A cabal of speculators that acquired swathes of land on Sydney’s lower north shore, in the anticipation of making a motza once the rezoned for high-rise development, are now sweating on State Government approval. From The Brisbane Times:
Developers who have taken a half-billion-dollar gamble on the rezoning of suburban properties on Sydney’s lower north shore face a nervous wait for the state government to come to their aid – in the face of angry and frustrated residents nearby.
Over the past seven years, developers have spent hundreds of millions acquiring about 90 suburban lots to the south of St Leonards station and the Pacific Highway, in anticipation those lots would be rezoned for a “St Leonards South” precinct backed by Lane Cove Council.
But the proposal has not been approved by the state government, which, before Christmas, requested advice about the scheme from the Independent Planning Commission.
At a public meeting attended by more than 100 people on Monday, representatives for developers who had acquired the sites expressed frustration at delays in approving the rezoning, which would lead to the construction of about 2400 apartments…
The only reason why this land will escalate in value is if the government rezones it for high-rise development. Therefore, it makes policy sense for the government (taxpayer) to capture some of the value uplift.
Dr Cameron Murray explains how this could be done in his book, Game of Mates.
Essentially, the government would capture 75% of the value gain, payable upon approval of the development application (i.e. approval is conditional upon payment).
So for example, if the property was worth, say, $3 million as a single dwelling and $15 million as a high-rise development, to get approval the developer would have to pay 0.75 x ($15m – $3m) = $9 million. The developer would still make 100% gross profit on his land purchase (i.e. $3m), but $9 million dollars that is pure windfall would now flow to the public.
The existing planning setup is clearly not working effectively, resulting in rapid land cost escalation that is ultimately borne by home buyers and the younger generation, all for the benefit of a few lucky landholders and speculators who are effectively handed monopoly-style rents courtesy of the state government.