8 March Hon Curtis Pitt MP Treasurer GPO Box 611 BRISBANE QLD Dear Treasurer,

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1 8 March 2016 Hon Curtis Pitt MP Treasurer GPO Box 611 BRISBANE QLD 4001 Dear Treasurer, The Housing Industry Association (HIA) presents this 2016/17 Pre-Budget Submission to the Queensland Government detailing its priority recommendations that will improve employment in the industry and its efficiency. In making its priority recommendations HIA understands and accepts that the Government is under severe financial constraints in setting its budget priorities. Residential building has been a significant contributor to economic growth in Queensland over the last two years, and even though activity is close to the top of the cycle, given the right policy settings, the industry can continue to contribute. Residential building has also made major contributions to State finances via the very significant levels of taxation that apply to new home building through the interactions of GST, land tax, transfer duties and payroll tax. Continued growth in the industry will therefore be of benefit to the industry, its clients, its workers and the Government. HIA s proposals for the Budget aim to increase the employment of apprentices and improve the efficiency of its operation thereby prolonging the growth phase of the industry cycle and provide some impetus to those parts of the State that have not benefited from the growth that has been focussed to date on the South East. HIA s modest proposals are for: Discounting the wages of apprentices from workers compensation premiums to incentivise an increased uptake of apprentices; Provide a 50% motor vehicle registration concession to apprentices to reduce their work related travel costs;

2 Page 2 A three year rolling commitment to the maintenance of the Great Start Grant; and Support for local governments to bring their planning information systems into the 21 st century. HIA would be pleased to provide more detail on any of the proposals outlined in this submission. Yours sincerely Warwick Temby Executive Director Cc Hon Jackie Trad, Deputy Premier Hon Yvette D Ath, Attorney-General File Name: G:\Administration\Correspondence\2016 Correspondence\Letter to Treasurer - pre budget submission FINAL.docx

3 to the Queensland Treasurer on the 2016/17 Queensland Budget 8 March 2016

4 HIA :: Warwick Temby Housing Industry Association 79 Constitution Avenue Campbell ACT 2612 Phone: HIA is the leading industry association in the Australian residential building sector, supporting the businesses and interests of over 43,000 builders, contractors, manufacturers, suppliers, building professionals and business partners. HIA members include businesses of all sizes, ranging from individuals working as independent contractors and home based small businesses, to large publicly listed companies. 85% of all new home building work in Australia is performed by HIA members.

5 2016/17 Budget Submission Background HIA is estimating that there will be 46,700 housing starts in Queensland in 2015/16 compared with a post-gfc low of 28,500 in 2011/12. Current forecasts are for a 10% fall in commencements in 2016/17. The value of work done on new residential building is forecast to be $10.9bn next financial year, around the same level as this year. The renovations segment of residential construction (which accounts for over 40% of the spend on new home building in Queensland) has experienced uncharacteristic weakness in the years since the GFC. The volume of activity plunged from $8 billion in 2009/10 to less than $6.5 billion during 2012/13 and has recovered to be an expected $7.4bn this financial year. Modest recovery is forecast to continue into 2016/17 to $7.7bn. Total investment in new and renovated dwellings is forecast to grow a modest 1.9% next financial year to $18.6bn. A 3.3% decline in total spending is currently forecast for the 2017/18 year. While the total level of investment in new and renovated dwellings is close to its cyclical peak, the composition of the activity will shift away from multi-unit projects to detached home building. Within the State there will also be considerable variations in the outlook among the regional areas. Page 3 of 12

6 Proposed Budget Measures (i) Apprenticeship Support There has been only a very modest and recent recovery in the number of apprentices commencing in the construction industry notwithstanding the growth in the level of residential building activity. However reports of trade shortages are emerging so there is a need to lift the level of apprenticeships for the current cycle and to provide cost relief to maintain those apprenticeships once the peak of the cycle passes Apprenticeship Commencements Queensland Core Construction Trades Through its own group apprenticeship scheme HIA is close to the barriers that employers and apprentices face in making a commitment to an apprenticeship. For the employer it is the on-costs in taking on an apprentice and for the apprentice in construction it can be transport costs that make construction apprenticeships unattractive. To assist employers, and at no cost to the State Budget, HIA is recommending that Queensland follow the lead of other states and exclude apprentices wages from the calculation of workers compensation premiums. For residential building employers a base rate of premium for a carpentry apprentice is 5.8%. Removing this base payment (but keeping the experience based premium loading to encourage safe work) would make a material impact on the cost to the employer. The health of WorkCover s current financial position means that providing this incentive for employers would have no immediate impact on premiums for other employers. Page 4 of 12

