“It needs to be demonstrated why paying 75 per cent of the increase in land value from a lease change is not sufficient incentive to encourage the desired development outcomes,” writes planning columnist MIKE QUIRK.

Lease variation charges are based on the principle that the community should share the benefit from any increase in the value of land arising from changes to an original lease granted by the government.

Long a tenet of Canberra’s development, it is currently set at the rate of 75 per cent of the uplift in value of the lease, a rate seen as ensuring the community primarily benefits from the increased value while providing an incentive for leaseholders to vary leases for more appropriate purposes as the city develops.

Industry groups argue the charge contributes to low housing affordability as it affects the cost of building.

But is this the case? The government’s Detailed Consultation Report Review of the Lease Variation Charge (February, 2019) found the lease variation charge (LVC) had a minimal impact on the financial viability of developments.

Development activity was primarily driven by economic trends such as population and economic growth, cost and availability of credit, labour and materials and the availability of sites with redevelopment potential. 

It was found the prices of dwellings in developments where the payment of the LVC was required were similar to prices in developments where the LVC had not been charged.

If the LVC had not been charged, the financial benefit would have been solely captured by the lease holder. Furthermore, industry groups did not provide evidence demonstrating the LVC impacts on housing affordability.

The consultation also found a need to streamline the administration of LVC processes including an upgrading of technology.

The government has recently agreed with industry groups to investigate the Housing All Australians’ Progressive Residential Affordability Development Solution (PRADS), a digital compliance system said to ensure any affordable housing commitments can be delivered.

Remissions and waivers 

Remissions and waivers of the LVC have been used to achieve planning and development objectives. Examples include the encouragement of the provision of childcare, energy efficiency, economic stimulus and the partial remission for dual occupancy in RZ1 areas.

Chief Minister Andrew Barr has foreshadowed remissions to encourage affordable and social housing, the provision of “missing middle” housing, the adaptive reuse and redevelopment of older buildings in Civic and to developers who contribute to public infrastructure upgrades. 

Any remissions should be targeted to ensure significant benefits are delivered to the community rather than to developers and property owners.

As the ACT Council of Social Services has argued, remissions or waivers to assist the provision of affordable housing should be limited to developments offering a high minimum mandated level of affordable housing, targeted at households in the bottom 40 per cent of the income distribution and paying more than 30 per cent of their income in housing costs. 

Hopefully, the government in framing remissions for offsite works will be informed by the experience of the previous change of use charge where the offsets provided for infrastructure works often resulted in developers not paying any value uplift at all.

Similarly, it should be demonstrated how remissions for “missing middle” housing would provide community benefits in excess of the lease variation revenue forgone. 

Remissions should only be considered when it can be demonstrated they would be more effective in generating desired development outcomes than other policies. 

Effective housing policies need a strong understanding of the factors determining housing provision and choice. How many households would, for example, subdivide their properties if a generous remission was available? 

Too often ill-considered policies have been implemented on the basis of it “seemed like a good idea”, “we need to be seen to be doing something” or ideology.

Examples include first home buyer assistance schemes, which by bringing forward demand decrease rather than increase affordability; light rail, despite bus rapid transport being found superior; and the joint venture for More Affordable Housing, which aimed to reduce housing costs by land development savings from smaller blocks, narrower roads and common trenching (unfortunately, generally savings were not passed on to home purchasers).

Another example of misplaced policy was the offering of long-term leases to ACT rural lessees in the early 2000s in the expectation the land would never be needed for urban development. Just a few years later many of the leases had to be repurchased at great cost because growth expectations had changed. 

Fundamentally, it needs to be demonstrated why paying 75 per cent of the increase in land value from a lease change is not sufficient incentive to encourage the desired development outcomes.

Does the government have the competency to undertake the needed analysis?

Mike Quirk is a former NCDC and ACT government planner.