Planning decisions that alter the nature or extent of property rights on land can generate large windfall gains on the value of that land. Rezoning windfalls have been described as a ‘honeypot’ for rent-seeking.
There is increasing awareness of the political-economic risk generated by the rezoning ‘honeypot’; easy windfall gains create an incentive for landholders to lobby public officials, councillors and ministers for favourable rezoning decisions.
The circumstances surrounding the rezoning of Fishermans Bend, a 240-hectare brownfields precinct adjacent to the Melbourne CBD, provides for a simple quasi-experiment to quantify rezoning uplifts.
This study compares 2017 sales data for 33 properties in Fishermans Bend where there was a repeat sale at the time, to plot the rise in sale prices on a per square metre and per dwelling basis. Results demonstrate large windfall gains to some properties when sold with planning permits in place. Planning permission was the clearest indicator of land uplift.
Overall, rezoning uplift was inconsistent. Uncertainty and politicisation of the planning process had negative impacts on the capitalisation of rezoning uplift.
Key findings include:
- Rezoning uplifts did not consistently occur at FB until post-2015, due to uncertainty in the planning process.
- For land without permits, the average is $469 per square metre. The average uplift for permitted properties rises to $1,726 per square metre. A planning permit therefore enabled an average return of 368% in our sample.
- Based on these averages, total uplift estimated for 1,556 properties in the case study area (a portion of Fishermans bend) would be $2.15 billion without permits, or $7.92 billion with permits. The weighted average equates to $4.43 billion.
Such windfalls would likely cover the public investment needed for Fishermans Bend multiple times over, and is of a similar magnitude to Victoria’s $5.3 billion social housing investment of 12,000 homes. This also equates to a whole year’s worth of rezoning windfalls across the state, handed out overnight in a single rezoning.
Land value capture mechanisms, such as rezoning windfall gains taxation, could provide a source of infrastructure funds for urban renewal areas like Fishermans Bend and ameliorate the unproductive practice of speculative land flipping.