7 Other States have also provided cost of training relief for apprentices by providing a 50% rebate on the cost of insurance for a vehicle. In construction trades access to a vehicle can be a crucial component in securing an apprenticeship. By matching other States in this rebate the Queensland Government would be providing a genuine incentive for apprentices to both start and just as importantly, complete their apprenticeship. The cost of this incentive could be contained by restricting it to apprentices in industries like construction where considerable work related travel and moving of tools and equipment is expected. Accordingly HIA recommends that the 2016/17 State Budget provide: 1. An exemption from base workers compensation premiums for employers of apprentices; and 2. A 50% rebate on the registration costs of an apprentice s vehicle. (ii) Three Year Rolling Commitment to the Great Start Grant The recovery in new home building in recent years can be attributed, in part, to the reshaping of support for first home buyers through the confining of Government support through the Great Start Grant towards first home buyers who purchase newly-built homes. One of the key benefits of the Great Start Grant for first home buyers has been that it is not time-limited as many previous support measures have been. This open-ended nature of the Grant means that first home buyers have been able to arrange their savings plans without the pressure of an expiry date. This has meant that first home buyers have also not had to bring forward their purchase decision and end up competing in a narrower market with other first home and other buyers. The quantum of the grant at $15,000 represents about 3% of a typical $450,000 first home purchase. While this might appear insignificant it would represent a third of a 10% deposit and more than 15% of a 20% deposit on the home. These amounts make all the difference to first home buyers capacity to reach lending thresholds and also significantly reduce, or eliminate, the cost of and need for mortgage insurance. Any suggestion that the Grant is under threat in the current industry environment would bring forward demand for new homes at a time when the industry is experiencing delays in access to land and some trades are in short supply. Claims that the Grant merely adds to home prices must also be questioned. In a new home building market that is spending around $15 billion (including land) in Queensland this year, the amount spent on the Grant is insignificant and could not be responsible for price pressures. While recognising that the Government has committed to maintaining the Grant during its current Parliamentary term, HIA believes it is important for the Government to reemphasise this commitment in the Budget setting by expanding its commitment to a further three years. This commitment will enable first home buyers to continue to plan in a methodical way and provide some level of recompense to the industry for the significant revenues that the State reaps from new residential construction. Page 5 of 12

8 Accordingly HIA recommends that the 2016/17 State Budget provide a three year rolling commitment to the maintenance of the $15,000 Great Start Grant. (iii) Access to Planning Information In its submission to the Parliament s Infrastructure, Planning and Natural Resources Committee s inquiry into Planning Bills, HIA detailed the significant cost and disincentive to investment that stems from the lack of accessible and affordable information about development constraints on a particular parcel of land. HIA s submission suggested a handful of amendments to the Bill that would improve the transparency, flexibility and cost-efficiency of the planning system. These amendments would materially impact on the cost of new and renovated housing. The highest priority identified was to provide affordable access to accurate information about all of the development constraints that apply to a parcel of land. At the moment project proponents, for even quite simple developments, have to work through Zone codes; Local plan codes; Overlay codes which could total 20 or more; Plans of development constraints; Conditions in subdivision development approvals; The Queensland Development Code; and The National Construction Code. All up there might be upwards of 30 places that need to be visited to get the answer. The result is contradictory conditions and ultimately mistakes. Most other States provide a single one-stop-shop for accessing this information: in New South Wales councils are obliged to provide this information for $133 within a few days. New South Wales is also currently developing a planning portal to enable web-based access to reliable information about development constraints. HIA notes that the Government has committed to developing a state-wide housing code that would provide some significant relief from the cost and time that is taken to ensure that simple detached homes are built within planning rules. This code would eliminate the need for interrogating planning and other codes but that its adoption is still some way off. HIA has estimated that the absence of this code is costing the home building industry and its clients around $200m each year (see the attachment). Notwithstanding this possible development HIA considers that there are substantial efficiency gains for local and state governments and the industry from speedy access to reliable planning information that not only should a requirement to provide this information be incorporated into the planning legislation, but that the State Budget should fund its development. It is a major information technology exercise for local governments to provide this type of access to essential information. HIA notes that last year s State budget allocated $60m over the forward estimates to assist with the rollout of new planning legislation, but this did not envisage the kind of systems that HIA is proposing. Page 6 of 12

