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Standing Committee on Infrastructure, Transport and Cities
07/04/2016
Role of transport connectivity in stimulating development and economic activity

JOHNSON, Mr Chris, Chief Executive Officer, Urban Taskforce Australia

[09:44]

CHAIR: Welcome. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the House. I invite you to make an opening statement, if you wish, before we proceed to discussion.

Mr Johnson : Thank you. I understand the issue you raised and would like to make a bit of an opening statement, but a lot will perhaps come out during our discussion. I will jump very quickly to your last comment on your previous question, which was about stamp duty and land tax. Your last comment on stamp duty and land tax is an interesting entree into this whole discussion. I think that, when you slug a particular issue like selling a house with a tax and add a whole lot of money—around $40,000 for a house—it is a regressive tax that does not help the sale of houses and increases the price.

I think a broader land tax is a far better way to get a consistent approach to funding than slugging one-off individual issues. We put a media release out on this only yesterday. Quite frankly, I think this is also applicable to the whole issue of value capture. I think an approach to value capture—or value sharing, as it is becoming a new version of this—is a broader, spread-around issue rather than focused on one-off occasions that are unrelated to the ups and downs of the market. You get a much better circumstance.

The issue I was keen to cover a little bit is that my feeling is that the current interest in value capture is because there is a pretty robust market, particularly in Sydney. We put another media release out yesterday relating to the ABS figures for approvals in New South Wales and Australia, and there is a pretty marked downturn happening to approvals across the country, particularly in non-residential approvals. The graphs in the last six months have moved down in the order of 15 to 20 per cent for residential and non-residential. A little bit like the mining tax issue, I think governments have to be very careful not to dive in thinking, 'This is an incredibly robust market; let's grab as much money as we can' just at the point when the market is turning down and there are negatives in there. That was a broad comment in relation to that.

We are concerned about the way the value tax is being interpreted at the moment as basically a tax on housing. It seems that it is being used in a broad term as trying to slug the developer to add extra cost to housing, which of course is not going to help the cost of housing. It is predicated on an uplift issue, but we are very concerned that the debate really seems to be taking off dramatically at the moment, partly encouraged by your own committee here, by moves from state government and particularly by local government. A lot of our members are involved in projects at local government approval levels, and it seems there are at least a dozen councils in Sydney that have now adopted value-capture policies specifically to raise income. The Department of Planning says you cannot do this, so a number of councils are now seeing that, if they allow buildings that are zoned as six storeys to go to 12 storeys, they have an official policy that 50 per cent of the uplift would go back to the council. Now a whole trading system in the planning system is beginning to happen. The community will not have a consistent understanding of what might be happening. It is that what can be bought and sold is starting to be institutionalised. I am worried and we are worried that there is an attitude now bouncing around that we are almost getting into a gaming or trading situation with planning approvals.

Another example would be that Andrew Constance, Minister for Transport and Infrastructure, wants $200 a square metre for his light rail along Parramatta. Presumably he now has to put pressure on the Minister for Planning to increase heights and volumes to make it viable for that to happen. The planning system seems to be me to be running a little bit like to generate funds rather than what is the best issue for that.

In relation to the broad area we are concerned about, it only seems to be focused on new housing, which we think is not going to help the cost of housing. I understand the uplift issue. I think there needs to be a very clear statement to landowners. It seems that this is a very loose concept at the moment and is only institutionalising or capturing the funds when a development application is put in, but by that time the landowners have already sold their land, they have their uplift and they have wandered off and taken all their money. The people who then have to pick up the issue of a tax are the developers, who have already paid for the uplift in land. If this is going to be a major way of doing things, I think there need to be very clear statements that landowners have the accountability to provide the funds back if there is an uplift, not leave it to the next layer or the next layer and capture it at the development application phase. I think there are concerns in relation to that, and I will come back to the north-west rail, which I know you are interested in, because I have been a bit involved in that.

