Stopping high-rise apartment projects, by stealth

Apartments under construction in Melbourne in 2019. Since then, Victorian government polices have hit the sector. Picture: AAP

NSW Premier Gladys Berejiklian and Victorian Premier Daniel Andrews might have very different political views but when it comes to inner city property development they have both embraced policies with similar outcomes. And Queensland Premier Annastacia Palaszczuk can’t believe her good fortune.

NSW and Victorian governments are adopting strategies that, by accident or design, are slashing the building of new high-rise apartment towers. That means that cottage developments are booming and our two biggest cites are spreading. When overseas students return to Australia there will be shortages of accommodation, particularly in Sydney, which will lead to higher prices and rents.

A jubilant Queensland is moving to take advantage of the decision-making morass in the two larger populated states. The volley of pandemic mistakes from the Victorian government means that an apartment mess is not surprising. But in NSW, Gladys Berejiklian’s adoption of similar strategies to the Victorian administration is a real surprise.

Neither government is coming out into the open and saying: “We don’t want high-rise developments and we want to slash production.”

Many people support that view. Others have the reverse view and want more high-rise towers which have caused huge developments in both cities. If governments are open then the whole situation can be debated. Instead they are both using indirect and backdoor methods that achieve the outcomes they appear to want, which then creates great confusion and uncertainty in the building industry and the community.

Meriton apartments in Sydney.

Because such policies are so unlike Berejiklian we will start with the NSW mess. Back in February, without any major industry consultation, NSW planning public servants released a 106-page document, endorsed by the planning minister Robert Stokes, which claimed to provide “a unique opportunity to positively influence new development and, in doing so, enable the design of healthy and prosperous places that support the well being of people, (the) community and country”.

What those policies actually did was to increase the cost of a $1m apartment by between $200,000 and $300,000, or 20 to 30 per cent. I set out the detail under the heading “NSW planning rules to increase cost of Sydney high rise apartments”.

Berejiklian and Stokes tried to get the changes (and the higher prices) passed quickly by demanding everyone make their comments on the public servants’ 106 page plan by April 30. My commentary plus others caused controversy so they decided to delay everything by nine months. But that caused big segments of the high-rise industry to be mothballed for a year--- probably a worse outcome than the fast-track decision making system.

Most new high-rise apartment land sales and new developments are now frozen because nobody knows what the development rules are going to be.

To make the confusion worse, parts of the apartment market have changed because the working-from-home boom means that people want larger apartments. Those with permission to build towers with small apartments would like to make the apartments larger but seeking permission is high risk because you might get ensnared by the public servants’ plan.

Accordingly, the temptation is to simply build the smaller apartments even though that’s not what modern Sydney wants. Australia’s largest apartment builder, Meriton, is still building apartments on the old planning permits, but has substantially reduced production. The local Chinese have returned to the market and prices are edging up.

Most of the surplus units have been absorbed so if and when students return in large numbers the city will not be prepared. By contrast Queensland makes it easy to develop high-rise apartments and is ready for any student return.

Meriton apartments at Southport in Queensland. Picture: Jerad Williams

What makes Sydney developers so nervous is that they fear Berejiklian will simply copy Victoria. In the southern state some years ago a public servant plan was also announced which also reduced the amount of units that can be placed on a building site and boosted the costs.

But adopting that plan would have caused controversy which the Victorian public servants and politicians did not want. Accordingly they simply mothballed plan and it continues to gather dust as the years go by.

But in practice the mothballed plan has been introduced because it is very difficult to get permission to build apartment towers with any major deviation. That “mothball” strategy is open to NSW which could delay the 106-page public servant plan indefinitely and, as Victoria found, it will be incorporated by stealth into the complex NSW approval process.

But Victoria has two additional steps. The Andrews government has introduced a series of tenancy measures which substantially increase the powers of the tenant and so make investing in rental property a far more risky proposition. There was no consultation with the Australian Landlords Association and it appears that the whole process was undertaken by agreeing to tenant demands.

And then to make sure that the high-rise development market was killed off the government has effectively smashed the so called “off-the-plan” purchases which avoid stamp duty. To gain finance a substantial quantity of apartments in a development must be pre-sold and the stamp duty concessions were a major force in attracting investors.

Now, those investors not only don’t gain stamp duty concessions but carry a much greater tenant risk.

If politicians in both Victoria and NSW do not want high-rise developments and are happy for rents to rise then in a democracy it’s important to come out and say what you want to achieve.

But when you are trying to achieve that outcome via the backdoor, the confusion created shatters confidence. Berejiklian should know better.