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Gold Coast City Council
Brief 7: Optimal application of
subsidies to the land development
sector
Brief 7
Optimal
application of
subsidies to the
land development
sector
April 2011
What would
you like to grow?
Contents
Disclaimer
2
Executive Summary
3
Task 1 – Options for relief
6
Task 2 – Short list criteria
10
Task 3 – Short-listed propositions
13
Appendix A
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Responses to JIG comments on draft report
© 2010 PricewaterhouseCoopers. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers, which is a member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a separate legal entity
Disclaimer
This Report has been prepared by PricewaterhouseCoopers Australia (PwC) at the
request of the Gold Coast City Council in our capacity as advisors in accordance with
the Terms of Reference and the Terms and Conditions contained in the contract
between Gold Coast City Council and PwC.
This document is not intended to be utilised or relied upon by any persons other than
the Gold Coast City Council, nor to be used for any purpose other than that
articulated in the Terms of Reference. Accordingly, PwC accept no responsibility in
any way whatsoever for the use of this report by any other persons or for any other
purpose.
The information, statements, statistics and commentary (together the “Information”)
contained in this report have been prepared by PwC from publicly available material
and from material provided by the Gold Coast City Council. PwC have not sought any
independent confirmation of the reliability, accuracy or completeness of this
information. It should not be construed that PwC has carried out any form of audit of
the information which has been relied upon.
Accordingly, whilst the statements made in this report are given in good faith, PwC
accept no responsibility for any errors in the information provided by the Gold Coast
City Council or other parties nor the effect of any such errors on our analysis,
suggestions or report.
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What would you like to grow?
Responses to JIG comments on draft report
Executive Summary
This report has been prepared as part of an overall engagement with Gold Coast City
Council (Council) comprising of eight individual briefs. These briefs are:

Balance between user pays and community pays

Balance between recurrent and up-front user charges

Calculation of infrastructure charges

Administration of infrastructure charges

Economic impacts of infrastructure charges subsidies

Comparative impact of subsidising the land development sector

Optimal application of subsidies

Audit of project feasibilities
The objective of this brief is to identify strategies by which Council might offer shortterm infrastructure charge relief to the development sector with long-term benefits for
the competitiveness of the Gold Coast economy.
Council has outlined the following tasks as providing the framework for defining the
objectives of this brief:
Task 1 – Undertake consultations with selected developers and stakeholder
representatives to canvass alternative models by which infrastructure charge
relief might be delivered during cyclical downswings. Through these
discussions, identify options whereby this relief might provide a legacy of
improved competitiveness in terms of settlement patterns, sustainable
development, affordable housing and improved labour market conditions.
Task 2 – Develop a set of criteria by which these ideas might be narrowed to a short
list of practical propositions for implementation in the Gold Coast in the short
term.
Task 3 – In consultation with relevant Council officials, develop the short-listed ideas
into implementable propositions for consideration by Council.
In developing this report, it is assumed the reader is familiar with the reports on the
other Briefs that have been completed for Council.
Task findings
Task 1 – Undertake consultations with selected developers and stakeholder
representatives to canvass alternative models by which infrastructure charge
relief might be delivered during cyclical downswings. Through these
discussions, identify options whereby this relief might provide a legacy of
improved competitiveness in terms of settlement patterns, sustainable
development, affordable housing and improved labour market conditions.
We undertook a workshop with Council staff and industry representatives to identify
alternative options for infrastructure charges relief. This workshop identified the
following options for relief:
Gold Coast City Council
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
Subsidy of infrastructure charges

Criteria-based subsidy of infrastructure charges
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Responses to JIG comments on draft report

