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SELECT COMMITTEE ON HOUSING AFFORDABILITY IN AUSTRALIA
14/04/2008
Barriers to homeownership in Australia

CHAIR —Welcome. I thank the association very much for your submission and the range of attachments which you have provided to the committee. It is very helpful to us. I invite you to make an opening statement and we will go to questions at the end of that.

Mr Hoffman —The Local Government Association of Queensland is the peak body representing local governments in Queensland. Our submission seeks to summarise a number of issues of concern and of interest to your committee on the issue of housing affordability from the association’s perspective. We have also attached reports prepared by or for the association in response to various challenges and complaints made publicly by representative bodies of the development industry over the last couple of years. The challenges have sought to portray local governments generally as significant contributors to the problems associated with housing affordability. In short, we reject those assertions. I will explain why in a moment. Where we can facilitate, support and expedite planning and development processes under the control of local government in Queensland, we believe we are making a positive contribution. We welcome the opportunity to work with the development industry in this regard. Indeed, in many respects this is already happening.

I would like to point out that the legislation controlling the planning and development process in Queensland, and specifically as it relates to our responsibilities under the Integrated Planning Act, provides some very stringent requirements in terms of the processes councils are required to undertake in the development of their planning schemes, the operation of those schemes and, ultimately, the development assessment and approval processes. Specifically, though, when it comes to the issue of development charges, the legislation prescribes, and has prescribed for a number of years now, the limitations as to what charges can be applied for. That does relate to essential infrastructure required for all new developments. It relates to roads and drainage, water supply, wastewater systems and provision of basic land or minimum facilities for park or recreation areas.

It is beyond the power of local governments in Queensland to seek developer contributions for the provision of facilities external to the immediate area of development. This is not the case in other states. On many occasions, challenges are made or questions raised as to the appropriateness of developer charges that imply that across the nation the broad range of charges that apply in some areas are applied in all areas. That is not the case in Queensland. Recently, in response to those claims, the state government introduced a requirement that, before councils can impose their developer charges, those charges are required to be assessed by an independent body, the Queensland Competition Authority, and only with its approval can those charges be applied.

This is a new process, and I was made aware last week of the first consideration by the Queensland Competition Authority of charges submitted to it for its review. Those charges related to the Gold Coast City Council. Whilst I am not personally aware of the specific reports that relate to this matter, indirectly we have become aware that the Queensland Competition Authority suggested that the Gold Coast City Council should in fact increase its charges, not decrease them, as its assessment was that those charges were perhaps undervaluing what they should be recovering under the legislation.

There are other aspects of the planning process that I would like to refer to. Local governments are required to receive, consider and ultimately determine development assessment applications. That process, under our Integrated Planning Act, can be quite complex and obviously quite time-consuming. The process requires applicants to submit to councils their application, with all of the related documentation. In many instances, apart from the council’s consideration of the matters immediately under its control, it is required to refer to the state government and to appropriate state agencies for their consideration matters that are under their jurisdiction.

The management of this process of receipt, consideration, referral and then further consideration of the assessment at a council level and assessment at a government level obviously adds time to the process. If in that process there are some deficiencies in the information received with the application, then further inquiries are made of the applicant to receive that information and then, where necessary, proceed to review what has been done to date. All of this, as you would appreciate, can add quite a deal of time to the process.

Attempts are being made by local government in Queensland to streamline that process by way of significant investment in the development of electronic based planning, receipt, assessment and approval processes. Significant work has been done and progress is being made. I am happy to say that that work is being progressed in collaboration with the development industry. I highlight this as it is one aspect in which local government can make a significant difference to the process—that of expediting the approval process.

There is another aspect that poses difficulties for councils, and it is in relation to the availability of skilled staff to undertake the process that I have just referred to. We in this state and those in other parts of the nation are subjected to or are involved in a significant development boom around resources and other infrastructure needs that go with that. Local governments have been losing a lot of their skilled staff to the development sector. Our efforts to deal with that involve two issues I would like to raise. The first is a significant effort, again in collaboration with all stakeholders, governments and the development sector, to increase the attractiveness and the promotion of planning as a profession for school graduates and for further study at the undergraduate level. That has a longer term benefit to it, but it is a demonstration of a need that is being responded to.