Our concern is that the beneficiaries are in fact much broader than just the new residents coming into a place. The beneficiaries are everybody in an area where a new rail line or light rail may actually occur. We have done quite a bit of work on the Crossrail, and no doubt you have seen this PricewaterhouseCoopers document. They have done a very detailed study. Very interestingly, they have looked at Crossrail 2 and analysed all the funding mechanisms of Crossrail 1 and they have eliminated the potential for a value capture on uplift of buildings. They explain why. They say it is cyclical. It is up and down. If it is too high, it will stop development. It could threaten the economic issues around the city. They say it is far better to have a broad based tax and there are two fundamentally different approaches happening.

One is a levy on business rates, which you alluded to before, but there is also a community infrastructure levy on new development, not just housing and not just close to the Crossrail but across the whole of London. There is a small levy across all new housing and all new buildings in London. The CIL brings in significant funds, but the main funds come from a 30-year levy—small uplift—on business rates across the whole of London. That raised about 3.5 billion pounds. The value of it to the government and the proponents of the project, of course, is that that is a guaranteed, secure income over 20 or 30 years, so they can use that to go to banks, get a loan or whatever. If you have the cyclical up and down of the market—and, just looking at graphs like this, you can see that they do go up and down dramatically—it means you cannot secure that income to get a loan. It is very transitory.

To wrap up my initial comments: we have suggested there are three approaches that would be appropriate. One is a broad based levy across, say, metropolitan Sydney which would be a levy on all rate payers probably collected at council level and fed back into the state government, who are the ones who generally fund infrastructure in this sort of way. Another is that there could be regional infrastructure funds. This would be a special infrastructure levy on all new development, not just housing. It would again be a small amount probably collected in the six district in Sydney, to use that as an example. It is a broad based area. That levy may change in each district. If one district is going to have a lot more infrastructure coming into it than another, there may be a higher infrastructure levy across that district.

The third one we indicated was an individual sites and precincts approach where there is a large precinct—let's say Sydney Olympic Park or the bays precinct in Sydney—where there could be a negotiated issue with landowners, developers and the government about how to raise funds. A good example of this is in fact also in London, where the Battersea Power Station is being redeveloped in a major new development along the Northern line. There is an agreed levy with the develop there to contribute to the Northern line, but it is a precinct-wide basis and can be analysed.

So that is what we have suggested. There are three ways to do this. We are concerned that there seems to be spreading across lots of local councils a feeling that we can capture value uplift and therefore the planning rules are going to be loose all over the place. Thank you.

Ms COLLINS: Thank you very much, Chris. Just on your three alternatives versus the current suggested models of value capture, do you think your alternatives would be able to raise the same funds as the general value capture proposal we have been hearing from other witnesses?

Mr Johnson : Definitely. The analysis of PwC is that the amount that would be raised is actually not a lot, and this is why people think that there is this sort of fabulous amount of money that is going to come. To get consistent funds over a period of time is the way to do it, I feel. I think there needs to be some serious modelling done of this, though. We can all pluck numbers out of the air. To look at the business rate issue or whatever across the whole of Sydney multiplied by homes and businesses et cetera, it does not take too long to calculate some numbers relative to what the market might be doing.

The income from the market is purely based on how much uplift is allowed. What is beginning to happen in councils is they are throwing out the rule book and saying, 'We'll go up, up and up and the more money we can get the better.' I think that has an ethical problem in terms of a planning system across metropolitan areas. Our members, as developers, like to get more development rather than less. But it is a question of how much you have to pay for that. My worry is that approval authorities now seem to be moving more into a role of trying to encourage more development, not for urban design benefits or anything but to raise funds. That has partly happened in New South Wales, because of the whole reform of local government and the pressure on local government. They are not economically viable. How can you become more sustainable? Amalgamation is one area. It seems to me that another way to become more viable is to loosen up the planning rules.