Deferral of infrastructure charges

Deferral with criteria

Wealth funds

Demand initiatives
Following the establishment of the alternative options for relief, definitions for the
impact areas were established to provide a reference point for the assessment of the
different options.
Each of the alternative options for relief were subsequently assessed against these
defined impact areas. During the workshop, it was agreed by the participants that the
sustainable development aspect of the assessment is unlikely to be impacted through
short-term relief options such as those considered. Therefore an assessment against
each of the alternative options could not be undertaken for this impact area.
For the most part, we concluded that the alternative options for relief that were
considered were unlikely to have a material impact on settlement patterns or
affordable housing. In addition to this, we concluded that the subsidy, wealth fund and
demand initiative options would have some impact on the labour market operations,
either through retainment of labour or the smoothing of the labour effects through
development cycles.
Within this analysis, there was an implicit assumption that the costs associated with
infrastructure charges are efficient and cost appropriate. We acknowledge that this is
a concern for industry and consider that any reduction in the cost of assets (provided
that it didn’t impact on the services provided) would lead to a reduction in
infrastructure charges. However this is outside of scope for this review.
Task 2 – Develop a set of criteria by which these ideas might be narrowed to a short
list of practical propositions for implementation in the Gold Coast in the short
term.
In discussions with Council, three criteria were established to narrow the short list of
alternative options for infrastructure charges relief. These criteria were:

Risk

Equity

Simplicity
The first criterion is to consider the risk that the alternative options for relief pose to
both the developers and Council. This risk is in relation to either financial or
management risk.
The second criterion relates to the equity of the alternative options for relief. The
consideration of equity for the alternative options relates to the fairness of the
approach across the sectors of the development industry – ie that all market
participants are treated the same. This criterion is highly subjective and does not
have a clear approach to assess against.
Finally, the administrative simplicity of the alternative options is to be considered. The
base case for the assessment of this criterion is the current level of administrative
simplicity.
In assessing each of these options against the criteria, it was found that each option
had differing degrees of risk to Council and developers, while some, such as a
straight subsidy and deferral, had more equitable qualities than others.
The only relief option that did not add administrative complexity to the infrastructure
charge process is the straight subsidy option.
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Responses to JIG comments on draft report
Task 3 – In consultation with relevant Council officials, develop the short-listed ideas
into implementable propositions for consideration by Council.
Based on the analysis from Task 1 and 2, short-term and long-term propositions were
developed for Council’s consideration.
It was considered that in the short term, a straight subsidy of infrastructure charges
would provide the greatest impact. A criteria-based subsidy approach would add
complexity to the approach which would not necessarily provide a corresponding
material impact on infrastructure charge relief. Under a long-term approach, Council
should consider implementing either a wealth fund or demand initiative approach to
infrastructure charges relief.
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Responses to JIG comments on draft report
Task 1 – Options for relief
Undertake consultations with selected developers and stakeholder
representatives to canvass alternative models by which infrastructure
charge relief might be delivered during cyclical downswings. Through
these discussions, identify options whereby this relief might provide a
legacy of improved competitiveness in terms of settlement patterns,
sustainable development, affordable housing and improved labour market
conditions.
At the end of 2010, a workshop was held with Council staff and industry
representatives to identify alternative options for infrastructure charge relief and the
impact that these options may have on the different factors outlined in the task. This
section outlines the alternative options that we analysed, definitions of the required
assessment factors for this task and an assessment of the options against these
factors.
Identification of options for relief
A number of alternative options for infrastructure charge relief were identified through
the workshop with Council staff and industry representatives. In identifying alternative
options for relief, it is important to remember that while there are a significant number
of variations of relief available to Council, for the most part these options are
effectively the same. Therefore the options for relief are at a higher level, rather than
detailed options for infrastructure charge relief. The workshop identified the following
options for relief:

Subsidy of infrastructure charges – this option reduces the required
amount payable by developers, Council revenues would generally need to
be supplemented through general rates or other grants.

Criteria-based subsidy of infrastructure charges – this option uses
different criteria, such as type, location etc to determine the availability of the
subsidy to applicants.

Deferral of infrastructure charges – this option allows the developer to
pay the infrastructure charge at a later date, such as at the time of sale.

Deferral with criteria – this option uses different criteria, such as type,
location etc to determine the availability of the deferral to applicants.

Wealth funds – this option for Council would involve having higher
infrastructure charges during boom development cycles and subsequently
lower infrastructure charges during slowdown cycles of the development
sector. This would then average out over time through the changes in the
cycles. This is similar to a sovereign wealth fund where government-owned
investment funds are created through excess liquidity (usually generated
through resources).