More immediately, though, the Local Government Association, in conjunction with the education sector, has developed a paraprofessional planning course at a diploma level. This has seen, to date, some 90 local government employees undertake the course that improves or increases their skills and capacity to expedite the processing aspects of planning applications at the council level. This is another means by which we are responding to the skills shortage issues.

I will conclude my opening remarks by making a couple of observations about the cost implications of the processes and the responsibilities of local government in the totality of the cost of house and land packages. These are referred to in greater detail in our submissions. I simply wish to highlight to the committee that the work that we have done and, importantly, the work conducted by the Productivity Commission some years back highlighted that the costs imposed by local government on house and land packages represented a small amount—in the order of one to three per cent in total. Whilst I do not wish to deny our responsibilities in relation to what those charges are, we believe we meet those responsibilities. Importantly, processes now in place within this state are ensuring that councils are accountable and transparent in what they charge, and indeed those processes are subject to third-party scrutiny. I will leave my opening remarks at that.

CHAIR —Thanks, Mr Hoffman. Mr Myerson, do you wish to add anything?

Mr Myerson —No, thank you.

CHAIR —Thank you very much. As I said, thank you also for your submission. I will kick off with one question. In your summary letter at item 3 you refer to the Housing Affordability Fund. When you say that you would like to see funding provided under that system ‘designed to ensure that these savings are passed directly or indirectly to homeowners’, what did you have in mind?

Mr Hoffman —Firstly, I would make the comment that we are appreciative of the government’s commitment to resource this need and to consult and work with local government and of course other stakeholders on how this might be achieved. It is seen as a very positive move and we commend it. In discussions that we have had with officers of FaHCSIA about how the program might work, the point was made very clearly that there needs to be, in the consideration of proposals to be put forward under the Housing Affordability Fund, the ability to ensure that the benefits, the results, of that investment go directly to people whom you would want to see as the beneficiaries of that funding—a quite understandable and appropriate objective.

Our concern is that, in the consideration of infrastructure funding—which is highlighted as an objective of the program—the connection between funding and infrastructure provision and the ultimate reduction in costs and a transfer of that reduction to homebuyers or other parties interested in acquiring accommodation is not readily available. It operates through the market process, and how those savings can find their way from an investment in infrastructure to the acquisition of the resultant product is somewhat tenuous at the very least. That is acknowledged by most people. That is not to say that they cannot be explored, and our discussions with officers of FaHCSIA have been about investigating that a little more closely. I would add, though, that the objectives of the Housing Affordability Fund are in effect to subsidise or to reduce, and that is achieved by way of a subsidy.

CHAIR —It sounds like you have more information on it than we have been able to obtain. When we first spoke to FaHCSIA, about two weeks ago, there was not a lot of flesh on the bones, so to speak, in terms of how it will operate. We were told, broadly speaking, that it will go to addressing issues of planning, infrastructure provision, development costs and those sorts of things, but you are obviously involved in the consultations and it sounds to me like you have a better idea.

Mr Hoffman —Certainly there have been conversations with officers, but we have also heard statements by the minister and read commentary on the broader objectives. I do not believe we are privy to anything other than the public information, to be honest.

The issue is: how do you transfer a benefit from a government fund to an individual or parties purchasing a property? The market processes have limitations, quite simply, as to how they can do that. The discussion we have had—and it is not immediately related to subsidising infrastructure and, hence, subsidising and reducing the costs of acquisition—has been about the fact that through the local government rating system you can have a direct relationship between a government entity and a particular party or individual. Given that the objectives of the fund are to seek to meet the needs of an identified sector of the community in terms of its capacity to acquire accommodation, a relationship between council and people who would qualify in that sector is something that is possibly achievable in relation to rate remissions. This happens already, predominantly in the area of pensioner rebates on rates. It is possible that it could happen at the other end of the spectrum, if you like, in terms of people acquiring houses that qualify and could receive some form of subsidy. I might add that that is but one suggestion. In our ongoing discussions with the officers of FaHCSIA we are seeking to explore more fully other options and I would not want to suggest there is only one. That option is one that has come to mind for us, and I note that in submissions received by the committee other local government associations have alluded to it as a possibility.

