Tied up in tape

When it comes to property development, sometimes it feels like the easy part is the bricks and mortar construction.  The hard bit is making your way through all the red tape which ties up the approvals process - even before the first foundations are laid. The thing is, dealing with the bureaucratic paper work isn’t getting easier.  It’s getting significantly harder.

When I started my business, Macroplan, 30 years ago, the planning scheme for Melbourne was 85 pages long.  Fast forward to the present, and that planning scheme is now 850 pages long.  An increase of tenfold!

And that is just the town planning scheme.  For example in 1985, there were no environmental regulations, or green tape, as it’s come to be called.  Today Environmental Protection Authority’s and the Federal EPBC Act are formidable barriers to develop.

You may wonder what some of the new red tape is about.  Well, for example, when the government mandated new liquor licensing laws in NSW establishing lock down areas after 2am, that impinged on property development and property values.  These type of regulations just weren’t in play only a couple of years ago.

What’s happened over time is we’ve had a huge proliferation of design guidelines, architectural guidelines, environmental guidelines, urban design guidelines, town planning schemes, local environmental plans and so forth.

Apart from creating more hurdles for developers to jump over, it has meant that the cost of getting projects, literally, off the ground, has increased quite dramatically.  This is because there is now a lot of risk associated with getting involved in a project.  You only need to have one box you can’t tick on a form and you are prevented from moving forward.

For example, recently in Melbourne, the Minister for Planning decided there would be new height restrictions in the CBD and new plot ratio controls.  But a developer is able to move outside these restrictions, if there is an additional public good being created and this can be demonstrated.  What this means is that there is more risk for the developer around trying trying to understand how to achieve the kinds of public good that might tick the box in their development application and maximize returns.

In recognition of all the regulations which impinge on developments, we are seeing that one year is now being allowed for a fairly standard development approval for say, a building with just six units on one site.  The costs associated with that are not just the consulting and the application fees but the holding costs for one year for a project and the substantial increase in risk.

Acknowledging the greater amount of risk in projects, developers and financiers are seeking higher levels of return on their capital.  This has affected the pricing of apartments and units in Australia, making them more expensive to purchase. This means that from an investor point of view, despite the stamp duty savings, Off the Plan apartments often underperform financially.

With the vast array of car parking requirements, building and planning regulations, and environmental regulations, many smaller projects and smaller developers have really found life very difficult, especially getting involved in anything other than very simple one and two unit type projects.

This has meant that the structure of business has changed and the costs of doing business have changed.  We have become the most expensive residential development country in the world.

And as we see more regulation continue across the board, that’s not likely to change anytime soon.

About the author: 

Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or amy.williams@macroplan.com.au.