The world is on the brink of the worst economic conditions in decades thanks to the COVID-19 pandemic but we should be wary of governments rushing to strip back regulation in a bid to restart industries.
In recent weeks and in response to the COVID-19 crisis, the NSW government announced a Planning System Acceleration program to “cut red tape and fast-track planning processes to keep people in jobs, boost the construction pipeline and keep our economy moving”.
The proposed reforms include the co-funding of community infrastructure in North-West Sydney and more ministerial decisions to fast-track development applications and rezonings.
The government says the reforms will create more than 30,000 construction jobs in the next six months. While I’m sure many people would support the fast-tracking of local infrastructure, where appropriate, this issue should not be conflated with the cutting of so-called red-tape.
Recent record high approvals and completions in Sydney had nothing to do with red-tape being cut or development approvals fast-tracked. Developers are not developing because of a range of factors discussed below.
If developers really wanted faster approvals, lodging applications consistent with the rules established through proper strategic planning – including public consultation – would be a good place to start.
And, if the government was serious about unclogging the construction pipeline it would be addressing the real issues: propping up demand and underwriting bank loans to residential developers. Fast-tracking assessments and rezonings won’t make much difference.
The NSW Minister for Planning, Rob Stokes, is smart and competent, so I suspect that he may be ‘hand waving’ to appease the more extreme elements of his party and powerful and influential interests.
Powerful lobbyists
He has form in deftly handling the Premier and Treasurer’s interventions in the past, including an astute response to Premier Gladys Berejiklian’s captain’s call on Sydney Star Casino’s tower fiasco.
Instead, the need for reform seems to be pushed by opportunistic developer lobbyists promoting discredited ideas and working hand-in-glove with NSW Treasury.
Developers are facing a perfect storm of collapse in demand, higher settlement risk, devalued assets and tighter access to credit. The only way that many can improve their fortunes is to make windfall gains from favourable planning decisions, inflating the value of their assets to improve their balance sheets.
The prevailing economic ideology in public policy and practice has viewed planning as a cumbersome bureaucracy that obstructs the market.
This perspective is highly suspicious of the planning profession and has a strong influence in central agencies such as state government treasuries, which are increasingly involved in policy making across government, including in planning and development fields.
Indeed, the Urban Taskforce has openly admitted that “NSW Treasury has been the agency driving planning reform in NSW” . The lobby group also claims that “Treasury called the Urban Taskforce and asked for a list of projects that were stuck in the planning system”.
The list of “shovel ready” projects reads like a “who’s who” in rent-seekers in Sydney, including Meriton’s towers proposal for Little Bay. Local communities have fought hard against many of these projects for very good reasons.
Urban Taskforce’s Commercial in Confidence list of projects to the NSW Treasury highlights the relationship between government and industry.
Meanwhile, the Property Council of Australia’s deputy executive director in NSW is undertaking a three-month role as executive director at the NSW Department of Planning, Industry and Environment to “facilitate and implement the NSW Government’s planning response to the coronavirus crisis”.
“Red tape” is a red herring
Of course, it’s all a Game of Mates, and the planning department, in particular, is always susceptible to industry influence and policy capture given that planning regulations represent one of Australia’s largest and most enduring honey pots for “rent seekers”.
This proposed reform is unabashedly in the name of jobs and growth: the argument is that red-tape is holding up housing supply and hence construction jobs, which are an important part of the economy.
The trouble is that the argument is built upon an unquestioned myth that the planning system drives housing supply and hence when developers stop building, it’s implicitly the planning system and planners’ fault.
It is troubling to see so many of my planning colleagues across consultancies, NSW government and even in local government perpetuate this myth.
The complementary myth is that developer contributions for local and state infrastructure are too high and are “passed on” to home buyers. This may be part of the subtext for a recently announced review of the NSW infrastructure contributions system. But that’s a story for another day.
As urban planner and lead consultant on Sustainable Sydney 2030 for the City of Sydney, Pat Fensham has eloquently put it, the prevailing economic ideology in public policy has occurred at the same time as planning schools have done away with educating planners in basic economics.
As a result, planning graduates have next to no exposure to the world economists inhabit. The disconnect is startling and planners are left behind in the internal debates within government, unable to hold their own in discussions focussed on the economic merits of policies or investment.
The story of housing supply in Sydney is one of great success, one of the highest dwelling completions rates in the developed world.
Australia is producing housing faster than other OECD nations at 8.2 completions per 1000 persons, up from 6.8 in 2010.
Sydney is currently producing more dwellings than London (32,000), despite having a population less than half of the UK capital’s.
In the most recent residential construction boom, there were more cranes servicing apartment construction on the east coast of Australia than in major cities across North America, including New York, Boston, Chicago, San Francisco, Los Angeles, Toronto and Calgary. Fifty per cent of all cranes in the east coast of Australia were in Sydney.
Sydney’s dwelling production peaked at 45,000 dwellings a year in 2019 – 36 per cent higher than the previous peak in 1970 – and approvals peaked at 60,000 dwelling approvals per annum in 2019.
Regulation isn’t holding up development
In Sydney and Melbourne, typically, 94 per cent of planning applications are approved in three to four months. Even if there was a direct relationship between the frequency of planning approvals and the rate of new housing supply, this can, at most, have a minimal effect.
Indeed, it is the decision of private developers if and when to make planning applications. Councils can only approve applications that have been made. They can’t force developers to build faster.
