Developer Levies drive up land prices


10 November 2011

MELBOURNE:- The Growth Corridor Plan announced by the Baillieu Government presents Melbourne with big challenges. How to pay for the massive infrastructure needed is front and centre – and unmentioned in the Plan.

“Demand for new and better transport links around developments and the extra traffic burden they bring onto the existing urban network will force heavy infrastructure spending by government for decades,” Prosper Australia Campaign Manager David Collyer said today.

“The Victorian government has created Developer Levies to fund the facilities new developments need. Sadly, this is a third-rate idea. It pays only for the works solely attributable to the development. New arterial roads, train stations, libraries, sewerage treatment plants and the like remain the sole responsibility of government – that is, taxpayers – despite the fact they absolutely and unquestionably raise the value of land and its price.

Developer Levies were created as a substitute for Land Value Tax (LVT) on residential property. Instead of a fair, equitable and timely means of funding infrastructure spending and community facilities, the costs are:

• capitalized up-front,
• contain a developer profit margin for having to pay them and
• are subject to developer ‘gaming’ in the setting of the charges.

According to Dr Gavin Putland of the Land Values Research Group, “The benefit of infrastructure appears as an uplift in land values in locations serviced by the infrastructure. But there is no automatic proportionality between the cost and the benefit.”

Where government recovers costs from developers, there will be cases where the uplift in land values exceeds the developer’s cost, allowing the developer to pocket the difference, and other cases where the uplift is less than the developer’s cost, suppressing development and worsening the scarcity of developed land.

“The net result is that developer levies make land less affordable,” Dr Putland said.

Developers define their obligations in the narrowest terms possible. They argue their position from all points of the compass – after all, there is a dollar to be made or saved here. They are driven by their desire to extract as much profit as possible from a transaction – the micro view. They shift costs to government wherever and whenever they can.

“Once, homebuyers could find affordable land on the outskirts of the city by the ‘drive till you qualify’ principle. Developer Levies make all land zoned residential less affordable. LVT provides a far better funding base that uses a market mechanism (price) to determine the value of government–provided facilities. Where government expenditure is misspent, it won’t lift land values and won’t be taxable,” Collyer said.

“I can think of no better way to make government accountable for the major decisions it makes on our behalf.

The Growth Corridor Plan report says:

“A ready supply of accessible, affordable and well serviced land in each of Melbourne’s growth corridors forms a significant part of Melbourne’s overall competitive strength as a place to live and work and is critical to Melbourne’s broader Metropolitan Planning Strategy.”

“Quite. LVT keeps land affordable, can fund all the infrastructure we desire and would make Melbourne a magnet for jobs and enterprise by freeing the Victorian government to lower other taxes, most of which stifle economic activity and diminish the lives of citizens.

The Henry Review recommends removing 125 local, state and federal taxes while introducing only two: a Lands Value Tax and a Mining Tax (plus a few other tax adjustments).

“LVT is the perfect instrument to meet the funding needs of a fast-growing city. Prosper will be making this case as forcefully as it can in its public submission to the Growth Areas Authority.” ENDS

Media Contact: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

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