Better value from greenfield urban infrastructure in Victoria

SGS Economics & Planning Pty Ltd (SGS) research shows that current arrangements for approving new housing projects in Melbourne’s outer suburbs are wasting the available funds for infrastructure in these areas. This means that households moving into these areas must wait longer than necessary for many services including schools and adequate arterial roads.

SGS estimates that State Government outlays about $50,000 for every new home in Melbourne’s greenfield growth areas to supply arterial roads, schools, public transport, health care facilities and other regional level infrastructure, as well as part funding of local facilities like sport and recreation centres.

At $50,000 per dwelling over a thirty-year period, State Governments can expect to invest $11 billion in present value terms [1] to set up this infrastructure for the growth areas.

SGS further estimates that, for their part, the Councils in the growth areas will deliver local infrastructure programs at the rate of around $38,000 per home, amounting to a present value investment of $8 billion over 30 years.

Fragmented patterns of land release mean that best value is not being generated from the multi-billion dollar investment which State Governments and Councils are making in infrastructure to serve growth areas.

Allowing development to occur simultaneously across several fronts means that the triggers for delivery of roads, schools and other facilities are being tripped in multiple locations at once. As a result, available capital funds for infrastructure must be spread thinly, and new communities must wait longer than necessary for adequate services and facilities.

The SGS research says that the Victorian State Government and growth area Councils could save upwards of $300 million in present value terms by implementing better growth management mechanisms in these areas.

These improved mechanisms should avoid ‘rationing’ land release as this could put upward pressure on land costs. Rather, SGS recommends that a preferred sequence of land release should be established for each growth corridor so that education, road, public transport and other agencies can plan their investments in the most efficient way. Developers would be free to propose out of sequence projects, but they would be required to compensate the infrastructure agencies for any extra cost that this might cause.

According to SGS, this approach would transfer the risks of fragmented development to the parties who are best placed to manage them, namely, the private proponents of new housing on the fringe.

Read the full occasional paper Better value from greenfield urban infrastructure in Victoria.

Read the media release.

[1] Using a real discount rate of 4%