Housing developers say they can’t afford to build in TOD precincts

Developers claim the Minns government’s plan to fix the state’s housing crisis is set to fail, with new analysis revealing the construction industry would lose money on the projects.

Developers claim the Minns government’ plan to fix the state’s housing crisis with a Parisian-style medium-density housing blitz is set to fail, with new analysis revealing the construction industry would haemorrhage cash to get projects over the line.

Blown-out construction costs, sky-high land prices, lengthy approval processes, the complexity of compliance, and increasing council levies are contributing to what developers are calling a “perfect storm”, with leaders in the industry telling The Sunday Telegraph they can’t afford to build homes under the NSW government’s landmark housing plan.

The transport-oriented development (TOD) scheme launched by the Minns government amended planning controls, allowing the construction of low- to mid-rise developments within 400m of 37 train or metro stations across Sydney.

However industry leaders claim that as a result of these precincts, earmarked to deliver more than 170,000 new dwellings, homeowners are now banding together to drive up the price of land, while developers struggle to amalgamate plots.

The move comes as Master Builders Australia estimated construction costs over the past five years increased by 40 per cent, while build times blew out by over 40 per cent.

Mark Harb, a developer and Director of Pillar Projects, says if his company was to build a medium-density residential development in the heart of the Homebush TOD, he would make a $6 million loss.

The project could turn a 2000sqm plot of land and residential buildings into a six-storey apartment complex delivering 40 to 50 units to the area, but Mr Harb said it was not worth his time, if there was no profit to be made.

Pillar Projects developer Mark Harb. Picture: Thomas Lisson

According to the Strathfield-based developer, the costs of purchasing the land and building the housing would be more than $50m, but he’d only get $44m back from the sale.

He claimed it was just one of many sites throughout rezoned areas of Sydney which were not currently feasible for projects to go ahead.

“I think the right intentions are there, but there needs to be some thought on how projects are actually going to be delivered,” Mr Harb said.

“We’re getting roadblocks at so many different stages… I don’t see how the government is going to achieve these housing targets.”

Land values across the state of NSW last year surged to almost $3 trillion, driven by an insatiable demand for land across Greater Sydney.

It’s a trend that owner of Manticore projects Peter Yannopoulos says is pushing developers to hold their developments instead of selling.

“Right now we’re building higher end townhouses in Berry, if I add land costs and construction costs I’m probably looking at spending $800k on average for each one, I’ll be lucky if my resale is $850k (for each one)” he said.

“If you are buying right now and you factor in optimistic building costs, I’d say you’re still building to hold… which defeats the purpose of rezoning if you’re looking for more housing stock to hit the market.”

NSW Housing Minister Paul Scully defended the TOD program, claiming there were 60 projects currently in the planning pipeline to deliver more than 6500 homes.

However, he admitted “the construction sector is facing challenging conditions — interest rates remain high, construction costs remain high, and availability of skilled labour is low”.

Opposition Housing Spokesman Scott Farlow slammed the government, telling The Sunday Telegraph Chris Minns “has made it even more expensive to build. This sort of approach of mass rezoning across areas raises the price of land in those areas which adds to the costs builders are paying”.

“The record has shown pretty much to date that nobody has actually used the TOD provisions to get density built in these areas.”

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Originally published as Housing developers say they can’t afford to build in TOD precincts