The Canberra property industry is calling on the ACT Government to delay introducing a 300 per cent increase to lease variation charges (LVCs) on July 1 amid concerns it will reduce development in the Inner North and Inner South and make housing less affordable.
The recent 2017-18 ACT Budget announced an increase in LVCs required to enable unit titling on certain residential leases from $7,500 to $30,000 per dwelling – or four times the amount.
In effect, this means that a small developer building six townhouses in a rezoned area of the Inner North would pay $180,000 in LVCs on top of normal costs and this could make the whole project uneconomic – spelling an end to these developments.
In turn, this would reduce the range of housing options available and could increase the number of developers competing for greenfield sites – potentially driving up prices.
ACT Executive Director of The Property Council of Australia, Adina Cirson, has called on the ACT Government to put the LVC increases on hold to enable constructive debate about the changes and find out their likely impact.
“We would urge the Government to hold off commencement of it so we can look at the impact across the city particularly in urban infill sites where we need renewal,” Ms Cirson said.
Developments won’t be ‘bankable’
Managing Director of Vantage Strata, Chris Miller, said that ultimately developers are required to have a bankable development and there is a threshold below which it can’t be funded.
He said the sort of scenario where neighbours in an older residential area like Ainslie or O’Connor might get together to sell their properties to be redeveloped as six townhouses would probably no longer be viable because of the increased LVC.
“It won’t be bankable unless the sellers of those homes are prepared to take a hit on the sale price or there are extra costs for the purchasers. The more likely outcome is that those developments won’t be funded,” Mr Miller said.
“There’s very little to spur on activity in older areas like the Inner North and Inner South where you have smaller, boutique developments.
“It creates a vacuum for a certain type of stock. It ultimately will impact on the range of property options available in the market.”
Mr Miller said that this is also detrimental to housing affordability.
“It also creates a vacuum of developer land and makes them have to compete with others for greenfield sites that have already reached the apex of their value,” he said.
Impact on affordable housing
Peter Blackshaw Manuka Director, Andrew Chamberlain, said that developers do their numbers very carefully and that when there is an additional cost it can stifle the development.
“It will affect the developers because there will be fewer opportunities for development that are economic,” Mr Chamberlain said.
“Come the 1st of July, unless there is a movement in the prices many of those opportunities will no longer be viable.
“Whilst in essence the tax is levied on the developer, in reality it is the homeowner who will be out of pocket – by hundreds of thousands of dollars in some cases.”
Mr Chamberlain said that every house in a redevelopment zone has a specific point of value as a going concern.
“Under the changes that value might drop down and its highest use is its standard residential value,” he said.
“The other consideration is that it’s counter to efforts to produce affordable housing.”
Mr Chamberlain said that usually there is a limit on the number of square metres that can be built on a site and the developer can then choose to build a smaller number of more expensive properties or a larger number of cheaper properties.
Given the $30,000 LVC is per dwelling, it then makes better economic sense for “these projects to default to bigger townhouses”, he said.
Selling the family home
A property industry source also told The RiotACT that the 300 per cent increase in LVC would have an impact on home owners looking to sell the family home to escape redevelopment in their area but wishing to make enough money to buy in another part of the locality.
“As an example, if a resident owner in Dickson chooses to sell their home, let’s assume at $750,000 with development potential for six units, the LVC payable today is $45,000, which is five per cent of the value of that home,” the source said.
“However on the 1st July this year, the LVC will increase to $180,000, or close to 25 per cent of the value of a typical $750,000 house in Dickson.”
The property industry source said that the extra funds need to come from somewhere, and the only place they can come from is the value of the site, which in turn “takes a nosedive”.
Increased housing costs
ACT Opposition Leader and Shadow Treasurer, Alistair Coe, said that the LVC changes will increase the cost of housing in Canberra.
“For a Government that claims to want more density and redevelopment, the lease variation charge is a major impediment to this,” Mr Coe said.
“The lease variation charge, like other construction costs and taxes, will get passed on to home buyers and renters and drive up the cost of housing.”
Community benefit
The 2017-18 ACT Budget Papers state that the change to the LVC to a flat fee of $30,000 per dwelling has occurred because: “The Government is maintaining the progressivity of the Territory’s revenue base and ensuring that the community shares in the benefits of decisions around zoning and development.”
According to a spokesperson for the ACT Chief Minister: “LVC is a measure that ensures that the broader community gets a benefit from a variation of a lease where a developer receives a substantial windfall”.
What do you think about the 300 per cent increase in LVCs? Are the property industry’s concerns justified or are the increases fair? Do you think there should have been more consultation about the changes and their effect?
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