The link between infrastructure charges and housing affordability in Australia: where is the empirical evidence?

Abstract

Developer paid charges or contributions are a commonly used infrastructure funding mechanism for local governments. However, developers claim that these costs are merely passed on to home buyers, with adverse effects to housing affordability. Despite a plethora of government reports and industry advocacy, there remains no empirical evidence in Australia to confirm or quantify this passing on effect to home buyers and hence no data for which governments to base policy decision upon. This paper examines the question of who really pays for urban infrastructure and the impact of infrastructure charges on housing affordability. It presents the findings of a number of international empirical studies that provide evidence that infrastructure charges do increase house prices. Based on international findings, and in the absence of any Australian research, then these findings suggest that if the international findings are transferrable, then there is empirical evidence to support the proposition that developer paid infrastructure charges are a significant contributor to increasing house prices.

Keywords:

• infrastructure charges
• developer contributions
• impact fees
• housing affordability

Acknowledgements

The authors would like to thank the two blind reviewers for their generous and knowledgeable feedback that greatly enhanced these works.

Notes

1. See Chapter 6 of Productivity Commission report (2011) for an overview of each State and Territory's legislative provisions.

2. It is acknowledged that in different jurisdictions these charges may pay for different services/amenities. It is outside the scope of this paper to articulate these. Within Australia, refer to Productivity Commission report (2011) for an overview of each State and Territory's legislative provisions. For the USA, refer to Mullen (2012).

3. The Global Financial Crisis and residential market crash in the USA halted further research into this effect. No subsequent studies have been identified in the literature.

4. Been (2005) provides a detailed critique of earlier models.

5. For a greenfield development, the $28,000 charge is applicable regardless of the number of bedrooms.

6. Based on $45,000 fully amortising loan for a term of 30 years, at 9.61% interest which is the 30 year average variable interest rate (Reserve Bank of Australia 2013).