Productivity Commission & our Cities | Part Two
Last week I took a birds-eye view of the Productivity Commission’s (PC) charter and Shifting the Dial, a 5-year productivity review across many of the factors impacting Australia’s mid-range economic performance.
The ‘Better Functioning Towns and Cities’ part of the review contains some very clear policy recommendations that are of concern and relevance to every aspect of property and urban development.
The key areas, and they are all big topics, includes the importance of our large towns and cities, town-planning, public infrastructure, stamp duty, transport planning and funding and realising the productive potential of urban land. It’s easy to see how policy improvements in each of these topics has a whopping impact on residential development.
One of the most compelling comments from the PC was that for good functioning cities there’s a need for access to housing in desirable locations, with good mobility, thriving businesses and employment, quality services with an appreciation of social and environmental issues. That reads as a logical catch all statement where each area overlaps.
Against these objectives the review found that overcrowding and transport congestion lead to high costs, wasted time and social dislocation which, which in-turn was impacted by several key city-centric policies.
These covered migration settings, land use and planning policies across zoning, telecommunications and transport which in-turn affected the capacity of cities to absorb population growth. The PC noted that it was essential to have efficient land use policies and planning that aimed to minimise frictions associated with population growth, although daily we see evidence of mounting pressures to manage growth that extends right down to individual neighbourhoods.
By comparison to other OECD countries we do well in the quality of the built environment, air quality, energy and water efficiency and social cohesion. However, poor zoning regulations do hurt business investment and transport congestion is restricting employment and housing opportunities and if these areas are not addressed the efficiency and liveability of our cities will suffer.
The PC notes that improvements need to focus on improved public infrastructure and roads, in particular better planning policies and the removal of conveyancing duties.
Smart Cities Linked to Better Planning
State and Local governments usually drive land delivery and infrastructure however the Federal Government does provide additional and major funding. Under the Commonwealth’s Smart Cities Plan funding will increasingly be tied to ‘investments’ that may require strict policy reforms.
Some key policy objectives are to increase affordable housing and urban renewal alongside a more collaborative and accountable approach. In the PC’s view, there is an immediate need for all levels of government to be more transparent and accountable across a broad range of issues associated with urban planning and development.
Keys ways to achieve these goals are now firmly on the agenda and include stringent cost-benefit studies, better funding planning, or who pays, after detailed evaluation and tied to long-term planning.
This last item is of importance to break these issues out of various election cycles and would be welcome by the development community as despite some recent changes, there continues to be examples of poor planning, costly over-runs and poor infrastructure decisions. There are potentially billions to be saved from these reforms.
This is a headline issue as growing urban populations place ever greater pressure on an already strained transport system. Public transport and roads policy are the two major areas in the PC review and they both impact every area of development.
There are some key issues and these number heavy transport, a dissatisfaction with transport services, mainly roads and a shift to a greater reliance on public transport. Poor transport is adding to congestion with the expected cost to the economy reaching $31.4 billion by 2030.
However, Australian’s do not have much faith in seeing transport policy being able to deliver positive results, and that’s a concern as this directly impacts urban and housing development. According to a study by the Institute of Transport and Logistics Australians are pessimistic about transport, they see some hope of improved public transport but, roads are not seen as getting better any time soon. Roads have seen big infrastructure investments made recently with $24.2 billion alone committed or spent in 2014-15, we contribute around $1300 per year per vehicle in direct charges and fees, however expenditure is not linked to this direct revenue.
Then the PC notes concerns that there are instances of poor decision-making on major projects and a reluctance to employ road technology to remove some of the problems of planning and funding. Both issues need to be faced so that we fund roads based upon demand and not simply predictive or politically based.
Better Road Funding
The PC looks to a position where road funding is based around consumer-oriented and directed services. To help achieve this measures would include investments made against informed users’ preferences, price based policies, better quality of services and cost recovery, stable funding moving to user-pays from a tax-driven model and clear accountability and transparency in new project delivery. Today few of these policies are now in place.
Users pays is not a popular idea however tolls and heavy transport charges have created a narrow base for road funding. Poor roads add to congestion and directly limit production and urban development this puts pressure on household costs but also limits new supply and that in-turn makes housing less affordable.
Immediate steps to help would include restructuring governance and more user involvement, measure and understand the value of road assets and taking road fees into a fully transparent format.
Making Urban Land More Productive
While some planning reforms have been made in different states over the past five plus years, more needs to be done. The PC notes that there needs to be a reduction in the number and complexity and land use regulators with better planning for growth and a move towards risk-based assessment of development proposals.
The key outcomes would lead to releasing more land for development, creation of strategic metro-plans and regional plans and broad over-reaching planning policies be they residential, business or recreational and others.
Current planning is described as over prescriptive and complex and a major cost of development, this complexity was noted as even extending to some of Australia’s smallest jurisdictions with too many rules and regulations. There is also the subjective and varied treatment of land use descriptions which creates uncertainty and adds to costs and the time required to plan and deliver new developments.
The PC recommends that zoning systems should be re-oriented towards community interest and that the zoning framework should have greater flexibility to allow for innovation within a sound regulatory design. The up-side from would be significant.
A report for the NSW Government in 2013 estimated that inhibited land use policy could be costing Sydney between $665 million and $1.3 billion per year (and that was 5 years ago). The PC said that one way to achieve the goals was to have a national agreement to apply to the policy principals of land use regulation, which in today’s setting looks an ambitious policy agenda.
However, this could facilitate better provisions for growth and development with government at all levels genuinely engaging with the community to meet optimum development goals. Local Government should also receive guidance on the application of overarching planning policy from the State or Territory level while, government as a whole should ensure adequate growth strategies covering planning, infrastructure and public-amenity.
Reforms to planning could deliver cost savings of between $358-$550 million (2015-15 figures) if there was a reduced risk associated with delays and avoidable costs of development applications. It has long been argued that planning delays and red-tape add to the burden of housing costs that eventually flow to the wider community and buyers, there is an urgent need to implement best practice in all these areas.
Remove Stamp Duty
According to the PC there is an urgent need to remove and reform stamp duty and property taxes.
The current system is broken highlighted by the fact that according to Treasury estimates for each additional dollar collected in stamp duties this ‘reduces’ the living standards of Australian households by 72 cents in the long run due to lower investment and reduced mobility.
Stamp duties also holds back the economy because of the extra cost of buying and selling can discourage people from moving to be closer to employment. While it may not be possible to do this ‘over-night’ it is possible and the ACT have already shown the way.
The PC states that stamp duty should be replaced with a broad-based tax on the unimproved land values for residential and commercial property. This can take several years to transition, in the ACT it’s a 20-year policy change.
Any new tax base can provide for low-income households funded possibly by an estate tax or low interest rate applying to the debts.
There’s an urgent need to reform planning, infrastructure delivery, road funding and stamp duty and we have a blue-print from the Productivity Commission. What we also need is the political will, and developer and community pressure to address the issues some of which are long overdue for reform.