7 May 2010

Change of Use Charges - what it's about

| johnboy
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The Property Council’s sock puppets (otherwise known as the Canberra Liberals) have been wailing and gnashing their teeth about “Change of Use” and the calamity this represents to decent society.

So it’s worth taking a look at the discussion paper that lead us to the changes.

It explains the situation like this:

The Change of Use Charge (CUC) system operating in the Australian Capital Territory (ACT) is intended to return a significant proportion of any ‘windfall gains’ from a lease variation back to the community – consistent with the leasehold system in operation in the ACT, whilst supporting property development activity. However, the CUC system whichhas evolved over many years appears to have deviated from this straightforward intention.

So the changes take us back to where the system was meant to be. They won’t stop development, they will take a slice out of real estate speculation.

If not for the money it will raise services would have to be cut or charges raised elsewhere.

Surely this is a “Good Thing”tm

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Catherine Carter talks far more sense than most politicians or journalists here in the ACT.

You will know when change-of-lease charges are too low – it will be when rents drop to levels which cause development to drop off. And that isn’t happening.

In the meantime, anything that adds costs to developers is just adding to the cost of renting and owning property in the ACT, which is already ridiculously over-priced.
The government would do us all a favour if it stopped selling tiny postage-stamp sized bits of dusty flat sheep paddock in Gungahlin for $300,000 a pop. They’re barely worth $30,000. Ridiculous.

Of course the ACT Government might have to cut back on some of its swollen workforce of 22,000 largely useless public servants if it did anything concrete about the inflated over-pricing of ACT land…

Change of Use charges, previously betterment, is a legitimate form of revenue for the ACT Govt. The debates in the assembly attest to the lobbying power of developers. My big concern is the valuation of land by companies like Colliers in relation to changing concessional leases to residential. The value of land used for a club must be a lot less than if used for a block of flats. Most concessional leases pay 10 cents a year rates! I think the ACT Govt has missed out on revenue from land deals like the Hungarian Club site in Narrabundah and other sites because of the land valuation. CUC charge was on less than a sixth of its real value. A golf course in Narrabundah must have less land value than if it is used for blocks of flats. More transparency is needed otherwise the smell of shonky land deals linger.

The ACTPLA review of concessional leases achieved nothing!

“If this is too high to make a development profitable, the developer simply won’t proceed with the development.”

Crap. The developer will just add these costs to the sale price….

Pluheeze, it is only fair that if you are permitted to gain financially from changing how a block of land is used then you neeed to pay an appropriate fee/tax/charge/levy. And $1000 for a dual occupancy is not enough!

amarooresident34:06 pm 07 May 10

Sock puppets. The image of Zed and Brendan with Catherine Carter’s hand up their arse amuses and disturbs me in equal measure.

Bad thing.

For those who aren’t aware, the change of use charge relates to the clause in the crown lease (yes, the conditions between the ‘owner’ of the property and the ACT Government) that specifies what the land can be ‘used’ for. A change of use might, for example, change the ‘use’ clause from ‘single residential dwelling’ to ‘no more than 8 residential dwellings’ or something similar.

There are also zonings in the ACT, so the ‘use’ does not relate specifically to the zoning. In this regard the change of use is not equivalent to a change in zoning, as a change in use would still need to comply with the zoning requirements (eg RZ1, RZ2, etc).

The current system invoves having a certified valuer work out the value of the land with the current ‘use’, then the value of the land if the ‘use’ was changed, and the change of use charge is 50% of the difference. The reason for this is that if the ACT Government agrees to change the ‘use’ of the land, then it is increasing in value. If the value increases, then the ACT Government should receive the consideration (money) for the increase in value, not grant it to developers for free (so that the benevolent ACT Government can use that money for the benefit of us citizens). The reason that the ACT Government only takes 50% at the moment is to ensure that developers actually do develop the site. If the developers had to pay the full increase, they would be less likely to develop the site, and the ACT Government wants (or needs) more development to fuel the housing shortage.

As an example the current system might charge a developer $25,000.00 as change of use for a 30 unit developement in Turner. With the new system that charge would be around $1.2 million (figures here are estimates only). If this is too high to make a development profitable, the developer simply won’t proceed with the development. This is the last thing the ACT needs, less development, less dwellings in an already undersupplied climate.

I agree, the current system is probably not charging developers enough, but the new system will charge such a high amount that it is likely to halt development (or stifle it considerably) which is the last thing we need in ACT at the moment.

One final point. If one developer decides not to proceed with a, say, 50 unit developemnt because the change of use charge would make it not profitable, then the ACT Government will miss out on the stamp duty that buyers would have paid when buying those 50 units. At an average sale price of an inner city unit at around $500,000.00, thats $1,025,000.00 the ACT Government misses out on in stamp duty. That’s for one development, think how much money the ACT Government will miss out on if a number of developers decide not to undertake a development…

The cat did it2:42 pm 07 May 10

sock puppets!! Nice one. Zed, Brendan and the gang’s future appearances on TV will occasion even more mirth and hilarity than usual in the cat household.

I agree with Deadly regarding the Henry review and abolishing transaction charges like stamp duty, but levying a tax on one-off events like change-of-use is not in the same category. Where there is going to be a windfall gain through a government decision the owner is getting something at public expense- a legal right to use the land in a more profitable way than they could before. It is only reasonable that they should pay the public a consideration for this right. If a developer buys land that is already zoned for the more profitable use, the value of the consideration is already included in the price of the land.

Far better that money arising from a change-of-use goes transparently to the public coffers than going in brown paper bags from the developer to the party in government.

You’re dead right, JB, this is a good thing. (I find myself agreeing with you a lot in this current incarnation on RA – you’re not mellowing are you, old boy?)

A good use of the Change of Use Charge would be if the Brumbies are successful in annexing a sports ground for their own private use, or if the Federal Golf Club are able to hive off land provided to them for sporting purposes to build apartments for massive profit.

Then the real value of these changes can be returned to the taxpayer.

Gungahlin Al12:26 pm 07 May 10

Of course the PCA are bleating, same as the mining companies are crying foul, after being found out for a mistake that left them raking it in.

A material change of use is the equivalent of a rezoning elsewhere, something that has always vexed local councils who are unable to control the windfall profit that falls to the developer.

For instance, Winnell bought a big heap of land zoned for rural, and if he manages to convince the NSW Government to allow the rezoning to residential, he will pocket truckloads.

In ACT the change of use currently applying is the same everywhere, whether you are ‘upgrading’ land in Charnwood or in Yarralumla. I believe the changes are about making that more proportional. As JB said: a Good Thing.

And perhaps the upshot will be a higher likelihood of investment in areas outside the golden circle?

>sock puppets LOL

DeadlySchnauzer10:23 am 07 May 10

I think what they meant to say was: “The Change of Use Charge system is a TAX that we use to grab MONEY from people to give to the government who will MAYBE use it on community projects. We want to increase the TAX so we can get more MONEY”.

I am all for taxes, but these kind of one off charges are well known as an economically inefficient way to collect revenue (ie also see stamp duty). What they should have done was just increase the amount of land tax payable for land that has been rezoned. And while they are at it, abolish stamp duty and replace it with a yearly land tax. See the Henry review for details.

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