Policy Ideas to the Incoming NSW Government

Dear Sir,

The challenge for the Coalition is to remain quietly confident about an impending victory without letting it go to anyone’s head (Aussies like modesty as John Howard so effectively exploited while he was PM). 

When the Coalition are returned to power there will be an opportunity to reform so many significant systemic failures in this State. For example, in the property sector alone these are some or the areas that are ripe for reform: 

So called ‘voluntary planning agreements’ which in fact are used as a means by Councils to extort money from property developers.

Notwithstanding the so-called ‘voluntary’ nature of the contributions and the express terms of the legislation, in reality should a property developer be so bold as to not volunteer payment, development approval will not be forthcoming. This unnecessarily adds to the cost of new development, limits supply and ultimately will increase the cost of new housing legislation raises serious probity and maladministration concerns within the town planning system and should be removed immediately or limited so that a Council cannot request nor can a developer give a ‘voluntary’ payment in excess of the s94 contributions plan that applies to the site or area in question. Fortunately, we have not had any recent experience with re-zoning applications, but I can only imagine how the current system is rorted thanks to this so-called reform introduced by Frank Sartor; 

The excessive levels of s94 contributions for inner-city development Often s94 contribution plans are merely a sham to raise revenue from the property development industry with little regard to the validity of the so-called community needs that are meant to be provable under a s94 plan. While I do not necessarily support development levies, it would be far better to impose a flat tax based on the construction costs associated with the development so as to ensure the tax is at least transparent and certain. There have been recent moves afoot to limit s94 contributions as they apply to greenfield development, but no moves have been made to fix the ridiculous levels of s94 contributions that apply to inner-city development. Unfortunately, all development taxes (or levies) increase the cost of housing, retail and office accommodation which has adverse economic effects; 

Notwithstanding the so-called simplifications in the DA process, it still takes an extraordinary amount of time for Councils to assess DAs. Every day, I see petty abuses of the town planning system by Councils and occasionally I see major abuses. The problems are systemic because the town planning system is no longer just about town planning, but has morphed into a system where construction issues must be assessed up front, every conceivable consultant must be engaged at the DA stage, every objection is given credence irrespective of its merit and the onus falls on the applicant to demonstrate the proposal is justifiable. Historically, the consultant costs used to be about 10% of the total construction costs, in recent times that has blown out to at least 15% with a significant portion that must be spent up-front without any guarantee of receiving development approval. And people wonder why housing and renting are so unaffordable in this state? 

The Land and Environment Court is a no-cost jurisdiction except when a developer makes a significant change to their DA before the Court even when that change results in a more sympathetic development. Talk about a perverse incentive! In my view the L&E Court should be a full costs jurisdiction so as to create incentives to ensure the process is followed honourably by both parties and also to ensure there is a financial penalty for nuisance litigation and a financial incentive for both parties to settle matters out of court;

 The zoning system has largely reached its used-by-date. It is extraordinary, but we still have a centralist command and control mentality in this state and apply the communist ideal. We just don’t use those words anymore, instead we call it town planning. While it is clearly appropriate to regulate the bulk and scale of development in our residential neighbourhoods (to do otherwise would be political suicide), the zoning system is clunky and anti-competitive and the height and bulk restrictions in many parts of our city are well below what is reasonable. This is the very reason the State Government implemented the much reviled Part IIIA of the EPA Act so as to ensure large developments can still be approved (some say only for Labour party supporters) notwithstanding very restrictive zoning, height and floor space controls throughout our State. Below are two obvious issues with the zoning system as it currently exists: 

The only reason there is a disparity in power between large shopping centre owners such as Westfield and retailers is because our town planning system has artificially reduced the amount of land that can be developed into shopping centres. While there are now some moves afoot to change this, the changes go nowhere near far enough to redress the balance; 