Ms COLLINS: So would you advocate a national approach to major projects to deal with all three tiers of government? Do you support that, or do you think it is better to do it on an ad hoc basis depending on which approach—

Mr Johnson : I have mentioned three areas, and I think there can be negotiated agreements on large sites. Another example would be on Broadway, the Central Park project—a big site of 5½ hectares—or Barangaroo, where there could be negotiated returns in terms of value for the amount of development on those sorts of sites. I think there is a one-off specific site, and that is generally probably going to be state governments if they are big, big sites rather than local governments.

I think it would be good to have a national approach to this, and I think the national approach needs to calm down a little bit the kind of glint in the eye that a lot of smaller local government authorities have got—that this is a federal government endorsed approach to loosen up planning rules so that they can make money. It would be a worry if it comes out of your committee that it is encouraging a looseness and a gaming of the planning system for that sort of reason. My feeling is that the federal government does need to support these sorts of policies. To link federal government infrastructure funding and support for asset recycling to some form of contribution back to infrastructure is appropriate, but I think it is very important that it is managed properly. For instance, there is going to be uplift with the WestConnex project from Sydney out to Parramatta through Strathfield. The Department of Planning and Urban Growth has shown drawings of higher buildings, but no-one has done anything about what the extra contribution might be or what is happening. So there is now a limbo land of trading going on, where people are trying to amalgamate sites, expectation and things. The Department of Planning and Urban Growth tell me that it is outrageous that people are trying to buy the land, and I say, 'Well, you've put out signals that you want development here. How on earth is it going to happen?' So a structure around this that makes it a fair playing field for landowners, the development industry and, ultimately, planning authorities need to be put in place.

Ms COLLINS: And obviously the earlier in that process it is done the better.

Mr Johnson : I think that is the most crucial issue. Landowners need to know that, if they are going to be zoned from two storey to 12 storeys—for example, with WestConnex—government is going to require some sort of funding back in relation to that, and this could be some broad levy that occurs. The signals are just not being given at the moment and it is leaving a very nebulous area.

I will just refer to another that I know the chair is interested in to do with the North West Rail Link. The North West Rail had a very interesting circumstance where the state government put out a new plan for stations along that route and proposed quite tall buildings. Suddenly the local council decided to put out their own plan for about half the height and really reduced them. We put out a media release saying that we were concerned from a community point of view as to where the rules are here. I was flooded—even though I represent developers—by community groups and people saying, 'We've got 10 people together and we're going to sell our land but, if this new one comes up, we're pulling out; it is just not going to work. Who is running the show here? What is happening?' Quite a few people said that they were looking at getting a block together as residents on the basis of the state government plan but that, if the local government one came in, it was all over and they were not going to do it. Those signals are very confusing to communities.

I would also say that, while we might think that is a big uplift that people are getting, if they are not getting some sort of big windfall uplift, they are just not going to combine together to get a bigger site. We could naively think, 'We'll increase the value by 100 per cent'—just double it—but, whether people will really want to sell up their livelihoods, move and all that sort of thing for that amount of money is another thing. So I think there is another issue about what we see as windfall but, if it is not sufficient for someone to have to move who did not want to move to combine, no change will occur. The government, by changing zoning for two-storey houses to now 12 storeys there are lots of little ownerships. They could happen, and there have been many instances in the greenfield sites where there are small rural land ownings where it was just not economically viable to combine and so no developments occurred. If a tax was put on these sites to the extent that no development occurred, the whole planning system would not go anywhere.

Mr GILES: Thank you, Chris. I might just draw out some of these things a bit further. I should also thank you for your submission. My concern is really with the headline issue of our inquiry and, to the extent that we are looking at value capture, well, it is a means; it is not an end, and it should not drive every other bit of our engagement in this space. I am interested in you responding to a couple of concerns about your sort of at-large cautionary notes about reliance on value capture. Really, they go to two issues. We have had quite a bit of evidence on the quality of data and the analysis that can be applied to that data as a more accurate capture of value and value uplifts. You obviously have some concerns about that, and I would be interested in your responding to that and, secondly, the extent to which, at a more general level, more stable, more predictable, more transparent long-term governance arrangements alleviate the concerns that you and your members might have. Could you respond to those two matters?