Housing supply is driven by the market and the recent residential boom drove housing approvals, in the same way that the COVID-19 crisis is creating a collapse in demand and restricted credit access.
Developers say their projects are being put on hold in the design phase and hence there will likely be fewer applications lodged.
For those already in the system and uncommenced approvals, lack of demand and stricter finance will mean many won’t start. Indeed, banks are requiring much greater equity, higher pre-sales and in some instances have blacklisted entire suburbs.
Developers I’ve spoken to say apartment projects underway are facing a perfect storm: non-existent demand to sell remaining units (compounded by Sydney’s Opal and Mascot tower debacles), heightened settlement risk (driven by very conservative valuations and banks not lending to buyers), and key components caught in the supply chain in China, all occurring at peak debt.
Lastly, the estimated 30,000 jobs to be created by the NSW government’s fast-tracking program is likely to be an overestimation. There are serious issues with the way jobs impacts are estimated – such as lack of supply-side constraints and onstant returns to scale.
Even NSW Treasury acknowledges that this type of analysis “will always indicate positive impacts without providing guidance as to whether such impacts correspond with net benefits. Poor investments … could be associated with greater levels of activity than good investment”.
The (un)intended side-effects
The purpose of the planning system is to apply sufficient regulatory controls to balance the impulses of the free market with the interests of the public good. It is to intervene to correct market failure. There are perverse outcomes when we reduce the regulatory burden for ideological and vested interests.
At its worst, the recent failures of the private certification system in NSW and the apartment construction quality crisis seems to have had the perverse outcome of reducing demand for new residential apartment towers, and hence affected the rate of supply in future years.
In the UK in the early 2010s, it is understood that Treasury applied pressure to liberalise the planning system in an effort to generate a construction-led recovery. This led to many changes including the introduction of “viability tests” for affordable housing requirements, severely diminishing the provision of affordable housing.
There was a construction boom but this was led by record low interest rates, leading to asset inflation of the housing market. A double whammy against affordable housing.
Fast-tracking DAs and spot rezonings would see windfall gains accrue to private interests and construction may still not commence for years.
For the big players, the aim of the game isn’t to make a measly 20 per cent profit based on construction. Spend a little money on professional reports, use your lobbying power, and with the stroke of a pen make windfall gains in the realms of 200 to 2000 per cent.
It simply concentrates the amount of future housing supply mostly to a few large development companies, inflating their landbanks, improving their balance sheets and potentially reducing real competition from small to mid-size developers. A perverse outcome? Or is it the intended outcome of those key players driving reform?
The value of planning
The underlying presumption in the recent NSW announcement is that applications are “approved” not “determined”. The language used risks reducing the purpose of planning as burdensome red tape, delegitimising and trivialising the role of planners as “development facilitators” rather than agents for positive change, promoting the public interest.
Cutting red tape and fast-tracking place expedience over excellence and risk market failure if the full benefits or costs of development to society aren’t properly considered.
The COVID crisis has emphasised the importance of open spaces and local centres in our cities. Now that they have had to spend so much time in their homes, people have also recognised the importance of well-designed dwellings. The lesson should be that we need to create better communities and buildings, rather than strip away good regulation.
Growth must be accompanied by improved liveability. Planning for housing supply should not be considered in isolation from other planning outcomes.
Our cities integrate employment, housing and social and economic infrastructure in ways that promote the economy, liveability and sustainability of regions, and planners are well equipped to manage trade-offs in consultation with communities.
Projects “stuck in the system” have probably been held up for very good reasons.
NSW planning has made significant progress in recent years in creating a plan-led, place-based strategic planning system with new district and region plans and local strategic planning statements. Let’s not ignore this effort. If we want to support greater rezonings or fast-tracked development it must be consistent with the legislative and strategic framework.
Here’s a novel idea: all councils across Sydney have just completed local housing strategies, most with financial support from the state government. These strategies identify where best to locate significant new housing based on strategic planning and community benefit criteria.
If fast-tracking is what is needed, then why not fast-track the rezoning of priority areas identified in these strategies?
While we’re at it, we should, at the very least, put a price on the development rights we’re giving away (see here, here, and here).
Another innovative approach to speed up the assessment process is to lodge applications that are consistent with the planning controls or the strategic aims of local government. I wonder why the developer lobby hasn’t raised these ideas?
Tim Sneesby is a manager of strategic planning at a Sydney council. He previously worked in an urban economics consultancy in Sydney, as a planner in London and throughout his career has worked closely with developers. He is a recipient of the Planning Institute of Australia’s National Young Planner of the Year award. His views are his own.
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Thanks you for this wonderful article. Excellent logic. Clearly well-researched by someone who understands to the lie of the land. If only the NSW state government gave a damn about local planning, communities and regulatory control in respect of building codes. I live in Little Bay, adjacent to Meriton’s proposed monstrosity. Despite being included in the fast-track list, it’s certainly not shovel ready but merely at (monstrous) proposal stage. Rezoning would be required and a DA has yet to be lodged. So how could it possibly be classed as caught up in the system or shovel ready? It appears that money does all the talking with the NSW state government. Infuriating.
This is an excellent article! Saying it how it is!
Rent seekers of the world unite
Brilliant. Thankyou!
……The COVID crisis has emphasised the importance of open spaces and local centres in our cities. Now that they have had to spend so much time spent in their homes, people have also recognised the importance of well-designed dwellings……. more importantly people have recognized that we need much more open space so that they are not stuck in a well designed box.