Item 8.8 - Attachment 1

Detailed Report

 

Attachment 1 – Detailed report

 

BACKGROUND

 

1.       On 25 February 2008 Council resolved to adopt the Parramatta City Council Section 94A Development Contributions Plan. The Plan took effect on 9 April 2008 and applied to all lands within the Parramatta local government area outside the Parramatta City Centre.

 

2.       With the exception of single dwelling houses and ancillary structures the s94A Contributions Plan applied a fixed rate percentage development contribution levy to all new development based on the estimated cost of development. The rates and thresholds applied were in accordance with Section 25K of the Environmental Planning & Assessment Regulation 2000 as follows:

 

§ 0% for development proposals with an estimated cost up to and including $100,000

§ 0.5% for development proposals with an estimated cost between $100,001 and $200,000

§ 1.0% for development proposals with an estimated cost in excess of $200,000

 

3.       With respect to single dwelling houses and ancillary structures the adopted Plan increased the relevant threshold to $300,000 (subject to indexation and is currently $331,725). The justification for this variation as outlined in the Council report of 25 February 2008 was to minimise the financial burden on “Mum and Dad” developments. 

 

4.       On 23 May 2011 Council resolved to adopt an amended contribution plan titled Parramatta City Council Section 94A Development Contributions Plan. Amendment 1 of the Plan commenced on 8 June 2011. No changes were made to the contribution thresholds as part of that amendment.

 

PROPOSED AMENDMENT TO S94A PLAN

 

5.       This report presents the outcomes of an analysis conducted into the suitability and effectiveness of the dwelling house and ancillary structures threshold. Based on the outcomes of this analysis this report seeks to amend the dwelling house and ancillary structures threshold to align to the thresholds applied to other forms of development, being:

 

§ 0% for development proposals with an estimated cost up to and including $100,000

§ 0.5% for development proposals with an estimated cost between $100,001 and $200,000

§ 1.0% for development proposals with an estimated cost in excess of $200,000

 

6.       Amending the dwelling house and ancillary structures threshold and applying the standard levies for all developments would improve the current development contributions system by making the system equitable, more streamlined and simplified.

 

ISSUES

 

Inequitable threshold

 

7.       A review of Council’s current development contributions system arrangement indicates that the dwelling house and ancillary structures threshold is inequitable. A minor difference in the estimated cost of development could result in a development proposal for a single dwelling house fall just above or just below the dwelling threshold. An estimated cost just over the threshold requires payment of a development contribution whilst an estimated cost just below the threshold would require no payment even where difference between the cost of the two dwellings is negligible (say one dollar).

 

8.       For example, a dwelling proposal with an estimated cost of $329,000 would currently not be levied at all by the S94A Plan (as it is below the current indexed threshold of $331,725). However a dwelling with a cost estimate of $332,000 would pay a 1% contribution. The proposal to remove the indexed dwelling house threshold would ensure an equitable approach to the application of S94A development contributions.

 

9.       The added complexity of the threshold being indexed each quarter (in line with movement in the consumer price index) results in difficulties determining the relevant threshold at the time the consent is being issued, as a different threshold may have applied at the time the application was lodged.

 

10.     Development contributions are used to provide for new capital infrastructure to service local communities on things such as local road and civil infrastructure upgrades, improvements to open spaces such as parks and playgrounds, improvements to libraries and community centres and the like. As these facilities are available to, and often used by the entire community, it is inequitable if only some new developments are contributing toward their cost. Any new dwelling house is likely to have an average life expectancy of 50 years or more and therefore redevelopment of the same site in the short term is unlikely. Therefore the opportunity to collect further development contributions would not be possible in the short term.

 

11.     Section 25K of the Environmental Planning and Assessment Regulation sets thresholds which allow for minor development costing less than $100,000 to be exempt from the levy, for development costing between $100,001 and $200,000 to attract a lesser levy of 0.5%, and for development costing in excess of $200,000 to attract a levy of 1%. The legislation therefore recognises that minor development of less than $100,000 should not attract a levy, but that anything greater than $100,000 should contribute towards the costs of infrastructure.

 

12.     If the single dwelling house and ancillary structure threshold was aligned to the threshold applied to other development types, then most new dwelling houses would be levied and would therefore contribute towards the provision of infrastructure in the local community.

 

Cost estimates

 

13.     The s94A development contribution levy is based upon the cost of development. Applicants are required to provide the cost information to Council at the development application lodgement stage.