Mr Johnson : Both of them are important. I have been raising the governance issue. It seems very ad hoc and loose at the moment. I am seeing it from the viewpoint of a developer going out to buy a site that is, say, just outside Parramatta. Parramatta council is saying, 'We're going to loosen up the rules, but we want 50 per cent of the value of the uplift,' and the minister for transport is saying, '$200 per square metre; $20,000 per apartment, to fund my light rail.' It is getting very confusing. Each group probably think they are quite right in asking for that amount of money. Our members, though, see it adding up one after the other. There is also section 94, which the council has put on board as well.

Everyone says the cost of housing is very high in Sydney, and a lot of it is because of all those incremental extra layers that are happening. I think there is a big danger if that is not controlled. A good example of that is in the growth areas where there were infrastructure levies that councils could levy. They ended up working out how much they needed and divided it by the number of homes and charged $150,000, and it stopped all development. The government had to come in and put a cap on it and say, 'You can only charge up to this amount,' so that development would occur. How that balance is organised, in metric terms, is very critical. The difficulty here is that the market is going to be different way out west and in the middle-west and in the inner city; the economics of it are going to change. So there are some dilemmas in how that works. I worry at the moment that the left hand is not necessarily talking to the right hand. One group is saying, 'We want money for infrastructure,' while another group is saying: 'Come on, councils—you work out your planning. You are going to work out what you should get along these areas,' and communities get involved. and communities generally prefer this height than more. Then somehow these have got to come together in some way that is fair for all parties.

What the cross-rail report makes a lot of issue about is that you could kill the goose that lays the golden egg in this sort of issue. They say while markets are up, 'Fine; you can get all this money' but, as I have indicated, markets are starting to go down, and you could then find that the market stops. The classic example, which is in this very report by PwC, is the Sydney Betterment Levy of the 1970s. The government proposed an uplift—30 per cent of land value increase would go back to the government as a levy—and the whole thing collapsed. The industry stopped. It raised $9 million in the year 1972-1973, then in the 1973 election it was dumped because it stopped the industry. This is the danger, and this refers to the cross rail too: that if the amount of dollars for these sorts of things—the extra costs—is mismanaged, then you will stop development. That is exactly what happened in the 1970s. This is our concern, which is the same as with the mining tax—everyone thought it was 'Boom boom! We can obviously get a bit of money back,' but eventually, of course, it did not work at all.

In relation to the government's issue, I think it is crucial that there is a combined understanding of how this is all managed. We agree with the general principle of this inquiry about transport connectivity stimulating development; that there should be more development related to transport. My feeling is that, ultimately, Sydney is going to have to have a whole lot of metros and that that is where all the new development should occur. And the relationship between the two needs to be carefully worked out. We are saying the better way is to spread a levy across broad areas and to find specific sites to get things, plus a small infrastructure levy as well.

CHAIR: On that last preference of yours, a question might be: why couldn't you do both?

Mr Johnson : You can. We have said that, on specific sites, this could well work. We have said three approaches, and there is a question about how broad that third one, which is the site-specific issue, is.

CHAIR: We are trying to find the fairest, most equitable form of value capture—that when there is uplift then some part of that is captured, and that there is some broader-based levy that is accompanying it. Why wouldn't you look at both? Firstly, I think one of the themes of our committee has been to find a way to align the three tiers of government, which you have expressed is a concern—I will go to that straight away. Then there is the landowner-stakeholder who will be impacted, and developers. We are—certainly, I am—very considerate of developers. As Tony Abbott said when he won government, we are open for business and under new management. We need to have stable government and to provide certainty for the business community.

Mr GILES: You can continue on this approach!

