This article is from the Australian Property Journal archive
THE Minns government’s transit-oriented development (TOD) program is likely to face serious economic and construction hurdles on its mission to boost housing supply in key locations, and is unlikely to deliver on its targets unless changes are made, according to a research report.
UDIA NSW’s report, Making TODs Work, has assessed the capacity of TOD to deliver medium density housing around identified tier 2 stations in the current economic climate. The program was unveiled by the NSW government last year and would see zoning changes around 39 train stations to allow for more residential flat buildings of three to six storeys, terraces, townhouses, duplexes and smaller one-storey to two-storey apartment blocks to be built.
The program is ultimately part of the government’s aims to fast-track the delivery of up to 112,000 homes, or around 30% of the number of homes the state needs to meet under its National Housing Accord target of 377,000 new homes by 2029. The state government said it would overrule local Council controls in low and medium-density areas.
But projects may not be getting out of the ground any time soon.
“Making TODs Work concluded that while TOD SEPP is a sound policy intervention that has the potential to deliver much needed housing to the market, many projects in the TODs will face serious feasibility issues in the current economic climate, meaning the policy is unlikely to deliver at the volumes expected by policy makers unless changes are made,” said UDIA NSW CEO, Stuart Ayres.
UDIA engaged Astrolabe Group to undertake a feasibility assessment of the TOD sites, with detailed analysis in 11 sub-markets. The short-term viability for development of medium-density residential flat buildings is limited, it found, with only the North Shore and Inner West sub-regions showing financial feasibility for build-to-sell models without any additional policy interventions.
In all cases, feasibility was directly impacted by the current high cost to construct, and a limited capacity for consumers ability and willingness to pay. High construction and financing costs and increased development contributions mean an average new unit will need to sell for around $1.1 million to secure project financing – “a price that is out of reach for many buyers and significantly above the median apartment price in those markets”.
KPMG analysis shows more than 37,000 dwellings in Australia are in limbo between having being approved and construction kicking off, as building material costs and high interest rates stall projects and halt the delivery of much-needed housing supply. While growth in national construction costs has stabilised, CoreLogic data shows costs are still a whopping 27.6% higher than at the start of the pandemic.
Government should reduce and cap fees and charges
Among the report’s key recommendations was that the government should reduce and cap feed and charges to improve development feasibility. Part 2 TOD SEPP developments should be subject to a standard 7.12 contribution rate of 1%, it said, to provide certainty and consistency across the broader geographies, and the state should freeze HPC levies for developments within sites that commence construction within the first four years.
UDIA NSW called on the government to “create a circuit breaker to de-risk investment and project financing” and consider acting as a guarantor to development, resulting in a reduced loan-to-value ratio required to gain finance.
It said development assessment timeframes in the TOD areas should be improved, with Tier 2 TOD SEPP developments that meet the standards specified within the SEPP to be eligible for approval within a 90-day period.
Tier 2 TOD SEPP developments should have standardised controls, UDIA NSW said, to improve viability and consistency across all identified TOD sites and reduce assessment and approval delays.
“Simplifying and consolidating all controls into a single TOD development control plan, including key outcomes of the ADG and Councils control plans would provide simplicity and clarity to all stakeholders and the community.”
