Housing and productivity contributions – what does this mean for development in NSW?

The key implications of the new regime 8 min read

The details of the long-awaited reform to the state infrastructure contributions regime have been released. The new broad-based housing and productivity contribution (HPC) regime marks a significant shift in how state infrastructure will be funded.

In this Insight, we consider the key implications and impacts.

Key takeaways

• Reform of infrastructure contributions has been in the works since the NSW Productivity Commission undertook its review in 2020. Among the recommendations accepted by the NSW Government was a broad-based regional contributions framework for Greater Sydney and neighbouring regions to fund state infrastructure and replace the state infrastructure contributions (SIC) regime.
• The NSW Government has released details of the broad-based HPC to replace the current SIC regime, by introducing a broader levy across residential, retail, commercial and industrial development in the Greater Sydney, Illawarra-Shoalhaven, Lower Hunter and Central Coast regions.
• The HPC will apply from 1 October 2023, except in relation to land within the Western Sydney Growth Areas and Western Sydney Aerotropolis SIC areas (to transition to the HPC regime by 2026).
• New residential, commercial and industrial developments will be required to pay a HPC prior to the issue of a subdivision certificate or construction certificate, in addition to local infrastructure contributions. Certain sites will also attract a strategic biodiversity component (SBC) and a transport project component (TPC) to be paid on top of the base component of the HPC.
• Voluntary planning agreements (VPAs) and works-in-kind (WIK) agreements will continue to play an important role in providing alternative means for proponents to discharge their liability to contribute towards state infrastructure.
• The detail of the HPC regime is set out in the draft Environmental Planning and Assessment (Housing and Productivity Contribution) Order 2023.

What does the HPC apply to?

The HPC will apply to development applications and complying development certificate (CDC) applications made on, or after 1 October 2023. The obligation to pay a HPC will be imposed as a condition of development consent or condition of a CDC, if the development is within the mapped regions of Greater Sydney, Illawarra-Shoalhaven, Lower Hunter or Central Coast, and is classed as:

• residential development - limited to a residential subdivision or strata subdivision, build-to-rent housing, seniors housing comprised of independent living units, or a manufactured home estate;
• commercial development - amusement centres, animal boarding or training establishments, centre-based child care facilities, co-living housing, commercial premises (being business premises, office premises and/or retail premises), entertainment facilities, function centres, highway service centres, marinas, medical centres, registered clubs, restricted premises, service stations, sex services premises, tourist and visitor accommodation, other than bed and breakfast accommodation and farm stay accommodation, veterinary hospitals or wholesale supplies; or
• industrial development - an industrial training facility, industry (being general industry, heavy industry or light industry), storage premises, or a warehouse or distribution centre.

Exemptions

Certain development will be exempt from the HPC regime. This includes replacement residential dwellings (knock down rebuilds) and refurbishments of existing commercial or industrial developments that do not increase gross floor area. The following types of development are also exempt from the HPC regime:

• public housing provided by or on behalf of the Land and Housing Corporation, or Aboriginal Housing Office;
• affordable housing provided by or on behalf of a social housing provider, or required by conditions of development consent to be managed by a registered community housing provider;
• dwellings required to be dedicated free of cost for the purpose of affordable housing under s 7.32 of the Environmental Planning and Assessment Act 1979;
• supportive accommodation as defined by s34 of State Environmental Planning Policy (Housing) 2021;
• specialist disability accommodation as defined by the Commonwealth National Disability Insurance Scheme (Specialist Disability Accommodation) Rules 2020;
• boarding houses;
• group homes;
• seniors residential care facilities and hostels under the Housing SEPP; and
• development in the Port Botany, Port Kembla and Port of Newcastle lease areas.

How will it work?

Under the current SIC regime, developments for certain purposes within a SIC area are approved subject to a condition of development consent requiring a SIC to be paid prior to the issue of a construction certificate. The requirement to pay a HPC will operate in much the same way, except for residential subdivision and residential strata subdivision (for which the HPC must be paid prior to the issue of the first subdivision certificate) and manufactured homes (for which the HPC must be paid prior to the installation of the first manufactured home if no construction certificate is required).

The HPC (including the SBC and TPC if applicable) will be in addition to any local contributions payable under s7.11 and 7.12 contributions plans.

The HPC will not apply to existing development consents, nor to DAs lodged but not yet determined before 1 October 2023. Proponents should be aware that if they lodge separate DAs for the construction of a building, followed by residential subdivision or strata subdivision, the subdivision DA will apparently be caught by the HPC regime if lodged after 1 October 2023.

Sites within the Western Sydney Growth Areas SIC area or the Western Sydney Aerotropolis SIC area will continue to attract SIC instead of HPC, until those areas transition to the HPC regime in 2026.

Implications for VPAs and WIK agreements

Existing VPAs and WIK agreements under the SIC regime will continue to have effect. This is important given the number of developers which have generated excess contribution credits under VPAs and WIK agreements with the Minister for Planning and Public Spaces. VPAs executed before the HPC is introduced will continue to operate, and if those VPAs exclude the application of a SIC to the development, then the HPC will also be excluded.

Beyond 1 October 2024, VPAs and WIK agreements will continue to play a central role in allowing proponents to discharge their liability to pay a HPC, by recognising the value of WIK, dedication of land and other material public benefits as an offset against the funding otherwise required for State infrastructure. The Department of Planning and Environment is preparing a decision-making framework for WIK agreements associated with the HPC, to be implemented by 2024.

What will it cost?

The HPC will be calculated according to the rates below for each development type, depending on the region, and adjusted at the time of payment in accordance with the Producer Price Index (Road and Bridge Construction NSW). Adjustments apply to the calculation of an HPC for sites that straddle more than one region. If paid within the first 21 months of the HPC regime before 30 June 2025, discounts apply.

Additional components

The SBC applies to land that has been biodiversity certified under the Biodiversity Conservation Act 2016 (BC Act). While initially limited to land within the Cumberland Plain Conservation Plan certified land (excluding land within the Western Sydney Aerotropolis SIC), the possibility remains open that the application of the SBC will expand over time to include other biodiversity certified areas. At present there are a total of 16 biodiversity certified areas and sites under the BC Act and its predecessor the Threatened Species Conservation Act 1995.

The rates for the Greater Sydney Cumberland Plain Conservation Plan SBC are:

Transport project component

The Pyrmont Peninsula SIC declaration was made on 11 July 2022 to support funding of the Pyrmont Metro Station. This will be transitioned into the HPC as the first TPC. This is largely an administrative shift.

The TPC applies to land near significant transport infrastructure investment that increases development potential. While initially limited to land within the Pyrmont Peninsula, the possibility remains open that the application of the TPC will expand to other transport corridor areas in future.

Please contact a member of our team if you'd like more information about the HPC and how it might apply to your development.