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Item 9.2 - Attachment 1 |
Detailed Report |
Detailed Report
Background
Previous workshop on potential amendments to the City Centre LEP.
In June 2009, a workshop was held
with Councillors to discuss some of the principles and issues of height and
floor space ratio in the City Centre and the scale and quality of buildings
that will fit the role of
‘Testing’ of several sites was carried out to determine if consistency existed between the height and FSR controls in the City Centre LEP. It found that in the city centre Commercial Core zone B3, in most cases, a DCP compliant design used up the permitted floor space well before reaching the maximum height limit. Options are currently being explored to examine sustainable ways to allow greater variation to the maximum FSR and/or provide for a broader range of bonus floor space provisions for developments which provide public benefits beyond those normally provided (eg public facilities, through site pedestrian link etc). This work is being developed and will be the subject of a separate report to Council.
Notably, the ‘testing’ of the height/FSR on three sites within the B4 mixed use zone found that on two of the three sites, the height limit was exceeded prior to the maximum floor space being reached, suggesting that controls were a closer ‘match’ than the sites examined in the commercial core (B3) zone.
On 22 June 2009, Council
considered a report, which, among other matters, reviewed a request to increase
the height and floor space ratio controls for land at
Council resolved;
e) Further, that a report be
prepared highlighting the economic viability associated with any possible
increase in building density in the area bounded by the River, Park Street,
Charles Street and Harris Street and that report look to a future FSR of
between 6:1 – 8:1.
Introduction
The area bounded by
The City Centre LEP height and FSR provisions were established to achieve taller buildings in the central area of the City, with lower heights tapering towards the city edges in a ‘bell shape’ to the east and west towards parkland.
Whilst an increased FSR for the eastern precinct as identified by Council’s decision on 22 June 2009 may well be considered, Council would also need to consider what type of ‘edge’ is desired towards the parkland at Robin Thomas Reserve. Additionally significant parts of the Harris Park residential area (to the south) have a maximum height of only 4m and a transition between these areas is also an important factor for consideration. Analysis of elements such as height, overshadowing, traffic, urban design, public domain impacts and relationship to adjacent areas, are all usually assessed when considering significant increases in density. This detailed work has not been conducted and should Council determine that this be pursued, it would need to be programmed in the Land Use Team’s work schedule.
City
Centre LEP - Broad Economic Analysis
In the case of the City Centre LEP, an analysis by a specialist, on the likely effectiveness of the Plan in the market place was carried out at the plan preparation stage by the Department of Planning. The analysis found that the proposed floor space increases (from the then Parramatta REP to the now gazetted City Centre LEP) had the potential to meet the desired jobs (30,000) and residential dwelling targets (9000) for the City Centre over the next 25 years.
That analysis found that the City Centre LEP has the capacity to deliver approximately 2,900,000m2 of additional floor space within the Parramatta City Centre. Of this 1,400,000m2 is available for new residential development and 1,500,000m2 for non-residential development.
This represents an increase in the previous floor space capacity (under the SREP) of approximately 840,000m2. This is made up of 285,000m2 of residential floor space and 555,000m2 of non-residential floor space. For reference purposes, the current level of completed development within the city centre is approximately 32% of the total capacity available. The current controls, in floor space terms, are capable of delivering the target number of jobs and residential dwellings.
Economic Viability
The economic viability analysis part of this report has been developed in collaboration with Council’s Strategic Asset Management Unit
The economic viability of development is not necessarily solely related to the floor space ratio attributed to a site – factors including market conditions and broader economic forces at any particular time will have a significant impact on the economic viability of development regardless of the scale of development and the FSR permitted.
An increase in floor space ratio and/or height will typically lead to an increased potential yield on a site, however, this in turn would warrant a higher asking and sale price for the site to or by a developer. The price paid for a site is a key factor influencing the viability of its development.
For the purposes of this report, the concept of economic viability associated with an increase in floor space has been taken to mean what impacts there will be on the economic viability/ feasibility of carrying out of development if the floor space is increased in the area identified.
The process of determining the economic viability of a development is summarised as follows;
Market analysis
The market analysis involves ascertaining what the market demand level is in a local area. This will be affected by factors such as the availability of similar developments in the locality as well as availability and pressures in the wider surrounding areas. Examining existing approvals of similar developments that have not yet commenced is also part of this phase.
The market analysis also involves assessing the likely market price (i.e. overall selling prices at the time of sale). Data on comparative sales and volumes of sales are collected. It is noted that sales prices may vary over the period of time from when design starts until units are completed and actually occupied and prices may trend upwards or downwards.
Factors such as current and future interest rates, unemployment rates, any government stimulus (e.g. first home owners’ grants, major infrastructure investment) and general investor confidence all affect market prices.
Yield potential
Yield relates to how many residential units or how much commercial floor space a development may be able to contain. This is primarily dictated by planning controls (floor space ratio, height limit, setback requirements etc) but may also be influenced by certain site specific constraints (e.g. a property may be affected by an easement or an overland flow path which reduces the potential yield).
Costs associated with delivering yields
§ Acquisition costs – likely land sale price, stamp duty, legal fees.
§ Development costs, such as – survey work, design costs, architectural fees, specialist consultants (traffic, remediation, heritage etc), Council’s assessment fees, Council’s infrastructure contributions.
§ Construction costs – any remediation requirements, materials, labour, insurances, certification during construction, waste disposal, traffic management, hoarding rentals, cranes, and the like.
§ Holding costs – insurance, interest on loans, rates, site security and maintenance.
§ Sale costs – Real estate commissions, legal fees, marketing, advertising etc.
§ Contingencies – Industry accepted contingencies are usually built into this process to allow for any unforseen circumstances and the volatility of some material costs (e.g steel prices often fluctuate quite considerably).
Gross Realisation
The gross realisation is the total income generated by the development over the life of the development process. This figure is derived from the estimated sales of the development. This is used to carry out the more detailed financial feasibility analysis.
The rate of sale is an estimate of the rate at which the developer is able to settle on the individual units. If sale rates are relatively slow, say 2 per month, and a development comprised 50 residential units, it would take approximately 2 years to achieve the full realisation of the development. In circumstances such as this (slow sales) a larger development of say 100 units in the same location may actually make the development less ‘viable’ in the sense that the ongoing interest and marketing costs associated with the development may not balance in the cash flow analysis and result in an inability to meet loan commitments.
Summary
The process outlined above demonstrates the typical steps in the analysis and the matters required to be considered before arriving at a position as to whether a development is economically viable to carry out at a particular point in time. The above process is ultimately carried out in order for a developer to determine whether an asking price on a site is too high or represents a good opportunity.
Whilst the level of detail and complexity of modelling may vary, this process is followed on all development ranging from a modest sized town house development to a city centre office tower.
The height and floor space ratio applied to this area prior to the City Centre LEP was previously lower than that currently. Development has occurred under the SREP and approvals have also been issued since the gazettal of the City Centre LEP. This would indicate that development has been ‘economically viable’ under the existing as well as previous planning controls.
It is not considered that the economic viability of a development will necessarily be directly increased by increasing floor space ratio controls. A major determinant of viability is the relationship between sale price and planning controls.
Conclusion
An increase in FSR controls to a
level of 6:1 or 8:1 in the area bounded by the River,