Illawarra new home buyers paying more fees, taxes than Sydney

A new report prepared by global property services company Savills on behalf of the Property Council finds that government taxes and charges make up 40 per cent of greenfield development costs in the Illawarra and Shoalhaven.

This is much higher than the burden on infill development in eastern Sydney, where taxes and fees make up only 11.3 per cent of development costs.

In May, the state government set new housing targets for the Illawarra-Shoalhaven, which will require an additional 6890 dwellings to be built in the next five years, on top of the homes already in the pipeline.

The property industry has warned that current market settings make it difficult to increase the number of homes being built, with many projects not feasible due to high costs.

On new, greenfield developments in Wollongong, developers must pay a $16,000 fee per house to Sydney Water which covers the cost of connecting new houses to the water network. Developers must also pay $80,000 per dwelling to Wollongong City Council to cover the cost of council-provided services, including new roads.

The NSW government also levies the Housing and Productivity Contribution of $8000 per house to contribute towards state-government services. This fee is discounted until July 2025, when the full contribution must be paid.

Planning Minister Paul Scully said the money went towards essential enabling infrastructure.

"Enabling infrastructure is necessary for housing as communities want houses that are connected by roads, have a local school kids can attend, a toilet that flushes and lights that turn on," he said.

"If we don't have the enabling infrastructure and a means to pay for it we cannot approve development applications or if we do we repeat the approach of the previous government, we end up with communities that are in a constant battle with governments for the sorts of things like parks, schools and services that are needed to build better communities."

The accumulation of these fees and charges increasingly meant projects in the Illawarra didn't stack up, Property Council NSW executive director Katie Stevenson said.

"Prospective homebuyers in the Illawarra will be dismayed to learn that the 40 cents worth of government taxes in every dollar of development costs means many developers just can't make the numbers work and the homes won't get built," she said.

The report modelled what impact removing these fees and charges would have on new developments in the Illawarra and found that if the current discounts were maintained, projects would be feasible.

If all discounts were removed by 2026, as they are scheduled to, new greenfield developments could not proceed.

Savills national director property consultancy Stephanie Ballango said a historic lack of action was being felt just as governments hoped to increase the supply of new homes.

"The housing crisis has compounded over many years and successive governments. We now have a collective responsibility to pull all available levers so that current and future generations of young people and families can afford to rent or buy a home."

The challenge was greater for new apartment buildings in existing urban areas of the Illawarra. Governments would need to not only suspende the housing and productivity contribution, as well as the Sydney Water charges and speed up assessment time frames to less than nine months for an 80 unit apartment block to get the go ahead.

Jennifer Macquarie, director of the Fountaindale Group which has delivered projects in the Illawarra and Shoalhaven, said all players needed to act to bring the cost of delivering new homes down, and speeding up approval timeframes would have a measurable impact.

"There's a lot of industry participants who feel that the DA processing times are taking years and they could be compressed."

Ms Macquarie said if councils were not able to speed up the process, the state government could step in.

"It may be that councils don't have the internal resources to do what they need to do and in that case it's the state government coming in to support them and give them more funding for staff."

Mr Scully said the government was pursuing a range of reforms to speed up the supply of housing.

"Our broader planning reforms have been progressive and extensive -we're making more types of housing permissible; we're supporting first home buyers through additional stamp duty relief; we're investing in workforce training in planning and construction; and in the last budget reserved almost $1billion to deliver infrastructure to support housing supply," he said.

"After a decade of disconnect between housing and infrastructure under the previous government, we're now playing an expensive game of infrastructure catch-up."

If government fees and charges do not rise as forecast, the report forecasts an additional 22,00 homes could be built in the Illawarra-Shoalhaven by 2029.

"The cost of inaction is stark - suspending taxes and charges and compressing approval timeframes could enable the delivery of up to 209,000 new homes over the next five years - that's 100,000 more homes delivered than if no action is taken," Ms Stevenson said.

The Property Council called for the NSW government to use next week's budget to reduce the fees and charges levied on housing developments.