Demand initiatives – this option relates to initiatives that can be provided
by Council to increase demand within the region (such as up-front financing
provided by Council, or other incentives for people/businesses to locate to
the Gold Coast). While this option was discussed during the workshop, it
was not fully defined. Fundamentally it is similar to the subsidy option,
however other benefit arrangements are provided by Council rather than
monetary arrangements.
Within this analysis, there was an implicit assumption that the costs associated with
infrastructure charges are efficient and cost appropriate. We acknowledge that this is
a concern for industry and consider that any reduction in the cost of assets (provided
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Responses to JIG comments on draft report
that it didn’t impact on the services provided) would lead to a reduction in
infrastructure charges. However this is outside of scope for this review.
Definition of impact areas
Within the workshop, each of the impact areas were defined in order to provide
guidance to the analysis of the different options for relief. By defining these impact
areas it provides the analysis with a clear understanding of successful outcomes for
the options for relief. The workshop agreed on the following definitions:
Settlement patterns – the impact on settlement patterns within the Gold Coast
region.
Sustainable development – is based on broader Council policy and a Triple Bottom
Line approach.
Affordable housing – the impact on housing affordability in comparison to other
councils and major cities.
Improved labour market conditions – strengthening or maintaining existing plan to
diversify labour market. Also possibly creating a self-contained region whereby
people who work in the Gold Coast, live in the Gold Coast.
The workshop then used these definitions to assess the outcome from each of the
different options identified earlier.
Assessment of options
Once the workshop had identified alternative options for relief and defined the impact
areas, the workshop focussed on assessing the alternative options for relief against
these impact areas. The following table provides the outcomes of the discussions
within the workshop; the table does not represent our opinion of the different options.
In determining the impact that each option had on sustainable development within the
region, it was acknowledged within the workshop that the alternative options identified
would not necessarily have an influence on sustainable development. It was
determined that the sustainable development factor would primarily be influenced
through Council policy decisions.
Table 1: Assessment of alternative options
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Options
Settlement
patterns
Subsidy of
infrastructure
charges
Affordable
housing
Labour
market
operations
There is a
potential to
skew
development
to lower cost
areas through
developers
trying to
minimise
costs.
Affordability
will be
dependent on
the market
dynamics at
the time, and
the propensity
of the relief
being passed
on.
It is possible
that
development
will be
brought
Any policy
would have to
consider the
impact of the
subsidy on
It is likely to
increase the
containment
of ‘blue collar’
workers
within the
Gold Coast
region. To an
extent, this
effect might
extend to
‘white collar’
workers.
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Sustainable
development*
Responses to JIG comments on draft report
Options
Settlement
patterns
Affordable
housing
Labour
market
operations
forward
through the
application of
a subsidy.
general rates
as well as the
disposable
income of
households.
Criteria-based
subsidy of
Infrastructure
Charges
Criteria can
be used to
target and
incentivise
certain
settlement
patterns.
As with a
straight
subsidy, this
will depend on
the market
dynamics and
whether the
relief is being
passed on. In
addition to
this, different
criteria will
have different
impacts.
The outcome
for this option
would be
dependent on
the criteria
that are
applied to the
subsidy
program.
Deferral
without
criteria
No expected
impact on
settlement
patterns.
No real
impact by
itself, but will
have a
stronger effect
in conjunction
with other
initiatives
No real
impact by
itself, but will
have a
stronger
affect in
conjunction
with other
initiatives
Deferral with
criteria
No expected
impact on
settlement
patterns.
No real
impact by
itself, but will
have a
stronger affect
in conjunction
with other
initiatives –
depending on
the criteria
No real
impact by
itself, but will
have a
stronger
affect in
conjunction
with other
initiatives –
depending on
the criteria
Wealth funds
There is a
potential to
skew
development
to lower cost
areas through
developers
trying to
minimise
costs.
The impact
will be
dependent on
the cycle in
which the
fund is
operating.
There is likely
to be a
smoothing
effect on the
labour market
in the
development
industry
through the
smoothing of
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Sustainable
development*
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Responses to JIG comments on draft report
Options
Settlement
patterns
Sustainable
development*
Affordable
housing
Labour
market
operations
cycles
through the
fund.
Demand
initiatives
(Such as upfront financing
provided by
Council)
Can have an
impact,
however it
would depend
on the
applicable
package
Some impact,
but this will
depend on the
initiatives that
are
implemented.
This can have
an impact if a
package is
created to
generate jobs
within certain
industries,
such as the
health
industry.
* - short-term initiatives are unlikely to have any impact on sustainable development.
Other Council policies are more effective in managing sustainable development
rather than infrastructure charges relief options.
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Responses to JIG comments on draft report
Task 2 – Short list criteria
Develop a set of criteria by which these ideas might be narrowed to a
short list of practical propositions for implementation in the Gold Coast in
the short term.
During the workshop with Council staff and industry representatives, a set of criteria
were established to determine a short list of the practical alternative options for
infrastructure charge relief identified in Task 1. The workshop identified the following
criteria as being the most relevant for this task:

Risk

Equity

Simplicity
The first criterion is to consider the risk that the alternative options for relief pose to
both the developers and Council. Any alternative option that is put forward by Council
should not impose any unnecessary or unhealthy levels of risk to either Council, or
the developers applying for development applications. This risk is in relation to either
financial or management risk.
The second criterion relates to the equity of the alternative options for relief. The
consideration of equity for the alternative options relates to the fairness of the
approach across the sectors of the development industry – ie that all market
participants are treated the same. The less differentiation there is in the treatment of
the participants, the more equity there is for the relief option. This criterion is highly
subjective and does not have a clear approach to assess against.
Finally, the administrative simplicity of the alternative options is to be considered. If
an option provides a reasonable outcome but places excessive administrative
complexity on the process of determining infrastructure charges it would be
detrimental to the outcomes that Council is trying to achieve. The base case for the
assessment of this criterion is the current level of administrative simplicity.
Application of criteria
Approaches
Subsidy of
infrastructure
charges
Risk
Equity
By subsidising
infrastructure charges,
Council is assuming a
greater financial risk
for the provision of the
infrastructure. Council
must be able to fund
the amount of the
subsidy that is
provided.
By applying a straight
subsidy to
infrastructure charges,
the program would not
discriminate between
types of projects
within the region.
One of the risks of this
approach to Council is
that developments
may go ahead that are
not efficient, or would
not be commercially
feasible otherwise.
Furthermore, by
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Simplicity
This relief option
would be neutral for
this criterion. In
comparison to the
current processes,
there would be no
additional
administrative
complexity due to a
subsidy program.
Responses to JIG comments on draft report
Approaches
Risk
Equity
Simplicity
The use of criteria can
target the subsidy to
specific classes or
types of projects.
The number and focus
of criteria can
increase the
administrative
complexity for this
option. It would be
expected to be more
complex than a
straight subsidy.
removing the cost of
infrastructure from the
development, users
will not understand the
full cost of the
development.
Criteria-based
subsidy of
Infrastructure
Charges
As with the straight
subsidy approach,
Council has the
financial risk by
requiring higher
borrowings and
potentially greater
stress on Council’s
financial resources.
The criterion aims to
filter categories of
development that, in
the absence of the
subsidy, would be
inefficient to occur.
This aims to lower the
risk of inefficient
development.
Deferral without
criteria
The appropriateness
of this approach would
depend on Council’s
overall objectives for
development within
the region – this would
also need to inform
the criteria that would
be used.
The deferral does not
remove the cost from
the decision-making
process (unlike
subsidies).
A straight deferral
approach would not
discriminate between
development
applications.
The deferral of
infrastructure charges
(ie until the sale of the
development), could
reduce the risk to
developers compared
to the current charging
approach.
It would be expected
that the approach
could be implemented
in a reasonably quick
fashion.
A deferral of
infrastructure charges
would likely create a
considerable increase
in administrative
complexity. This is
because additional
processes would be
needed to monitor the
collections of the
infrastructure charges
based on the deferral.
There is also a timing
risk to Council in
relation to cash flows.
There is a risk to
Council that the
collection of deferred
charges may be more
difficult than collecting
for charges on a more
up-front basis.
Deferral with criteria
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This approach exhibits
similar risks to the
straight deferral
approach, however by
placing criteria on the
deferral, this may
allow Council to focus
the deferral on certain
types of projects that
11
As in the criteria
based subsidy
approach, the criteria
that are used can
influence the equity
elements of the
approach.
The speed of the
The number and focus
of criteria can
increase the
administrative
complexity for this
option. It would be
expected to be more
complex than a
Responses to JIG comments on draft report
Approaches
Risk
Simplicity
would limit the risk of
non-collection. This
could involve staged
deferral, or a cap on
the deferral limits.
implementation of the
program would be
limited by the criteria
used in the program.
straight deferral.
Wealth funds
The primary risk for
the wealth funds is