CHAIR: That is what we would like to do. I think they are good philosophies. Some things are timeless, and that is why we have a continuation with—

Mr GILES: Stable government?

CHAIR: In comparison with the previous government, anyway. So we are not wanting to slug the developer. You raised these 10 councils. The concern I share with you is that this could threaten a more equitable and simpler form of value capture where we are working on behalf of developers to provide that stability, certainty and long-term planning of a combination of proposed infrastructure and urban planning densification and therefore zoning that is certain, so that when the developer is buying the property maximum uplift is gained because all of the risk elements you normally confront with trying to cobble together a site will be done for you because of zoning. People do get to that threshold of, 'Yes, it is appropriate to sell, but I will be getting the maximum because it will not be a speculative price; it will be a price based on the zoning that is already achieved.' Your holding costs will be less and you will be certain of what you are getting will meet the marketplace. That is the overall theme. It is a concern that councils could disrupt this. At the moment the way some are behaving could be disrupting a better, more efficient, practical value capture system that is helpful to all involved.

Mr Johnson : Chair, I agree fundamentally with you on that governance issue. I will tell you what has happened. We put out a media release on 30 March. On 14 December Parramatta Council initiated a value-sharing mechanism—50 per cent of uplift. On 17 February this year Woollahra Council put out their own voluntary planning agreement and said it is a public financing mechanism, so it is to earn money for the council—50 per cent. On 23 February Burwood Council adopted a contribution rate of $1,100 a square metre for uplift, which is an enormous amount of money. So the horse has bolted. The councils are out there now developing formal policies as a public financing mechanism to sell extra floor space.

CHAIR: But such an impost would make development not viable. You cannot afford now to pay a lot for the land when such an impost is there I would imagine.

Mr Johnson : It depends how much development you can get. This is the gaming and negotiating issue. I think that is not the best way to get good planning to happen. Things like overshadowing parks or whatever will get thrown out as more height is encouraged to use it as a financing mechanism. There is a big concern. I think you are right that there needs to be through the three layers of government some rigour to this that puts a discipline to it. Our members do not want to find that there is a local government levy, a state government levy and a federal government levy and then no development occurs.

CHAIR: Would you support what has been suggested—that a federal value capture system that aligns with states and councils should have strings, should have conditions? Those conditions would be that there should be master planning of infrastructure and master planning of the urban development zoning but also cooperation in regard to councils getting their funding from this overall value capture system not as a spoiler charging extortionate rates for development in their particular—

Mr Johnson : I agree that it needs to be looked at from the economics of the project. If it stops those projects then it is not working. It can also come in other ways—that there are conditions put on approvals. For instance, you fund a new roundabout for the roads and maritime services organisation or you contribute to the upgrade of Parramatta Road—a condition that could end up adding more money as well. What we are seeing is multiple bids to get funding back, particularly in a boom market, to help fund broad infrastructure issues. Some discipline is certainly needed. If it can happen from the federal level, that would be good. It needs to flow right down to councils, that is for sure.

CHAIR: If we could effect a comprehensive, equitable, fair, national value capture system and could look at Parramatta Road and say, 'Okay, if you meet these various conditions, we will quarantine all of these taxes that will come our way and contribute those to the cost of your infrastructure to the state and to the council for what they require in regard to their local planning,' we would actually have alignment of all three.

Mr Johnson : In essence, that is what has happened in the growth areas: the council has just charged, charged, charged, and then the government had to come in and say, 'No, let's have a cap, so this is the amount,' and that then quarantined other bits, and I think something like that is going to be essential. We understand that all developments do need to contribute back to infrastructure and public infrastructure. Section 94 does that. There are SIC levels—special infrastructure contribution rates—that are often instigated by state governments. Our general philosophy is: the more you can spread smaller increases across the beneficiaries, rather than just targeting a few, the better that is going to be. But there are some—and I mentioned the Battersea Power Station project—where there is a big precinct where good negotiations can occur about this.