CHAIR —Thank you very much for that comprehensive response. We will go to questions.

Senator COLBECK —You mentioned the workforce issues that obviously exist nationally in respect of local government and the work that you have done particularly in relation to paraprofessionals. We heard in Canberra a couple of weeks ago about the overall planning frameworks that exist nationally, particularly the work that is being done by the Development Assessment Forum and their leading practice model, which effectively takes the best of the best nationally and tries to draw them together into a national framework. What work has been done in adopting some of those processes here in Queensland that you are aware of?

Mr Hoffman —As I alluded to, we are working on the improvement of the development assessment and approval processes. There are a number of aspects of it that are relevant. The first issue and probably the easiest to address, albeit complex and demanding of resources, is improving the processing itself. I alluded to that earlier. The other issues are around the roles and responsibilities of various parties to the process. There is a suggestion arising out of the Development Assessment Forum as to who should be the approvers of development applications. That is a contentious issue, because the approvals given are at the heart of what communities look like and what they will be in the longer term.

There is ongoing debate as to the role of elected government officials or members in this process. We are open to those discussions, but there is nothing to suggest that the removal of elected members at the local level from the approval processes will automatically expedite the approval processes. In fact, evidence provided in the attachments to our submission to you indicates that in Queensland over 95 per cent of all development approvals are undertaken by council officers under delegation from their councils. The five per cent that remain with the elected officials obviously relate to those more complex and more sensitive applications with potential or wider impacts across the community. I think it needs to be seen in the context that, whilst we can look to how we can improve that aspect of the approval process, it of itself is not necessarily a silver bullet in terms of how the processes can be improved either.

Senator COLBECK —I think I tend to agree with you, particularly at that macro end of the market—the more socially contentious types of projects. But at the other end of the scale there is, perhaps, some more nuts-and-bolts stuff; you have mentioned that a lot of that gets done, essentially, by delegation, but to an extent some of that could even be done through a tick process by meeting a certain level of criteria, which could actually take some of that bottom end stress out of the system. That would then free up some people at the more complex end.

Mr Hoffman —Both the initiatives I mentioned earlier are certainly aimed at addressing those issues. The paraprofessional training is designed to enable the initial evaluation of applications to determine whether they need to be further reviewed or can be simply processed in accordance with code or requirements, which is one of the key advantages of training people for that work. The other aspect, the development of electronic development assessment tools—software to enable applications to be submitted and evaluated in that way—then ensures that, for those matters that need to be channelled to more rigorous hands-on assessment, it is achieved more quickly than would otherwise be the case.

Senator COLBECK —You mention in your submission that there is generally about five years supply known ahead in south-east Queensland. We heard some discussion this morning about an approach being taken, particularly in Victoria, where they have got an understanding of, say, 10 years out. I would be interested in your perspective on the differences in those approaches—where you have got a much longer term understanding of the general direction of where communities might be expanding into versus the view presented here that there is five years out in front that is known and 1½ to two years of developed land that exists as stock—and how that might impact on this process.

Mr Hoffman —You would be familiar with the processes here in south-east Queensland, where there is a development plan and an infrastructure plan in place and approved by government which councils are required to operate within. That pretty much casts the die as to what can happen where. More recent developments arising out of the debate between local government, government and the industry as to what was available and when it would be released gave rise to the various studies identifying that land stock that we have done and that are attached to our submission. These issues are obviously debated intensely, and when the state government agreed to establish a land monitoring process that was done with our endorsement.

It is certainly not our contention as an association or in local government as a sector that we should do anything other than meet our obligations to undertake our responsibilities for the development and release of land. We are more than happy to endorse that process. Recent announcements by state government indicate that there is stock available to meet needs. The land-monitoring process, though, is designed to identify where additional land can be available and brought on stream sooner than it might otherwise have been. I am not personally familiar with any more details of the work than that, other than to say that the need to do that has been recognised, processes are now in place and, in the past two weeks, stakeholders at state government, local government and development sector levels have been apprised of the plans put forward by the state government as to how it might expedite that process. So moves are in place in this state to give us the ability to look further ahead than we might otherwise currently be.

