New “Land Value Contribution”
The NSW Department of Planning, Industry and Environment (Department), is in the process of introducing infrastructure contribution reforms, intended to simplify the system of contributions currently in place and provide greater transparency and consistency for key stakeholders, including local government, developers and landowners.
In December 2020, the NSW Productivity Commissioner undertook a review of the infrastructure contributions system, which led to the development of a package of reform material prepared with the engagement of various stakeholders. The review of the infrastructure contributions system was motivated by the Department’s recognition that the current system in place needs improvement, a greater level of clarity, transparency and consistency in the funding and delivery of local infrastructure.
In June 2021, the Environmental Planning and Assessment Amendment (Infrastructure Contributions) Bill (‘Infrastructure Contributions Bill’) was first introduced into NSW Parliament. Once enacted, the Infrastructure Contributions Bill will introduce a number of noteworthy changes to the existing infrastructure contributions provisions contained in Part 7 of the Environmental Planning and Assessment Act 1979 (EP&A Act).
It has been indicated that in early 2022, after the Department has reviewed the submissions made in respect of the Infrastructure Contributions Bill, this will then progress through Parliament, with the new infrastructure contributions system forecast by the Department to be operational from July 2022.
By July 2024, the Department has indicated that all local councils will be expected to have transitioned to the new contributions system.
New “Land Value Contributions”
A new form of contributions will be payable – ‘Land value contributions’
One of the most notable reforms is the introduction of a new type of local infrastructure contribution that is anticipated, which is to be expressed as a percentage of the value of land that is the subject of development. Such contributions will be payable for land identified as being situated in a ‘land value contribution area’ in circumstances where:
- the value of the land has increased due to a rezoning or planning proposal resulting in changes to the applicable planning controls (such as the maximum height or floor space ratio controls) which enhances the development potential of the land; and
- as a result of this increased development potential of the land, additional land will be required for a public purpose (e.g. for the provision of iinfrastructure for the benefit of the community).
The land value contribution area will be mapped under a contributions plan, to identify the land which is required for a public purpose.
What sets ‘land value contributions’ apart from ordinary s7.11 contributions is the requirement for these to be paid on the sale of land, regardless of whether a proposal to actually develop the land that has the benefit of the rezoning has been made. The requirement to contribute to the cost of acquiring any such land for the local public infrastructure purpose will be triggered following the rezoning of the land, however the obligation to pay the relevant contribution occurs once the land that is the subject of the rezoning application is either developed or sold (whichever occurs first). Whomever owns the land will then be required to contribute to the cost of the local infrastructure, which may be achieved through making a payment to council or through the dedication of land equivalent to the value of the contributions payable. Notwithstanding this, the requirement to pay land value contributions may also be imposed in connection with a development approval as a condition of consent
It is anticipated that these changes will particularly benefit the developers of greenfield housing developments which lack infrastructure and are heavily reliant on the delivery of this infrastructure by local councils. The changes aim to transfer a greater share of the responsibility for the payment of infrastructure to the development industry and ensure that infrastructure needs of newer communities are delivered in a timely manner and in the most suitable locations.
On 28 October 2021, the Department released exhibition documents on Land Value Contributions which can be viewed here Land Value Contribution.The following key points for councils to be aware of are noted within this Land Value Contributions document and include:
- a decision to adopt a land value contribution is a matter for each individual council. Councils can choose to collect contributions for land acquisition in an area under the existing s7.11 framework or they can choose to apply a land value contribution. However, they are not able to apply the two approaches to fund the acquisition of the same land
- when preparing or amending a contributions plan to include a land value contribution, councils must have regard for the policy requirements for land value contributions set out in this document
- a Land Value Contribution is an optional, alternative approach to existing s7.11 contributions.
Upfront preparation of contributions plans as part of the rezoning process
To ensure that local infrastructure needs are properly considered in the early stages, from the outset of the rezoning process, contribution plans will need to be prepared and then jointly exhibited with planning proposals in circumtances where the rezoning will result in the need for increased infrastructure. Such contributions plans will need to also identify the specific land that is required for any local public infrastructure purpose. In addition, planning proposals will be required to demonstrate the efficient use of land for public open space, drainage or public facilities, including whether there is a possibility for the shared use of land for both open space and community facilities.
A contributions plan that incorporates a requirement for a land value contribution will be a site-specific contributions plan that must be developed concurrently with a planning proposal for the same land. It follows that councils that propose to apply a land value contribution must make this clear as part of their request for a gateway determination.
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This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.