 

14.     While Council staff review the cost information provided, experience indicates that in some cases applicants reduce their estimated cost of development to be less than the dwelling house threshold to ensure their application does not attract a development contribution levy.

 

15.     Council has also in some cases received Section 96 applications to modify development consents seeking that the s94A contribution be deleted with the applicant purporting that the cost of works is less than the threshold, though the estimate provided at lodgement was greater than the threshold.

 

16.     There is also an increasing trend towards having single dwelling houses approved as complying development certificates (CDC’s). CDC’s can be issued by private certifiers, avoiding the need to obtain Council approval. As Council does not play a role in the approval of CDC’s approved by private certifiers, there is greater potential for dwelling house applications to include unreliable cost estimates. These cost estimates can be lowered so as to avoid the development being levied by the S94A Plan. However, by amending the dwelling house threshold to align with thresholds for other developments would simplify the processes and reduce the opportunity for development cost estimates to be less than the applicable threshold.

 

17.     Council policy requires that a quantity surveyors report is to be submitted only with applications with an estimated cost over $750,000. As most dwellings are likely to have an estimated cost below $750,000, there is a greater flexibility for applicants to be subjective in the formulation of cost estimates. Section 25J of the Environmental Planning and Assessment Regulation 2000 outlines how to calculate the estimated cost of development; however this is somewhat ambiguous and subject to interpretation. Therefore cost estimates could be lowered so as to avoid the development contributions levy.

 

S94A DEVELOPMENT CONTRIBUTION INCOME

 

18.     Based on available data, a review has been conducted of all development consents issued by Council for dwelling developments and ancillary structures lodged since the commencement of the Section 94A Development Contributions Plan on 9 April 2008. The purpose of the review was to estimate the total development contributions required by these development consents, based on the cost of the development and the applicable S94A contribution rate.

 

19.     In the period from the commencement of the S94A plan on 9 April 2008 through to 31 May 2012, the development contributions required as part of development consents for dwellings and ancillary structures totalled approximately $1,132,800.

 

20.     If the same development approvals were issued under the scenario where the dwelling threshold was removed, a number of additional development approvals would be levied by the S94A plan. As a result, Council would likely have received an additional $579,000 over the four year period since the commencement of the Plan.

 

21.     It is noted that Complying Development Certificates (CDCs) issued by private certifiers and Council also make up a large number of approvals for dwelling houses and ancillary structures. These developments would therefore contribute a substantial amount of developer contributions if the threshold was removed.

 

COMPARISON WITH OTHER COUNCILS

 

22.     A review has been undertaken of S94A development contributions plans implemented by a selection of Sydney councils in order to gain a clearer indication of the industry standard. As a result of this review it is concluded that other councils generally apply the standard rates to development as specified under the Environmental Planning and Assessment Regulation 2000, and that special exemptions or thresholds are not made for dwelling house developments and ancillary structures.

 

23.     For example, The Hills Shire Council’s Section 94A Plan (2011) applies the standard percentage rates and thresholds for all developments, as derived from the Environmental Planning and Assessment Regulation 2000, and does not provide special thresholds for dwelling house and ancillary developments. Fairfield City Council’s S94A Plan (2011) also does not provide special thresholds for dwelling and ancillary developments.

 

24.     It is noted that a number of Councils, such as Blacktown, Holroyd, Ryde and Hornsby do not currently have a S94A Plan in force, but instead are governed by various Section 94 development contribution plans which are not levied based on the estimated cost of works.

 

NEXT STEPS

 

25.     Should Council adopt the preparation of an amended Parramatta S94A Development Contributions Plan, it will be placed on public exhibition for a period of 28 days as prescribed by the Environmental Planning and Assessment Act 1979.

 

26.     Any submission received in relation to the amendments would be reported to Council for consideration before the Plan is made.

 

27.     Should the amendment to the Plan proceed, then the change to the dwelling house and ancillary structures threshold would be applied to development consents issued following the day the amendment comes into effect and would not be retrospective.

 

CONCLUSION

 

28.     A review of Council’s current development contributions system arrangement indicates that the dwelling house and ancillary structures threshold is inequitable. A minor difference in the estimated cost of development could result in a development proposal for a single dwelling house fall just above or just below the dwelling threshold.

 

29.     There is a clear need for dwelling house developments and ancillary structures to be levied so as to contribute to the provision of infrastructure. If the dwelling house and ancillary structures threshold was aligned to the threshold applied for other development types, then most new dwelling houses would be levied and would therefore contribute towards the provision of infrastructure in the local community.