Senator COLBECK —Just to attack that from a slightly different angle: part of the discussion earlier was in relation to the provision of infrastructure that might be required to service the development of a particular land stock, and the perception was that additional lead time was allowing for some of that critical infrastructure to be developed out in front of even some of the development of the land, which was providing a positive impact on the overall cost structures. What are the sorts of time frames that you see are required for the development of infrastructure, and how might those two things mesh?

Mr Hoffman —There are two parts to the answer to that question. Major transport infrastructure is one aspect; the other is the infrastructure needed for water and waste water. We are in a state of flux here in Queensland at the moment with the changing of the roles and responsibilities of state government or state agencies and local government agencies in terms of water and water provision. That obviously will, in the near term—and I am talking about the next couple of years as these changes are actually worked through—potentially have some bearing on the provision of more major infrastructure, trunk mains of various sorts. The transport issues of arterial roads and rail networks are a state responsibility. I am not in a position to answer about them. Certainly in the south-east Queensland plan and the related infrastructure plan there is identification of where the areas for future development are, and obviously the provision of infrastructure to enable that development to occur is referenced in that plan. Your question would be more appropriately referred to the state agencies in relation to those matters. In terms of the local government issues—internal roads, local water supply, sewerage and development—councils look to plan the provision of those facilities and the provision of capacity to do that in a three- to five-year timetable.

Senator COLBECK —We would have liked to have asked the state government that, but unfortunately they have decided that they do not want to grace us with their company. You were the next cab off the rank, unfortunately, so I apologise for the question in that respect.

Mr Hoffman —I am a poor substitute when it comes to the detail on that.

Senator HUTCHINS —I am sorry I had to go out of the room, Mr Hoffman. I had to take that call. You said in your submission that between one and three per cent of charges could be directly attributable to local government costs. I think those were the words you used. We had the Urban Development Institute of Australia in Canberra say—I think I have got it right, and Senator Payne will correct me if I have got it wrong—that they believe that the cost of a new home in taxes, charges and regulations is at least $120,000. That would differ significantly from one to three per cent of the cost of a home. Would you like to comment on their views, which may well be jaundiced by their experiences in other states?

Mr Hoffman —I was referring to the infrastructure costs imposed by local government, and my reference is to Queensland. I will correct myself. I mentioned one to three per cent; it is more in the order of one to four per cent. The one per cent reference was in relation to delays and their impact on holding costs. You need to look at the totality of government related charges that apply to the purchase and development of land, the development of housing stock and the ultimate sale and transfer of that housing stock from initially one or two parties to the process to the ultimate purchaser. It is along that trail that a variety of government charges obviously apply. The infrastructure charges imposed by local government, on our reckoning and on the reckoning of the Residential Development Council, an industry body, suggest that the local government related charges are in the order of 3.8 to 3.9 per cent. That is the point I was alluding to. There are other charges, but the local government charges are of that magnitude in the totality of the cost.

Senator HUTCHINS —You mentioned the Queensland Competition Authority, who talked about the Gold Coast charges and suggested that they should be more than what they were seeking. Was that after the election? Did they have an election on the Gold Coast in the last few months?

Mr Hoffman —Yes. The local government elections across Queensland were on 15 March.

Senator HUTCHINS —I am suggesting that it is very brave to do it after the election. It is something that we might do.

Mr Hoffman —The Queensland Competition Authority is acknowledged as an independent agency, charged to review the charges submitted. Again, in state legislation, the basis on which those charges can be assessed—not only the constraints for applying the charges but the mechanisms by which the charges can be calculated—is prescribed. The process is regulated. Councils are obliged, obviously, to comply with those requirements. The QCA’s role is to be an independent reviewer of those charges. As I said, I have not seen any reports but have heard at a recent meeting of councils that that was the observation made by the QCA at the time.

Senator HUTCHINS —So it is up to the Gold Coast councils to determine whether they will increase it to what the QCA has recommended.

