As part of our 4-part series examining the pressures affecting housing delivery in NSW, this 3rd piece looks at how escalating contributions, servicing costs and feasibility pressures are reshaping development outcomes.
Authored by Adrian Miller, Associate Director at AT&L
Planning Approval Does Not Equal Deliverability
Across NSW, the conversation around housing supply often focuses on rezoning and planning approvals.
But planning approval alone does not deliver housing.
Commercial feasibility does.
Projects only proceed when developers and landowners can confidently model:
- Total development costs
- Infrastructure obligations
- Delivery timing
- Funding risk
- End market value
Increasingly, that certainty is becoming harder to achieve.
The cumulative weight of developer contributions, servicing charges and delayed delivery is placing significant pressure on project feasibility across both greenfield and infill locations.
Why Certainty Matters
Development decisions are often made years before construction begins.
In many cases, acquisition and rezoning decisions rely on assumptions around future contribution settings, servicing costs and infrastructure obligations.
When these settings remain uncertain or continue evolving throughout the planning process, feasibility becomes speculative rather than bankable.
The commercial equation is straightforward:
No certainty.
No feasibility.
No investment.
No development.
No housing delivery.
Even relatively modest increases in statutory charges can materially alter project viability.
The Escalation of Contribution Frameworks
Over time, infrastructure funding responsibility has increasingly shifted toward development.
One major turning point was the uncapping of council contribution plans across Sydney.
This allowed Section 7.11 contribution rates to increase significantly across several LGAs.
While intended to strengthen infrastructure funding capacity, the practical effect was a substantial transfer of infrastructure costs onto new development.
Importantly, these additional costs were often introduced without corresponding increases in permissible density or yield.
Successive reforms have attempted to improve the system.
However, rather than simplifying infrastructure funding, multiple overlapping contribution layers have emerged.
Projects are now frequently exposed to:
- Housing and Productivity Contributions
- Biodiversity charges
- Council Section 7.11 contributions
- Water, sewer and stormwater DSP charges
- Voluntary Planning Agreement obligations
In aggregate, contribution burdens can now exceed $100,000 per undeveloped residential lot before construction, financing and acquisition costs are even considered.
These costs do not disappear.
They ultimately flow through to:
- Higher sale prices
- Increased rents
- Reduced affordability
- Smaller dwellings
Projects initially planned around higher density assumptions have been scaled back or delayed because supporting infrastructure cannot accommodate projected growth. The result is a growing disconnect between planning ambition and infrastructure reality.
The Viability Compression Problem
Contribution escalation becomes even more problematic when combined with restrictive planning controls.
In many transport-oriented development precincts, contribution costs have increased while:
- Building heights remain constrained
- Floor space ratios remain limited
- Yield assumptions remain conservative
This creates a direct feasibility problem.
Fixed infrastructure costs cannot be spread across sufficient density.
As a result:
- Projects are redesigned downward
- Housing output reduces
- Feasibility margins compress
- Strategic growth objectives weaken
Land may appear suitable for housing delivery on paper while remaining commercially unviable in practice.
The Market Has Not Fully Adjusted
One positive shift is that many contribution frameworks are now more transparent than in previous years.
Developers can increasingly quantify infrastructure obligations earlier in the process.
However, land pricing expectations have not fully reset.
Many vendors continue pricing land based on historical contribution settings rather than current delivery costs.
This creates ongoing market friction.
Developers cannot justify acquisition prices that no longer reflect feasible delivery outcomes.
The result is:
- Fewer transactions
- Delayed projects
- Reduced land turnover
- Slower housing delivery
Until contribution costs are properly capitalised into land values, supply pipelines will remain constrained.
Works-In-Kind Agreements Could Be Part of the Solution
Works-In-Kind agreements allow developers to directly deliver infrastructure in exchange for contribution offsets.
When structured effectively, they can:
- Accelerate servicing delivery
- Reduce pressure on government capital programs
- Unlock precincts faster
- Improve coordination between development and infrastructure sequencing
However, in practice, Works-In-Kind arrangements often become highly complex.
Negotiations around:
- Scope
- Valuation
- Delivery standards
- Cost apportionment
- Offset mechanisms
Can take months or even years.
Developers also face uncertainty around:
- Credit recovery
- Refund mechanisms
- Transferability of excess infrastructure contributions
This weakens the commercial incentive to deliver enabling infrastructure early.
In some cases, developers risk effectively paying twice for the same infrastructure.
Without clear reimbursement and offset frameworks, Works-In-Kind arrangements can become another source of uncertainty rather than a delivery solution.
Delay Compounds Financial Pressure
The financial impact of rezoning delays rarely stems from one issue alone.
It is the cumulative interaction between:
- Delayed approvals
- Infrastructure uncertainty
- Escalating contributions
- Funding risk
- Construction escalation
That progressively erodes feasibility.
Every additional year introduces:
- Higher holding costs
- Greater financing exposure
- Increased risk pricing
- Reduced development margin
Projects that were commercially viable at rezoning commencement can become unworkable by approval stage.
Developers are then forced to:
- Reduce project ambition
- Lower yields
- Delay delivery
- Redesign outcomes
- Exit projects entirely
The consequence is reduced housing supply.
Infrastructure is no longer a secondary consideration. It is now the primary gatekeeper of development delivery.
When Viability Fails, Strategy Fails
Across NSW, there is increasing tension between planning ambition and commercial reality.
Housing targets may continue increasing.
But unless projects remain financially deliverable:
- Housing will not be built
- Employment land will not activate
- Strategic growth objectives will stall
Commercial feasibility is not separate from housing delivery.
It is the mechanism that enables it.
Planning systems that ignore viability pressures ultimately fail to convert strategic intent into real-world outcomes.
Our View on the Path Forward
From our perspective, future housing delivery frameworks need to place greater emphasis on feasibility earlier in the planning process.
Contribution systems and infrastructure obligations need to become:
- More predictable
- More transparent
- Better aligned with achievable density
- Simpler to administer
There is also significant opportunity to better leverage private infrastructure delivery and Works-In-Kind agreements where offset and reimbursement mechanisms are clear.
Ultimately, rezonings only translate into housing supply when projects remain commercially viable to deliver.
In the final article of the series, we will explore what a more functional rezoning and infrastructure system could look like.
And the reforms needed to move from planning aspiration toward delivery certainty.
Relevant References
- https://www.planningportal.nsw.gov.au/local-infrastructure-contributions/ipart-review-section-7-11
- https://glnplanning.com.au/wp-content/uploads/2024/03/GLN-Draft-Practice-Note-Submission-2024.pdf?
https://www.infrastructure.nsw.gov.au/media/oznlnai5/insw-state-of-infrastructure-report-2022-23.pdf