that it requires
predictions of when
the good and bad
cycles for
development within
the region occur.
The primary equity
concern for this option
is that it relies on
participants to stay in
the market over a long
period of time. In
order to provide an
equitable position, it
assumes that
participants, both
developers and
customers, operate
within the market over
multiple cycles in
order to see the high
and low infrastructure
charges.
It would be expected
that this approach
would add more
administrative
complexity than that
under the current
approach.
Demand initiatives
The primary risk to
Council of this
approach is if the
demand initiative is
not targeted correctly.
This would result in an
inefficient approach
and could lead to
inefficient
developments.
The benefits of this
approach are most
likely to rest with nonresidential
developments.
This approach could
increase the
administrative
complexity on the
current charging
approach. Depending
on the initiative, it
could incorporate
multiple divisions of
Council to operate
effectively.
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Equity
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Responses to JIG comments on draft report
Task 3 – Short-listed propositions
In consultation with relevant Council officials, develop the short-listed
ideas into implementable propositions for consideration by Council.
As a result of the assessment from Task 2, we have developed short-term and longterm propositions for Council’s consideration.
The most effective option for short-term relief is the straight subsidy option. A straight
subsidy is preferred to the criteria based subsidy as the additional complexity of the
criteria-based approach would not provide a material increase in the benefit of the
alternative approach. A deferral approach would not provide much relief.
The level of this subsidy would depend on Council’s financial position. Council would
need to be comfortable that the level of overall subsidies provided to development
applications could be accounted for through other revenue streams.
Council has previously applied a program that subsidised infrastructure charges for a
period of time, therefore Council should have the internal capabilities and resources
to implement such a relief program.
In the long term Council should investigate the practicalities of a wealth fund or
further designs of alternative demand initiatives. The benefits from both of these
options are more long term in nature.
A wealth fund approach would provide difficulties for Council in determining the
development sector cycles and where on the cycle they are at the time of
implementation and predicting when the cycle has changed. In addition to this, it
would need to be a program that is put in place for an extended period of time to
ensure that multiple cycles are covered. This means that Council would see the
benefits from smoothing out the impacts of the different cycles.
A demand initiative approach that would encourage developments that increase
employment within the region is also a viable proposition for Council over the long
term. By encouraging developments to provide employment for the region, Council
would provide itself with the ability to enhance employment prospects for other
industries within the region and thereby potentially improve this ratio.
The selection of these propositions is based on the assessment of the alternative
options identified in Tasks 1 and 2. We identified these propositions as being the
most likely of the alternative options to provide Council with the most positive
outcome in reference to the elements outlined in Task 1 and the criteria in Task 2.
It should be acknowledged that any subsidy initiative, whatever it is, will only work if it
returns development to a point where it is economically viable. If the chosen subsidy
option does not achieve economic viability, then it will not succeed as projects will not
commence and infrastructure charges will not be paid to Council.
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Responses to JIG comments on draft report
Appendices
Appendix A
Responses to JIG comments on draft report
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Task 3 – Short-listed propositions
Appendix A
Responses to JIG comments on
draft report
JIWG comment
Page 4 3rd paragraph – It is noted from briefs 1 and 2
that there is disagreement between PWC and the JIWG
as to the meaning of the term ‘settlement patterns’.
Confirmation is sought as to whether the term used in
this paragraph is interpreted by PWC to refer to
‘residential’ development only, and if so, would the
conclusion drawn by PWC be equally applicable to non
residential development? The JIWG believe the term
‘Settlement Patterns’ inherently refers to all forms of
urban development.
Page 5 – Task 1 – Dot point 1 – Or alternately the
estimated cost of infrastructure could be reduced by