Mr Hoffman —That is correct. I think the point needs to be made that this process is about ensuring that the charges do not exceed the maximum of those enabled in accordance with the regulations. It is not to say that councils are required to charge at that level. They can choose what they charge. Whilst there are assertions that councils are charging more—and the QCA process is designed to ensure that that does not happen—there are many who choose to in fact not transfer the full cost. In effect, that is a local level subsidy to that development. It depends where you are and what the circumstances of economic activity and growth happen to be. Some councils will choose to internally subsidise those costs. When I say ‘internally’, that is internal to the council’s operations, but ultimately that is a cost that will be borne by the community, by and large, in some form.

Senator HUTCHINS —We have been given examples in Sydney and elsewhere of councils putting, say, a library charge on new developments. On the other hand, you are saying that councils are not proceeding with charges that they could charge because they are subsidising, for whatever reason. Are there examples in Queensland where new developments are being hit with development charges for things such as libraries or childcare centres?

Mr Hoffman —The short answer is that that cannot apply; that cannot occur in Queensland. We are restricted to the infrastructure directly related to the development area itself—that is, roads, drainage, water, sewerage and park facilities applicable to or appropriately required for that area. It is a contentious area. Some councils would argue that you should be able to go further, given the demand that the residents of that area will place on these other facilities, but the legislation precludes that and it cannot apply here.

Senator IAN MACDONALD —Is that the latest legislation?

Mr Hoffman —It is the latest legislation and it has been the case for a number of years.

Senator IAN MACDONALD —It is not proposed to change that or it has not been recently changed?

Mr Hoffman —No, it is certainly not intended to change it.

Senator IAN MACDONALD —It is different to evidence that we heard previously.

Mr Hoffman —Relating to here in Queensland?

Senator IAN MACDONALD —Yes.

Mr Hoffman —There is no ability under the legislation to charge it, to impose it. That is not to say that councils might not seek to negotiate that with developers, and that does occur. But it is a matter of negotiation.

Senator IAN MACDONALD —Why would a developer voluntarily agree to contribute to a library?

Mr Hoffman —It depends where the library is and when it might be developed. It could well be seen as an advantage to the particular estate to have that facility located in that area or adjacent to it. They will make that decision if it is in their interests, and a number of them do.

Senator IAN MACDONALD —Charges in relation to sewerage can relate not just to the connections to the new subdivision but to the treatment plant for the shire. That is legitimate.

Mr Hoffman —Yes, and that is acknowledged as a use of the capacity of the system, and that system or aspects of the treatment process may be located some distance from the estate. To enable the estate to be developed so it has the internal drainage and also the treatment requires an element of the consumption of the capacity of the system, and that is a factor that is built into the charging regime. That is not really under debate by any parties.

Senator IAN MACDONALD —I know this is how it is and you accept what you cannot change, but do you have a view on the argument that older, established areas had the sewerage and the reticulated water connected at public expense so why do new homebuyers have to effectively pay for the infrastructure for their own water and sewerage?

Mr Hoffman —I think the answer to that question is in the operation of legislation which enabled charges to be recovered. It is an issue of equity in relation to the user-pays principle, which is now more prevalent in terms of the provision of public facilities and services.

Senator IAN MACDONALD —I, as you, accept that that is the way it is now, but does the LGAQ have a view that it is a bit unfair for new homeowners because they are paying for something that older houses got from the public pool? Does the LGAQ have a policy on that?

Mr Hoffman —Our position is to support the current legislative arrangements.

Senator IAN MACDONALD —To support it or to accept that that is it and that is how you have got to deal with it?

Mr Hoffman —It is not just a matter of accepting it. We support that it is appropriate for people in a situation to be responsible for the service provision that meets their needs.

Senator IAN MACDONALD —I am really getting around to something I know you are very keen on, Greg. I was trying to encourage the UDIA to join you in a push to get a share of the GST so that you could put in the infrastructure and the developers would not have to, so that hopefully new homebuyers would not have to pay and somewhere along the line housing would become a little bit more affordable. Is that a scenario that is ever discussed at local government level nowadays? It used to be back in the GST days.

