The significance of financial barriers caused by holding costs in greenfield residential development

Abstract

Developer infrastructure contributions are regularly cited as the most significant contributor of planning or development costs. However, other non-financial barriers are also emerging as significant impactors. This includes inconsistent planning requirements, development assessment procedures, and conflicts between developers and local councils. Such findings have underpinned a diverse range of planning reforms currently underway in various regions throughout Australia, many of which are specifically designed to target these “non-financial” barriers. Examples include systematic enhancements intended to provide greater standardisation, and reduced administrative requirements, system complexity and timeliness. However, aside from the advent of new infrastructure charging regimes that address cost barriers, it is apparent that these reforms actually address another invasive impact relating to holding costs - rather than the infrastructure charging regime itself. It is indisputable that developer infrastructure costs strongly impact housing costs and therefore affordability: and, compared to holding costs, they are much more visible and easily quantified. In contrast, holding costs may seem less tangible as they typically stem from issues revolving around uncertainty, timeliness and inconsistency. Nonetheless, it can be established that they represent a potentially formidable financial barrier. In determining the impact of holding costs, this paper presents a number of operating scenarios and in the process identifies the financial benefits arising from planning reform and intervention. Whilst in many cases it may be true that development contributions expended towards infrastructure represent the largest planning related cost, their existence also impacts part of the holding cost equation which together with its other elements may be demonstrated to rival apparently more pervasive, obvious costs involved in property development.