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March 30, 2016

Sale of planning decisions through value capture on rise

The Urban Taskforce says it’s concerned about a growing trend across Sydney councils to adopt policies that change planning rules as a mechanism for raising funds for infrastructure.

“The trend by Sydney councils to formalise value capture policies seems to be escalating across Sydney,” CEO Chris Johnson says.

“While flexibility is needed in determining good planning outcomes, the new policies seem to be driven by the need to raise funds for infrastructure.

“The NSW Government has a clear system for raising infrastructure contributions by local councils under Section 94 of the Environmental Planning & Assessment Act 1979, which has safeguards that set maximums

and IPART overview. The trend towards value capture seems to be a way of getting around the cap on Section 94 contributions.”

According to Johnson, the NSW Department of Planning in 2005 issued a practice note on development contributions and the rules regarding the voluntary planning agreements.

“These rules made it clear that ‘planning agreements must be governed by the fundamental principle that planning decisions may not be bought or sold’,” he says, “but 10 years on councils seem to be exploiting the guideline to now formalise policies to sell off extra floor space as a way to raise funds.

“This is encouraging councils to keep their development controls low in order to ensure that more revenue can be raised by requiring developers to ‘buy’ additional density and height.”

On December 14, 2015, Parramatta City Council adopted something called Value Sharing Mechanisms, “where existing FSR (floor space ratio) controls remain in place and additional FSR controls can be achieved by sharing 50 per cent of the value of the uplift” with the council.

“In effect, planning decisions can be bought through significant funding to the council,” Johnson says.

“On February 17, Woollahra Council exhibited a voluntary planning agreement policy with land value capture as ‘a public financing mechanism’ where 50 per cent of the uplift in land value created by changing the planning rules went to council.

“On February 23, Burwood Council resolved to adopt a monetary contribution rate of $1,100 per square metre of gross floor area for bonus development above the current planning rules.

“It seems Sydney councils are loosening the planning rules in a drive to raise revenue by trading more height and density for significant payments to councils.

“While there’ll be individual projects, particularly on large sites, where a win-win will occur,” Johnson says, “the Urban Taskforce is concerned that the concept of value capture is now becoming a standardised practice to buy and sell planning decisions.”

About Angela Young

Angela Young is the Associate Editor of Australian Property Investor magazine.