Unlocking Private Investment with Targeted Covid-19 Infrastructure Stimulus

THE COVID-19 PANDEMIC HAS BROUGHT CHALLENGES TO ALL ASPECTS OF OUR LIVES WITH GOVERNMENTS ACROSS AUSTRALIA, INDUSTRY AND THE COMMUNITY DESPERATE TO RESUSCITATE THE ECONOMY AS QUICKLY AND COST-EFFECTIVELY AS POSSIBLE ONCE THE PUBLIC HEALTH CRISIS IS UNDER CONTROL. MANY STATE AND TERRITORY GOVERNMENTS HAVE BEEN PROACTIVE IN FAST-TRACKING DEVELOPMENT APPROVALS, BUT WHAT ELSE CAN WE DO TO UNLOCK DEVELOPMENT AFTER LOCKDOWN?

Within the urban development sector, all levels of government in Australia must be commended for their strong commitment to supporting infrastructure pipelines, especially for significant transport, water and energy projects. Unfortunately, new residential development is anticipated to be particularly hard hit over the coming years due to lower net migration levels, more reluctant homebuyers and more conservative lending.

To address this anticipated downturn, a number of jurisdictions are reviewing infrastructure funding models. Current infrastructure funding systems vary significantly from state to state, though almost all require some level of monetary contribution upfront from developers and a handover of assets prior to connection. In New South Wales, the Productivity Commissioner has been tasked with undertaking a review of infrastructure contributions by the end of 2020. The review will examine whether the existing system creates the certainty and efficiency required to support development. A similar review of the Victorian contributions system was released in March 2020 by the Victorian Auditor General “Managing Development Contributions”, which found that the contributions system was too fragmented, carried an unnecessary bureaucratic burden and ultimately was not performing as intended.

Whilst a review of infrastructure funding models is encouraging, we expect any legislative and procedural changes will take time. In the interim, we see an urgent opportunity for government to combat a downturn in development by funding lead-in infrastructure now and recovering payment at a later stage in the development cycle, when there is better cashflow and more certainty.

Current funding models

We have seen many of our private urban clients struggle with progressing their developments when substantial upfront investment in precinct-wide infrastructure is required, like lead-in sewer and water, wetlands and roads. Likewise, local government authorities (LGAs) and utility providers do not always have the resources or tools to help facilitate development or fund the required infrastructure. Economic Development Queensland (EDQ) recognises that fragmented land ownership and the significant cost of trunk infrastructure means it may not be feasible for any one developer or government entity to fund the required infrastructure upfront and, in response, provides co-investment opportunities.

All jurisdictions tackle infrastructure funding differently. In Victoria, infrastructure contributions are collected through measures such as Growth Areas Infrastructure Charges, Development Contributions Plans and site-specific agreements, which can result in a patchwork of infrastructure upgrades over time. The approach in the Australian Capital Territory (ACT) is unique, as the centralised Suburban Land Agency and the leasehold land tenure system allows the funding of infrastructure and rezoning of land to occur concurrently. In New South Wales, the Housing Acceleration Fund was established to provide grants for infrastructure projects that are necessary for the delivery of new housing such as road duplications, signalised intersections and water and sewer augmentation projects.

There are a range of different infrastructure contribution models in Australia, however it is evident that an equitable, efficient and transparent method of raising funding for infrastructure is needed to support the postpandemic recovery of the urban development sector. Whilst some governments are reviewing their infrastructure funding models, we believe there is significant opportunity for governments to target spending that will have an immediate economic stimulus by unlocking private urban development.

Options for fast-tracking recovery

The post-pandemic environment may see private developers less willing to fund the lead-in infrastructure that is vital to the growth of our cities. Targeted funding for critical infrastructure such as road upgrades, trunk water and sewerage, stormwater and wetland systems is key to unlocking development opportunities, stimulating jobs, improving the affordability of housing and supporting the post-pandemic recovery of our cities.

Recently, some jurisdictions have focused on fast-tracking development approvals and rezoning applications, selecting projects based on their potential for job creation and private investment. We suggest the same thresholds could also be applied to lead-in infrastructure projects. This infrastructure spend could ultimately be reimbursed through special levies or contribution plans. A win-win for government, the economy and private development.

Sophie Olsen Jonathon Chapman Dorte Ekelund SMEC

Houses under construction. Images provided by SMEC.