‘ground truthing’ the list of infrastructure projects in the
PIP and removing those projects that have been or will
be paid for by the development industry and those
projects which will never be constructed for a variety of
reasons. Indeed it may also be the case that Council
increases its revenue (ie in excess of budget estimates)
if it reduces its infrastructure charges rates.
PwC comments
The analysis of settlement patterns was in relation to all
development types.
However it should be noted that if the analysis was
undertaken on residential development only, it would not
change the conclusions of the analysis.
This task is to identify temporary options for relief for
developers incurring infrastructure charges.
There was an implicit assumption within our analysis that
the costs associated with infrastructure charges are
efficient and cost appropriate. This is not a short-term
solution, but could be considered part of a long-term path
to ensure that assets in the model are efficient and cost
appropriate.
We acknowledge that this is a concern for industry and
acknowledge that any reduction in the cost of assets
(provided that it didn’t impact on the services provided)
would lead to a reduction in infrastructure charges.
However this is outside of scope.
Page 6 – Settlement Patterns – The JIWG interpret the
term ‘Settlement Patterns’ to refer to all forms of urban
development encompassing the whole range of things
that would constitute human settlement, and don’t
agree that this is limited to residential development
only. This brief will not achieve its objectives if it is
artificially restricted to a review of residential
development alone. It must examine industrial, retail,
office and other non-residential development to provide
a comprehensive analysis.
Page 8 – Task 2 – Application of Criteria Table – Risk
column – Council’s perceived risk will be
lessened through the ground truthing of infrastructure
items to ensure that the list is accurate. It
may also be lessened through an increase in
development activity.
Page 9 – Criteria based subsidy row – second
paragraph in risk column requires further explanation
Page 11 – It should be reiterated that any subsidy
initiative, whatever it is, will only work if it returns
development to a point where it is economically viable.
If the chosen subsidy option does not achieve
economic viability, then it will not succeed as projects
will not commence and infrastructure charges will not
be paid to Council.
Page 11 – Final paragraph – There does not appear to
be a preferred initiative recommended by
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The report has been revised to reflect this.
The analysis of settlement patterns was in relation to all
development types.
However it should be noted that if the analysis was
undertaken on residential development only, it would not
change the conclusions of the analysis.
While we acknowledge that there could be risk benefits
through a “ground truthing” examination, as this is not
considered an option, this point has not been considered.
The criteria aims to filter categories of development that, in
the absence of the subsidy, would be inefficient to occur.
This aims to lower the risk of inefficient development. The
report has been amended to reflect this.
Acknowledged and agreed. This has been reiterated in
the report.
The purpose of this task is to identify a list of recommended
options and how these could be implemented by Council,
Task 3 – Short-listed propositions
PWC – what does PWC regard as being the best
option? It is suggested that a combination of
initiatives would be required that have the most
effective impact.
General Comments – It is noted that the report only
discusses the proposition that a reduction in charges
will result in the need to increase general rates. It is
highly likely that a reduction in infrastructure charges
will actually result in an increase in PIP revenue,
particularly if the charges are reduced to an equilibrium
level where project viability is maintained. Council’s PIP
revenue has decreased from $93 million in 2008/2009
to $13 Million in 2010/2011. Reduced charges will
increase viability, hence increasing development
activity and increasing PIP income for Council, and
hence lessening the need to raise revenue for
increases in general rates.
not to provide a recommendation of one option being better
than another.
Ideally the results of the survey in Brief 8 would have
provided a quantitative measure of the impact that these
scenarios for reduction may have had on Council’s PIP
revenue, however this was not the case. Therefore without
being able to determine the impacts of a reduction in
infrastructure charges, it is assumed that there was a low
price elasticity for development activity (i.e. not a significant
uplift from a decrease in charges) and the reduction in
overall revenue for Council would need to be covered
through general rates.