Why the HAPCS?
The Minns Labor Government of New South Wales is taking what it believes to be decisive action to address the challenges posed by the State’s fast-growing population. With some changes already in place since its taking of Office, the Government has introduced the Housing and Productivity Contribution Scheme (HAPCS) in attempt to meet the housing needs of the growing population and promote economic activity. This new legislation, passed by the NSW Parliament on 28 June 2023 and formally assented on 13 July 2023, aims to:
- facilitate the provision of regional infrastructure;
- generate an estimated $700 million annually for regional infrastructure development; and
- address the expected shortfall of 130,000+ dwellings required to accommodate the projected NSW population growth over the next five years.
What is the HAPCS?
The HAPCS is designed to promote housing and economic activity by imposing a contribution on property developers to fund regional infrastructure. The Scheme’s critical mechanism empowers the Minister for Planning and Public Spaces, Paul Scully, to issue orders requiring a contribution under the HAPCS towards the provision of regional infrastructure. These orders will specify the development to which they apply, how the contribution is determined and other important matters.
Contributions collected, except for those related to strategic biodiversity, will be accounted for in the “Housing and Productivity Contribution Fund”. These funds will be utilised for regional infrastructure identified in strategic plans or State infrastructure strategies. Strategic biodiversity contributions will be directed to the “Strategic Biodiversity Fund,” which shall separately support measures to conserve or enhance the natural environment.
The contribution rates, which will be indexed quarterly using the ABS PPI index, are set to begin as follows:
- Greater Sydney Region: $12,000 per dwelling or lot for detached and semi-detached houses and townhouses, and $10,000 for other residential dwellings or lots.
- Illawarra, Central Coast and Lower Hunter Regions: $8,000 per dwelling or lot for detached and semi-detached houses and townhouses, and $6,000 for other residential dwellings or lots.
- Industrial Development: $15 per square meter of new gross floor area.
- Commercial Development: $30 per square meter of new gross floor area.
- Retail Development: $30 per square meter of new gross floor area.
These rates will be phased in from 1 October 2023 at a 50 percent discount, reducing to a 25 percent discount in July 2024 and eventually becoming a full contribution from July 2025 onwards. It is important to note that HPCS payments are additional to the separate contributions developers already provide to Councils for local infrastructure.
However, developers may find flexibility in excluding HAPCS, wholly or partially, under a planning agreement with the approval of the Minister or a designated development corporation. This an opportunity yet to be explored.
The HAPCS introduces a new and potentially more targeted approach to collecting and utilising State-level infrastructure contributions, building upon the familiar SIC system.
Whilst on its face the introduction of the HAPCS marks a significant step in addressing the housing needs of NSW’s fast-growing population, by investing an estimated $700 million annually into regional infrastructure development, and potentially presenting opportunities for property developers to participate in transformative projects and contribute to the State’s overall growth, this will come at a cost at a time where insolvency is rife in the industry.
The reality is that the contributions will in most instances be passed on to the end purchaser, whether by increasing dwelling/apartment sale prices, industrial or commercial lot sale prices or rents where commercial, industrial and retail areas are leased. So the question asked is, “does this new scheme designed and legislated to motivate housing, inadvertently preclude those required to be housed from entering the market?” Only time will tell.
Overall, the success of the scheme will largely depend on how it aligns with other planning and housing policies, including at the federal level, to ensure a smooth increase in housing supply and delivery and how further incentives can be passed onto developers to mitigate this upfront expenditure and make projects feasible, especially in the current economic climate.
We will work with you through this new environment and navigate the best and most cost-efficient course of action.
Vincent Young will keep you informed.
If you would like to discuss this article with us further, do not hesitate to contact Thomas Zilm, Partner, or Mike Ellis, Partner, on (02) 9261 5900.