Mr GILES: I want to follow up on something you said a minute ago. I think you were calling for the Commonwealth to inject a bit of discipline into, particularly, the states. A couple of weeks ago the Assistant Minister for Cities and Digital Transformation intimated that the Commonwealth government would be looking at some form of UK City Deals style of arrangement in the infrastructure and urban development space. Do you think that there is a capacity for such a mechanism to deliver that sort of discipline? If so, what would be the markers he would seek to lay down?

Mr Johnson : You are exactly right. I think the Commonwealth's role in a lot of this is to contribute funding, but it needs to be tied funding with certain requirements and outcomes et cetera—for instance, funding from the Commonwealth for WestConnex or for the Gold Coast Light Rail. The light rail was funded after a lot of that project was almost done, but there is a levy up there of $111 on all rates by the whole city to contribute funds. So I think that the Commonwealth really needs to say that if we are going to contribute some funding to big infrastructure there needs to be some way of getting things back. Quite frankly, I think the philosophy is very similar to the federal government's asset recycling policy, which is: if you are going to sell something off to the private sector and things, we will give you funds to help with that. So I think that is the best way to do that.

Mr GILES: Thank you.

CHAIR: In your paper you talk in one heading of fragmentation risk: trying to amalgamate sites into a developable site, managing the high risk of complex development sites, the loss of time, expensive and uncertain rezoning processes. Does a federal value capture system have the opportunity to address those concerns for developers that you have expressed to give that certainty of zoning—the state must be able to provide certainty of zoning accompanying their infrastructure? With the intelligence of our previous witness in regard to BIM, you have contained councils so as not to spoil the opportunities of developers to be able to masterplan cities—the entire infrastructure, retro-fitting of infrastructure or the fitting of infrastructure in new cities that grow—and that planning of urban renewal densification around our transport hubs seems to be the trick.

Mr Johnson : Look, I think some balance in there is required. The difficulty here is: who is responsible for the planning system, which is the one that enables height and density to be determined. When the current state government came to power in 2011, their mantra was to hand planning powers back to councils and back to communities. That has changed a bit now with the Greater Sydney Commission coming into play, but it still seems to me that there is a fair bit of delegation to council level about their planning and what they should do. The difficulty here is that it is another arm of government, the state government, that are putting the money in, with help from the federal government, for the big infrastructure. There is a fundamental governance issue and our position would be that in those areas the state government should be the dominant planning body to determine those issues, because then there can be a direct dialogue with the Commonwealth about funding and about outcomes. Councils may well not like that, but it gives some discipline to the way it happens.

The North West Rail Link is a good example. It seems to me that if the state government is spending billions of dollars putting the North West Rail in, the state government should determine the planning envelopes et cetera around it. It seemed to me a very strange thing for the council to try and come out, driven a bit by local concern, with a much lower plan. Now, if you are looking at some form of value capture sharing, the one that the state did could produce a certain amount, but only half the amount with the council version. In fact, it could even collapse the whole thing. So there is a fundamental issue here about who determines the planning outcomes close to new infrastructure.

CHAIR: Ideally, it is the state that works with the council and, when they have met a federal criteria, that there is a plan and it is acceptable, then the federal funds flow to the state and flow to the councils.

Mr Johnson : I think there is a principle there. The difficulty is that ministers love going out and making bold announcements about future growth, and that sets the hares off. People are thinking, 'Gosh, this is going to be the new city,' and so the land values change the moment those blue-sky announcements saying, 'This is where growth is going to be,' occur. The difficulty is how to contain the broad blue-sky vision relative to when we fix in some land value issue and, therefore, can work out what components might be contributed back towards infrastructure. It is a fairly delicate issue, and the fundamental difficulty here is that most existing communities are understandably nervous about future growth, but I think, on behalf of the future community, governments need to get in and make bold decisions and drive things. I think, as a consequence of the discussions we are flowing through here about this, the role of local councils would need to be diminished in areas where infrastructure is uplifting value.

