, have minimal public reporting requirements.

NHFIC argues that building confidence in the system requires greater transparency – a message that the Property Council has made for many years.

“Developer contributions are just one of a myriad of taxes and levies placed on the property industry that push up house prices,” says Property Council chief executive Ken Morrison.

“These are hidden taxes that ultimately hurt homebuyers. The first step is greater transparency so we can compare developer contributions across cities and states, and to get a clear picture of how they are being spent.”

Download Developer Contributions: How should we pay for new local infrastructure?

Tags: RESIDENTIAL