News: Charges add 25% to Melbourne prices

Government-related charges account for a quarter of new Melbourne housing packages, an alarming study has found.

And the rising costs have already forced several developers not to proceed with residential projects, raising fears about housing availability in the future.

The Australian-first research, commissioned by the Residential Development Council of Australia (RDCA), reveals government costs are now the second largest component of the final cost for new housing buyers, even ahead of the price of land.

The study shows a huge rise in government costs during the past five years, with massive increases in state-based infrastructure charges, soaring compliance costs associated with increased government regulations such as the Building Code of Australia, and the introduction of the GST (Goods and Service Tax).

Spiralling costs

The figures are much higher than previous estimates and for the first time provide comparisons on a national scale.

In Melbourne, government-related charges on new housing rose in the past five years by almost 150% from $37,052 to $91,135.

This means for a new three-bedroom home-and-land package in Melbourne costing $366,660, more than $91,000 or 24.9% - would be government-related charges and compliance costs.

With a typical 25-year loan at an interest rate of 7.25 per cent, a new home-and-land buyer would make mortgage payments of $657 per month or over $106,000 in interest costs over the life of the loan - just to pay for the government-related cost of the purchase.

The new home unit market has not escaped the increases either, with rises in government charges and compliance costs rising 162% from $25,091 to $65,662.

For a new Melbourne home unit costing $318,960, government charges of $65,662 would account for 20.6% of the total cost.

The RDCA's warning to governments

In analysing the break-up of government costs, the RDCA claims that the Federal Government appears to be a substantial beneficiary from residential development activity, but GST revenues flow back to the states.

Local government costs are comparatively low in Perth, Adelaide and Canberra, whereas in Melbourne they account for almost 7% of total government costs for new housing.

Residential Development Council Executive Director Ross Elliott said the research exposed the myth that housing affordability had been squeezed in recent years due solely to free-market conditions such as investor demand, supply constraints and rising construction prices.

"This is clearly not the case. Government-related charges, levies, taxes and compliances have all played a crucial role in fueling the substantial increase in the new housing market," he said.

"Housing affordability is a national issue and governments that express concern should look at this research and understand how their actions are contributing to that problem."

Mr Elliott said the research also revealed that rising government costs were forcing some developers to shy away from housing projects.

"A significant concern is that developer margins are now getting squeezed to the point where developing new estates in some areas is no longer feasible," he said.

"This is contrary to the often-expressed view by governments that developers will simply keep absorbing additional costs."

The study focused on 10 major residential future growth markets across Australia, including Sydney, Newcastle and Canberra-Queanbeyan, and examined residential development costs from 20 new housing and new unit locations.

"We hope that governments and policy makers will not only look at this research but also learn from it," Mr Elliott said.

Mr Elliott said the Residential Development Council called on governments at all levels to immediately stop any further moves which will add to housing costs.

"Then, we need to agree on alternate mechanisms to funding infrastructure, we need to reform our systems of development assessment, and we need to rethink artificial constraints on land supply, which are all combining to force prices beyond the reach of a generation of Australians."

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