CHAIR: Good. We heard evidence of a previous witness this morning regarding the high-speed rail in Britain, which was seen as a 150-year project, in Australia we have seen an imbalance of settlement centred around Sydney and Melbourne and in both those cities very, very high real estate prices, which, by world standards, are amongst the highest. The opportunity for infrastructure in the form of high-speed rail and a strategic plan of decentralisation through that connectivity must go hand in hand with developers agreeing that there is an opportunity to develop housing supply that is 20 or 30 minutes from the CBD of Sydney, although it might be in the Southern Highlands or Goulburn, for instance.

Mr Johnson : The principles are sound in that our cities cannot keep expanding forever. Sydney, Melbourne and Adelaide have a problem in that they are low density and therefore it is very hard to sustain proper public transport. Therefore, they become car dominated and therefore you get congestion, and the more they spread the worse that gets. One way out of that is to increase densities along rail routes and things for future populations, but another, exactly as you say, is to set up satellites outside that are well connected. The UK, China, obviously, and other places do that very well.

It is an economic issue and I understand the proposition you are making. I suspect the only way it could work would be a bit like the Badgerys Creek airport—the federal government would need to buy up land in the locations where a new fast-rail station occurred. Otherwise it is, again, the blue-sky issue of: 'Is my value going up or not? When will it happen? Who's buying and who's selling? How does it all work?' It is not an easy issue, but the principle you are outlining—that as the population grows we will need to look at those sorts of issues—has been looked at before, of course, in Albury-Wodonga and Bathurst-Orange, but they were not connected by fast transport and they never really got there.

CHAIR: The concept of capturing 50 per cent of the uplift would be appealing, when you are taking land in these regions. It may be as low as $1000 an acre and that would then compete with an area in Sydney that is 30 minutes from the CBD where house prices would probably be $2 million or more.

Mr Johnson : You are spot on. The big chicken-and-egg problem is: am I going to move there before the rail is connected or not? The big value of it is having the rail connection, but the chicken or egg is that we need the funding to start flowing earlier to get the project to happen.

CHAIR: The history seems to be that the smart or the speculative money gets in early and takes a portion of the uplift and sells on. It may be that the third sale to the group which finally does the development on that site, but if we have a value-capture mechanism we should be capturing that uplift at each stage. A number of those stages should happen before construction even commences. From the time it is absolutely certain that it is going forward that should really set the hares running.

Mr Johnson : You are right. A lot of the major developers in Australia involved in greenfield housing have a land bank looking at where future land development might occur. Some of it may be a bit risky—not zoned at the moment or some of it may be rezoned and so on—but it is essential that we have the private sector doing that so that there is a supply available for housing. The difficulty is going to be in how much is added for those costs of infrastructure. Already there are processes for infrastructure—you have to get water, roads and all sorts of things—and, whether you call it value capture, value sharing or special infrastructure contributions, all of it is contributing in the same sort of way to those costs.

Picking up on some of the discussion, the other thing is that there is a balance here between the role of government and the private sector and how that is managed is going to be crucial. It is unlikely that the private sector is going to say, 'We will build a fast rail across the eastern seaboard, as long as we are allowed to build six cities' and that the federal government then signs off and works out that it will work. There is a fairly important contribution from the government to give some certainty to these sorts of issues.

CHAIR: One of the things that has to be solved is: what is the trigger to affect the application of value capture on a property? You mentioned earlier on that there has been a number of instances where 10 or 12 home owners get together and sell their properties in combination to a developer and get a huge uplift. If it is their private home they pay no capital gains tax—which I call 'value escape'. Would it be fair to look at legislation to determine when a home becomes an investment? For instance, if you work together with a number of other people and parcel your properties up and sell it at a profit—you are obviously not selling it as a home, but as a development or as an investment. Could that be a trigger? Could it also be a trigger when your land is rezoned for a purpose which gives you an enormous windfall? Would that be reasonable because you are earning your windfall on the back of the taxes of your fellow constituents?

