Infrastructre Funding Is All Wrong

For years local Councils have recovered "headworks" charges by levying the developer his proportionate share of marginal water storage and sewerage treatment costs. The calculation was based on forecasts of likely amplification of dams and treatment plants within the city and pro-rata that cost over new lots created over a certain time. So all purchasers of new lots bore the brunt of headworks charges. If you were fortunate enough to have purchased an existing house or unit, you escaped the headworks levy.

This distortion in the allocation of costs went largely unnoticed until infrastructure charges sky-rocketted from $6,000/lot to $31,500/lot in the Gold Coast, for example, this year. The increase has been factored into new house prices, which had already increased in price due to supply issues.

Hence the distortion in cost responsibility caused by the old "user pays" policy has implications for the housing affordability issue.

A "whole of City" approach is needed for infrastructure charges, even though a more equitable policy may trigger higher Council rates across the board. It may be politically unpalatable, but then so is unaffordable housing. The magnitude of rate increases could be modulated by amortising the debt over the life of the asset (in some cases 100 years) and accounting for the future income derived from the asset.

The current financial system was devised in the 19th century by public service accountants intent upon inheriting debt free assets totally funded by developers and generating positive income streams in perpetuity. Nice if you can get it!