Developer costs are adding up to $85,000 to new house prices

author-avatar By on August 31, 2021
Developer costs are adding up to $85,000 to new house prices

Local infrastructure spending by developers is adding tens of thousands of dollars to the cost of newly built homes, according to a new report.

Developer contributions are used to fund local amenities, like schools and hospitals, usually State Government funded, and water and drainage for housing. 

A report from the National Housing Finance and Investment Corporation (NHFIC), found "developer contributions for local infrastructure are inconsistent, lack transparency and have broadened in scope, adding more to the cost of new homes and potentially impeding new housing supply". 

Case studies sourced by the NHFIC found developer contributions can add $25,000 to $85,000 to a new home in New South Wales. 

They added $37,000 to $77,000 per dwelling in Victoria, and $29,000 to $42,000 per dwelling in Queensland. 

The report noted developer contributions can typically amount to around 8-11% of total construction costs. 

Of the Sydney Councils analysed by NHFIC, two-thirds and up to 88% of all funds raised by developer contributions between 2017 and 2020 were earmarked for social infrastructure, on average. 

Around a third were earmarked for essential infrastructure, on average, typically leaning towards new housing developments. 

NHFIC Chief Executive Nathan Dal Bon said the burden of funding local infrastructure had shifted from state governments and local council to new home buyers, potentially affecting housing supply. 

"The expanding scope of developer contributions increasingly act like a tax on new housing, which can impede new housing supply and reduce housing affordability for buyers and renters," Mr Dal Bon said. 

Contributions "act like a tax on new housing"

The report found "increasing expectations of good quality local amenity, rapid population growth and funding constraints such as municipal rate caps and an aversion to borrowing have left local governments struggling to keep up with the demand for public infrastructure and services". 

Currently, there is no publicly available data on developer contributions, which the report said made it difficult to judge how they differ nationwide, impeding evaluation. 

The Housing Industry of Australia (HIA) chief executive of industry policy, Kristin Brookfield, agreed contributions lacked transparency and were inconsistent. 

"In almost all instances the development contribution models are complex to calculate and to administer. They introduce an element of uncertainty into the development process," Ms Brookfield said.

"The consequence being protracted decision making leading to unnecessary holding costs for landowners and residential developers.

"Ultimately these costs must be passed onto the home buyer and end up being carried through for the life of the mortgage." 

Ms Brookfield said a conscious decision was made by the New South Wales Government to shift the majority of upfront costs onto new housing developments almost two decades ago. 

"While Sydney is the most expensive, other states have taken the same approach and we are starting to see costs increase in most other states," she said.

"It’s also a concern that state governments are now using this mechanism to add costs to new housing for infrastructure that clearly serves more people than just new home buyers each year."


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

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The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
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Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

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*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.


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