Mr Johnson : I understand the way you are putting this. Another parallel is in the area of gambling. An individual winning money at the races, or something like that, does not have it taxed. If, however, you have an organisation that is running a whole gambling type business then taxation does start coming into play. I think you are saying the same here about an individual, if their home does not get the uplift, versus becoming in essence a business comprised of a whole lot of people, which changes the circumstances of what you are doing.

My feeling is that unless these house owners get some pretty major uplift they are just not going to move. We might think that is ludicrous—that it is only worth $1 million and they have got $5 million. But if they only got $3½ million, or you took $1 million off, would they or wouldn't they move? Would there be incentive? That is the delicate issue.

CHAIR: It would be interesting to know what the threshold is.

Mr Johnson : It is not a rational threshold, because there are a lot of emotive issues about your home, where you live, your kids, your family, the school—all those sorts of things. To have to trade all of that for some other value is a lot more than just rational numbers. I think we need to be careful about that.

CHAIR: When a government is looking for the greater good and yet being considerate of everyone, if the greater good is that properties be amalgamated into a funding mechanism for infrastructure that is going to benefit millions of people then the consideration for the individual who does not want to move, maybe at any price, is that at least they are being very well compensated for their hardship. I have done a lot of doorknocking along main roads and asked this question every single time: if you were to be offered double the value of your home, would you accept it? The answer is that it would be like winning the lottery. On main roads especially, where properties may have gone down in value, where there is noise pollution and air pollution, where the quality of life has gone down—for instance, on Ryde Road they cannot back their car out for about four hours of the day—that suggestion is received happily.

Mr Johnson : There is obviously legislation that allows forced purchases of land in the interests of the broader community. In fact on WestConnex, where various roads connect, purchases of land are happening. I would hope that they are getting incredibly good deals. I suspect there are some hard-nosed valuers on the government side trying to push those down a bit. There was another very interesting case at Parramatta, with the whole town square development, where one or two owners wanted to hold out and there was major pressure in the interests of the broader community to change that. It does get a bit nasty if it is going to be by forced purchase of land to make these things work.

CHAIR: Where somebody is holding out for a price, knowing that everybody else has committed to an acceptable price, is a threshold crossed whereby it gets close to an attempt at extortion?

Mr Johnson : It is. The New South Wales government, in fact, recently changed the legislation in relation to strata titles. It used to be that 100 per cent of voters had to agree before you could sell; therefore one or two could hold out for 10 times what others might have got. It is now a 75 per cent figure, which is deemed to be in the interests of the broader body, and there are compensation issues for the other 25 per cent if that is the case that actually occurs. Something similar is probably required.

CHAIR: That would be an ideal application, because it would show that a vast majority, 75 per cent, were happy to take double or triple the value of their home. Those others of the community would be forced to be a part of the community.

Mr Johnson : And everyone would get an equal uplift.

CHAIR: Thank you. I think we are all done with questions. Do you have anything else you wish to add?

Mr Johnson : No. I think it has been a useful discussion. Our submission sits there. I am coming deliberately and consciously from the side of the developers—the people investing, trying to make projects happen and seeing a minefield of people wanting to grab extra money—and the need for some proper structure and order to this. The one I would just leave you with is the importance of some rigour with local government in relation to this. Local government seems to be the one that is least expert perhaps, or skilled, in the big-scale economic drivers and issues, and all the good work at federal government and state government could be lost by local governments charging off wanting to exploit and change the planning system to raise funds.

CHAIR: Thank you very much for attending today's hearing. Thank you for your submission and thank you for your evidence. It has been most helpful. The secretariat will send you a draft transparent of proceedings so requests can be made to correct any errors of transcription. Thank you again.

Proceedings suspended from 10:35 to10:48