Hate property developers? It’s high time you stopped

More Sydneysiders will be living in higher density housing than in detached dwellings by 2024.

We don’t dislike the doctors and nurses who bring us health services. Or the farmers who bring us food. I could go on with other examples – you get the picture. But it seems that almost everyone dislikes the developers who bring us new housing. Why is this?

Surely, we need someone to deliver housing. It doesn’t just magically appear on its own. In some cases, it may be because people don’t like what developers are building. Some people don’t like home building on the city fringe and the disappearance of farmland. Others might not like infill development and greater density – they may not like change in their neighbourhoods and prefer the status quo.

Ironically, many of the buildings that we now see as having heritage value were originally built by “developers”. Some people might prefer that most new homes be built for social and community housing, rather than being almost entirely for the private market, as it is currently.

Others may be concerned about the shoddy construction practices revealed in some high-profile recent cases – although the solution here is surely better regulation rather than less home building. And more recently, some anti-developer sentiment may be because some people don’t like population growth and immigration.

I think the dominant reason why many people seem to dislike developers has to do with the whole process around home building in our major cities, and the incentives that our current system has created. So, when discussion turns to developers, it is often about “greedy” developers.

We have created a messed-up system for delivering new housing, and we are getting exactly the sort of behaviour that should be expected from such a system. We have a shortage of housing in our major cities, with strong demand for additional housing, especially for well-located medium-density housing – the “missing middle”, which I take as including apartment blocks up to about six storeys.

But many Sydney councils don’t pre-emptively zone significant amounts of land with sufficient scope for additional housing, whether for the private market or social housing. Local Environment Plans (or LEPs) often allow only for very limited amounts of new housing. And even on sites where some development is notionally allowed, development controls may allow for only a modest increase in density, so that development of new housing is not economically feasible.

So building additional housing frequently requires applying for land to be rezoned or for relaxation of development controls such as maximum permitted building heights or floor area ratios. By passing LEPs with so little scope for additional housing, councils and the residents they represent are indicating a preference – either explicit or implicit – that if development is going to occur, it will be done on a negotiated, contested and/or forced basis rather than via a more open process.

Seeking a rezoning is typically a protracted and expensive process for an uncertain outcome. The process typically starts with local government, then goes to a local or regional planning panel, and may then involve administrative or judicial review. A rezoning application requires a long list of reports from consultants specialising in urban design, landscape design, transport and traffic, wind assessment, acoustic assessment, arboricultural impact, biodiversity, heritage, visual impact, services infrastructure, ecological sustainability and no doubt many others.

When faced with the need to seek rezoning, and all the costs involved, it is hardly surprising that developers then push hard for as big a development as they can get, with the relaxation of as many development controls as possible.

Of course, the more generous the rezoning that can be achieved, the greater the value uplift on the land, which the developer has most likely secured by an option to purchase. The system that has emerged is therefore one where the main skill required by people who initiate the development process is not their excellence in design and in managing trades and suppliers, but rather their ability to navigate and influence the planning process.

Home building becomes disproportionately about playing the zoning and planning game. Indeed, the developer who secures a rezoning will frequently on-sell to another developer who then applies for the development approval and manages the actual construction process.

What might a better system – one that would facilitate the construction of more missing-middle housing, whether it be private-market or social and community housing – look like?

Most importantly, a better system would have more land already zoned to allow provision of additional housing, with development controls that make the provision of housing (possibly with affordable housing requirements) feasible without the need for further negotiation to have them eased. Under such a system, developers would not need to push for rezonings, and if they did, councils and planning panels would be more justified in pushing back.

The current proposals from the NSW government would be a significant step in the right direction. For example, land that is currently zoned for R3 or medium-density use and within 800 metres of train stations or commercial centres would become subject to “non-refusal standards” that are intended to permit three-to-six storey apartment buildings and would override any existing development controls on that land.

There would also be non-refusal standards that would permit the construction of townhouses and terrace houses within 800 metres of E1 local centres; currently these are prohibited on R2 or low-density residential land. And ideally, there would be clearer upfront rules regarding how the windfall gains from up-zoning will be shared. One obvious possibility would be a “betterment tax” as exists in the ACT, where 75 per cent of rezoning value uplifts accrue to the public purse and 25 per cent accrue to the landholder.

We don’t currently have this in NSW, and it may never prove to be politically feasible. For the foreseeable future, we will likely need to rely on the imperfect value-capture tools that exist. To be clear, rezoning with only limited value capture that results in additional housing will still be better than no rezoning and no additional housing at all.

And, in the meantime, we shouldn’t all instinctively try to blame developers for everything that’s wrong with building homes in our cities. We should instead blame the planning system and policies that we’ve developed and imposed, and which consistently produces these outcomes. At the same time, let’s think about how much larger our housing shortfall might have been if all would-be developers had meekly accepted the existing restrictive planning controls and we had seen less home-building over the past couple of decades. Development is a necessary form of trouble, let’s work to get it right.

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