Why should there be residential exclusion zones in our CBD’s? If the highest and best use for a particular site is residential or some other use, then subject to not unfairly impacting on the amenity of neighbours, wouldn’t it be best to let the market decide? Supporters of central planning will decry the loss of office accommodation and employment lands, however, assuming enough land is appropriately zoned for commercial use, if you reduce the supply of office space, over time you will inevitably increase the price of office space as demand picks up, which will in turn lead to new development, new economic opportunities, more job opportunities and more frequent renewal of our cities. New developments are more environmentally sustainable than old stock, so not only is there a good economic justification from removing the shackles from our town planning system, but there are also good sustainability reasons to do so as well. While the Coalition may be able to play to the anti-development crowd in the short term, long term you won’t get re-elected unless the State’s economy is performing well, which means development must be enabled; 

There are far too many local government areas in Sydney. Notwithstanding local Mayors claims to the contrary, most people do not have an affinity for their local government area. I believe most people associate themselves with Sydney and not their local government area. While I am largely opposed to centralisation because it often simply leads to the lowest common denominator in terms of policy and spending outcomes, I am equally concerned about decentralising government too far which inherently leads to its own form of inefficiency. The reality is the Queensland and Victorian local government models work better than NSW’s and we should forcibly amalgamate local government areas and at the same time focus on service delivery, not just the job security of local government public servants; 

Local politicians should not be part of the town planning process. This is an easy one, implement the separation of powers when it comes to town planning assessment. Expert panels should decide all contentious development items in order to remove the politics from local development.  Professional town planners should decide less contentious development items under delegation. It is appropriate for elected officials to be part of the rule making processes (or more accurately guidelines) that apply to local development within the confines of what is economically sensible for the State as a whole, but for local politicians to be decision-makers in the development assessment system leads to political interference, vote buying by elected officials to gain popularity and historically large donations by many property developers to ensure they receive a fair hearing (the worst cases of course involved corruption and undue influence);

The retail tenancies act is far too prescriptive and assumes the power imbalance between retailers and landlords is very strongly in the Landlord’s favour which could hardly be further from the truth. While this proposition may be true for the large shopping centre tenants due to restrictive town planning and zoning laws, it is most certainly not the case for strip shops and the vast majority of small investors who only own small shopping centres with a few different retailers. For the most part the system still works because most tenants know that suing your landlord will not lead to long term prosperity, however, as mentioned above systemic abuse is real and the more unscrupulous retailers know how to game the system to make a profit instead of working for a living;

The car park levy that applies to the CBD and North Sydney does not serve its stated policy function to reduce congestion on our roads. If ever there was a policy failure this is it. The car parking levy has turned into a general revenue raising activity with money going into consolidated revenue which serves no legitimate policy function. If the State Government were serious about reducing traffic congestion then the Government would need to fix the public transport system so people have a better alternative to their car as a means of transport. If this is not financially feasible, then consider introducing more toll roads with differential tolling to encourage people to drive outside of core peak hours even into our CBD. Personally, I am not a fan of this option, but at least it would work. Unfortunately, bike lanes just won’t solve this problem because Sydney has far too many hills; 

Land Taxes are way out of kilter with the achievable rentals for residential investments. Personally, we don’t invest in residential property because once you factor in Council Rates, Water Rates and Land Taxes for residential property the net profit after these taxes is so low, the residential property cannot possibly pay for the interest costs for a reasonable mortgage against that residential asset. The only reason anyone invests in residential property is if they are a cash buyer (and how many people are in that position?) or if you are a high income earner as a means of reducing your income tax due to negative gearing with the hope of achieving long term capital appreciation. Why is it no one has identified that the main reason residential rents are so high is because of the ridiculous barriers to new residential supply, the enormous costs that go to State and Local government and the administrative costs associated with the Residential Tenancies Act. It is not that difficult to figure out what has gone wrong. In order to fix it would involve spending cuts at the State level and a commensurate reduction in the Land Tax rate; 

While I am a big supporter of the Coalition’s plans to increase infrastructure in the short, medium and long term the Coalition will not make NSW number 1 again (mind you it would be nearly impossible to do as bad a job as the current Labor administration). Unfortunately, given the limited resources of being in opposition, the reality is that the majority of the details related to policy reform needs to happen when you are in Government. I suppose, my goal is to give you a taste of some of the rules, laws and taxes that should be put on the table for the Coalition to review in due course.