Infrastructure investment is not treated favourably from a taxation perspective – public–private partnerships are non-existent outside of Victoria, and First Home Owner Grants (FHOG) often direct growth to the urban fringe by only applying to new dwellings. For example, taxation policies which favour urban fringe expansion are diametrically opposed to restrictive land use planning settings, such as urban growth boundaries (i.e. which together increase land prices), and do not promote medium- and high-density residential development. The outcome: major property development opportunities, but significant planning and infrastructure headaches. Systemic planning chaos creates a challenging and opportunistic environment for both the household and business sectors to profit in. Land use plans are flexible and thinly based on evidence. This is well-known for generating development opportunities. The land use planning system ‘beats up’ the middle class by increasing and gold-plating property development standards, reducing land supply, and creating complex and expensive legal processes. The wealthy can look after themselves while the poor take whatever they are given.
For property developers this means that profit is more about innovation. All planning absolutes have a use-by date. As the transition from the urban fringe to the AIGE era proceeds, this will accelerate innovation potential exponentially.
Infrastructure planning has become popular to talk about in Australia, as land use planners have increasingly shifted the blame for lifestyle outcomes from the ‘plan’ to the lack of infrastructure. Federal and state governments have used infrastructure plans and agencies (such as Infrastructure Australia) to shift the focus from lack of funding to ‘shared’ responsibility. Land use planners and property developers should therefore play the infrastructure game to create value for projects and planning jurisdictions, but to date have instead seen themselves as ‘victims’ of the system.
The institutional evolution of the private property development sector has occurred continuously since the inception of the Australian Stock Exchange in 1987 and deregulation of the banking sector, which in effect provided capital for second tier developers. The first (AREIT) and second (major corporate) tiers have evolved dramatically. Over the past 30 years there have been three key evolutionary phases: corporatisation (1984–1995), fund institutionalisation (1995–2005) and funds management (2005+). The GFC accelerated the evolution of AREITs to funds management, with most of the major developers managed by a banker (e.g. Mirvac and Stockland). This created a new ‘food chain’ for the second tier to deliver de-risked, ‘bankable’ products to the first tier, as well as undertaking development in their own right.
The opportunities and challenges thrown up by the evolution of the private sector major developers have not been widely appreciated by either the second tier private sector or the entire public sector. For example, property research has indicated the value and size of land banks is reducing, while the demand for more stable revenue streams (e.g. from quality office floor space) is increasing sharply.
From a public sector planning perspective, the fast structural change has dramatically reduced demand for risky, lower yield, longer time dated assets, such as urban fringe residential, mixed use development, suburban office floor space or suburban high-rise apartments. In turn, major planning strategies to generate suburban jobs, create transit-oriented developments and increase residential densities have stalled. This is as high infrastructure/low-risk, wealthy inner city areas continue to grow, due not only to the perception of lower risk, but also because of continuing relatively high levels of infrastructure investment.
Structural change in the Australian economy post-GFC has essentially altered access to capital and funding for major projects. Iconic projects (e.g. Barangaroo at Darling Harbour) are attracting global capital at one end of the spectrum, while tenant driven retail/office/industrial projects or major pre-sales (e.g. apartments) on a smaller scale continue to be funded locally. However, middle tier, $5 million to $50 million riskier or more innovative projects struggle to attract funding, even when combining a number of private equity and mezzanine funding sources. This means that projects such as the planned ‘compact city’ and main suburban centres strategies common to all metropolitan strategies in Australia are simply not occurring because of the perceived level of financial risk.
In parallel with the post-GFC structural and financial evolution of the private sector, the public sector is confronting sharply reduced tax revenues. The federal government has reduced its major infrastructure spend, and state governments have restructured bureaucracies to reduce costs. For example, the major urban renewal agencies in Victoria, New South Wales, Western Australia and Queensland have either been abolished or restructured and reduced in size and scale, as have planning and development central bureaucracies. These factors have combined with a recognition that existing metropolitan and regional land use planning strategies have failed to deliver.
In response, almost every state and territory in Australia has reviewed legislation and regulation, restructured land use and infrastructure departments, and begun to create new plans – typically trying to better integrate land use and infrastructure planning. Thematically, there are also strong moves to deregulate land use planning and zoning mechanisms, to encourage the private sector to unlock value in high amenity/ infrastructure rich (e.g. metropolitan middle ring) areas.
The result is a paradigm shift of intergenerational significance away from planning and development focused on urban fringe expansion. The move from ‘suburbanisation’ to ‘functionalism’ heralds a change from geographic and city beautiful planning to project delivery planning (which includes some spatial and design outcomes). Functionalism focuses on access, freight, competitive (productive) economic outcomes, employment (e.g. participation), and the identification and delivery of major projects. In terms of planning and development, this redirects the focus, for example, away from project home and shopping centre construction on the urban fringe to mixed use development, urban renewal and leveraging of major infrastructure projects, such as the Gold Coast Light Rail, Melbourne’s Western Ring Road and the new Gateway Bridge in Brisbane.
The speed of the paradigm shift is being accentuated by dwelling demand for smaller, high access apartments from new, highly mobile labour forces. This is in parallel with the realisation that the world is moving from peak oil driven, urban containment policies to a cheap/surplus energy world, where automobiles will remain the dominant mode of transport for at least two generations, and more likely major road investment initiatives will still dominate the infrastructure spend into the next century.
This means that new planning strategies, new policy frameworks that generate project delivery and a new relationship between the public and private sector will emerge, and the shape of the private development sector will continue to evolve.
Over the next few months, Brian Haratsis will share excerpts from his book, Beyond the Fringe on the MacroPlan website. If you have any questions regarding the excerpts or you would like to order a copy of the book, please contact Dorothy Patrick, Executive Assistant to the Chairman on 03 9600 0500 or via email email@example.com.
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