Mr Hoffman —Your first point about getting access to a growth tax base is very much a part of our policy at state level and for local government at a national level and we have been pursuing that predominantly with federal governments. The other point is whether the provision of infrastructure should be effectively subsidised across all property holders. That is not a policy position that we have or support. We have recognised and have submitted to governments on the difficulty faced by local government with the constraints under its current revenue base. It would be beyond consideration that we could look to the cross-subsidy of the provision of infrastructure in new subdivisions in the form that you have described until such time as there is a significant improvement in the broader tax base and the ability of local government to raise increased revenue. It is mutually exclusive, in other words.

Senator IAN MACDONALD —Except that you might get some powerful allies if housing affordability was—this is perhaps drawing a long bow—to a degree dependent on developer contributions, which is required because, quite frankly, local government have no other form of paying for infrastructure in new areas, whereas they were required to in old areas, if I could put it that way. I am not putting words in your mouth—perhaps if you did get a share of the revenue you would use it for other things, but it is just something that might be addressed in the housing affordability debate.

Mr Hoffman —I do not dispute the increased capacity of local government to respond in the way you have described if its revenue base was broadened to a growth tax. The other alternative is a more direct support for the provision of the infrastructure that is required, which could obviously impact on the developer charges that would need to be applied and recovered. However, it would then be a matter of the market forces at play as to how that might translate through to savings—recognising that the small amount the infrastructure charges councils impose are of the total costs means that, even with that subsidy, you are not necessarily going to significantly reduce the cost of the end product anyway.

Senator IAN MACDONALD —As Senator Hutchins mentioned, that is very different from some evidence we had in Canberra, I think it was, where a third to a half of the cost of a developed piece of land was regulation in all of its forms.

Mr Hoffman —I take the point for the development cost, but there are many other costs involved in the final product that is sold, and I think there needs to be a recognition of—

Senator IAN MACDONALD —No, as I understand it, it was imposed regulation, council charges, developer contributions and that sort of thing, not just the cost of development.

Mr Hoffman —Are you talking about the final product?

Senator IAN MACDONALD —Yes.

Mr Hoffman —I acknowledge the claim that is made, but the last time that this was looked at to any great extent was by the Productivity Commission. I commend to you their report, which very thoroughly analysed the factors contributing to the costs, and acknowledge that there are many other macroeconomic factors at play here that ultimately affect the bottom line.

Senator IAN MACDONALD —Sure. I saw your submission there. I am conscious of the fact that local government right throughout Australia is facing an impending crisis with old infrastructure that desperately needs to be rejuvenated, without contributions, I guess, from the federal government—state governments do not seem to contribute to anything these days. If the main sewerage line through the centre of town collapses, it is going to be the ratepayers—old as well as new ratepayers—that have to pick up the bill. In our inquiry into affordability, that is going to make things even less affordable. Is there any light on the horizon on contributions to ageing infrastructure?

Mr Hoffman —Regrettably, no. The infrastructure renewal gap was identified in the PricewaterhouseCoopers investigation into the financial sustainability of local government. Local governments nationally had submitted to government and opposition parties prior to the election a proposal for an infrastructure renewal fund. We do not see at this time the ability to further prosecute that claim within the constraints of the current economic climate. You rightfully identify that in the absence of support to deal with the old infrastructure—we must remember here we are talking about new infrastructure, by and large, in this current issue—the problems associated with the renewal of older infrastructure are looming large for local governments. So our ability to support new infrastructure as well as deal with the old is obviously one factor that sees us firmly of the view that the provision of the new infrastructure does rest with the people who create that demand for the present—unless there is some other form of support for the other broader activities that are upon us and will be upon us over the next five, 10 or 15 years.

Senator IAN MACDONALD —The newer areas, having paid for their own sewerage and water, will also have to contribute to the base costs if something catastrophic happens, so they are going to get the double whammy, whereas at least the older residents only have to pay for the old infrastructure. It just seems that it is going to impact upon housing affordability for the future.

Mr Hoffman —I accept your point.

CHAIR —On behalf of the committee, Mr Hoffman and Mr Myerson, I thank you both very much for appearing this afternoon. Thank you for your submission and the material that you have been able to support the committee’s inquiry with.

[2.39 pm]