Affordable Housing : The hidden barrier
October 6, 2017
The current debate about affordable housing has pre-occupied the community, media and government for the past few years as prices have spiralled ever upwards.
The intense discussion has missed one key issue – the huge impost caused by governments at all levels. The cost of designing, gaining the various permissions to build a property is also a major contributor to housing costs. The cost of direct and indirect Government taxes, charges and duties are hidden undercurrent in the tide of rising house prices. It is hard to determine the exact amount. The authors of the latest and most detailed investigation for the Senate in 2008, almost threw up their hands trying to work out the combined impost of fees, stamps duties, land tax and council rates. By one estimate, government charges could comprise 40 per cent of the cost of the house.
Peddle Thorp Design Director Peter Brook said owners of investment properties can take advantage of capital gains tax and negative gearing, but it would surprise many to know the extent of the fees and charges that are already paid to government.
“The owner of a new property has to pay a whole set of charges and new ones were constantly on the horizon,” he said. "These charges include the cost of site purchase, land tax and local government rates during holding phase, the planning application fee, and the planning development levy". Mr Brook said in order to meet government compliance costs during the design process, a raft of planning consultants, designers and engineering consultants needed to be employed. The Government has also introduced a special planning level for any project over $1 million. For a large project this would amount to many hundreds of thousands of dollars. And this is non-refundable even if a permit is not issued. Mr Brook said there was also large holding costs during the planning process and since it was typical for the planning process to run over several years so holding costs are substantial.
Other costs include:
- Compliance with new planning standards. These have increased the area of apartment spaces and therefore increased construction costs. We estimate that apartment areas must increase by 10% to comply – which would have a corresponding increase in costs and sale prices
- Documentation requirements to meet building standards. The engineering and design standards in building regulations have been constantly increased in recent times. This has also increased building costs. Australia would have arguably the most stringent construction standards in the world.
- Costs to seek approval through all the authorities that have jurisdiction over the building process
- In addition, the cost of providing infrastructure has been shifted from the government sector to developers. This can be a major project cost and typically covers items such as:
- a sub-station to feed into the electrical grid
- drainage and water retention.
- an open space levy which alone can be 5% of project cost
- site and precinct landscaping
- providing for neighbourhood amenity
- Upgrade of roads, including traffic controls
- Building permit application fee
Added to which GST is often added to the mix.
Mr Brook said the exact figure charged by governments is hidden in a byzantine raft of charges from the three tiers of government. “We need a process that encourages great design to create great places, however, we currently have a process that has layer on layer of taxes and costs. The current debate has ignored that reality,” he said.