9 Accordingly HIA recommends that the 2016/17 State budget allocate sufficient funds to undertake a feasibility study to develop a planning portal for all local councils (in high growth areas initially). Conclusion The relatively high level of activity that is currently occurring in residential building in Queensland should not lead the Government to conclude that spending on the industry is unnecessary. Conversely HIA argues that the time for making investments in the long term health of the industry is when the State Government is generating considerable revenue streams for the industry. To wait for the industry to move into a cyclical decline before making the necessary investments would be a wasted opportunity. Compared with the billions in revenue that the State Government receives from the residential building industry, the investment that HIA is seeking in the 2016/17 State Budget is very modest, but will make a lasting and material difference to employment, skills formation and housing affordability. Page 7 of 12

10 Attachment Background Cost of Not Having a State-wide Housing Code in Queensland In the absence of a single state-wide code for detached housing every new build and renovation project requires any or all of the property owner, the designer, the builder and the certifier to assess the proposed project against the requirements and constraints of: Local government planning schemes; Approved plans of development; Conditions on the approval of subdivisions; Some state government constraints e.g. transport corridors Queensland Development Code; and Developers covenants. These assessments all add to the cost of gaining and approval and can also add to the cost of construction. In many cases all of these instruments need to be assessed to cover off on all of the aspects of the proposed home, adding further to the complexity and cost. An estimate of these costs is made below: the list is not exhaustive and attempts to measure orders of magnitude given the difficulties with obtaining precise costings. The estimates assume 20,000 detached home approvals and 60,000 approvals for renovations in Queensland each year. Certifiers have estimated that about half of these 80,000 applications need some level of local government planning approval. 1. Cost of establishing development constraints and the potential need for a planning application While zoning information is readily available on most council websites, information about conditions on subdivision development approvals and plans of development are more difficult to find, or even determine if they exist, especially on older subdivisions. Councils will provide reports on these constraints but at a significant cost and with weeks of delay. Such a planning report from a council would typically cost $500-1,000 and take 4-6 weeks to prepare. Not all detached home projects or renovations would need a detailed investigation like this, but every project would need some level of assessment by a designer, builder or certifier, in the first instance to consider whether a planning application is needed. It is conservative to reckon that this initial level of assessment costs $100 per job or $8m across the industry. If 20% of the half of all homes that this initial assessment determines that a planning application is needed purchase a planning report (averaging $750) from a local government Page 8 of 12

11 the cost to home owners would be $6m. For the other 80% of the half that don t purchase a local government report it is assumed that they spend an equivalent amount undertaking their own assessment of the development constraints the cost would be $24m. For those undertaking a new detached build and assuming a $210,000 land value for a delay of 5 weeks at 5% the cost to each home owner from the delay would be $1,010. So the delay cost for all home buyers needing these searches would be $2m For those who undertake their own enquiries the delay is assumed to be one week making the cost of the delay $1.6m In total search costs to the home buying community are around $40m 2. Cost of developing different plans for different local government areas Among the twenty or so high growth councils in Queensland, no two have the same code for the construction of a detached home. If plans of development and subdivision conditions are added to this mix there could easily be more than 500 variations of development constraints for a detached home across Queensland. It is estimated that there are at least 300 separate and active plans of development across South East Queensland alone: for renovations locating old plans of development and subdivision conditions there would be many more. Display home builders estimate that the cost of amending a standard plan to meet the requirements and constraints of a particular lot can be $1,000. Many display home builders have well over 50 standard designs but assuming that the average display builder has 30 different standard designs and that there are 30 of these builders in Queensland, and that they need five models of each design to meet the requirements of different councils; and each redesign costs $1,000 to undertake. The cost on this basis is $4.5m for display builder only. The larger builders account for about 20% of the Queensland detached home market, so even if the additional design costs for the other 80% of homes was only $200 per home the cost across the industry would be $3.2m. There would also be costs associated with the cost of making mistakes: the wrong version of a design being built in a particular local council area. So in total additional design costs could easily be $8m. With plans being redeveloped on average on a four yearly cycle then the cost would average out at $2m a year. 3. Homes as displayed may not be able to be built in all local areas leading to sales confusion, redrawing of plans, disappointed customers as additional costs are faced or a different home needing to be selected. Page 9 of 12

12 This impact is difficult to quantify without knowing how often this problem arises, but when it does the cost could be significant. Even if it occurred in only 1% of cases and cost $5,000 each to remedy the total cost would be $4m a year. 4. Costs associated with planning applications that can be triggered It has been estimated that a half of all detached home and renovation projects trigger some kind of development application. When a planning application is triggered, the applicant and their designer will be required to prepare additional documentation for submission to council. In addition to the cost of preparing this documentation there are the additional costs of council application fees and the costs associated with the extension of the approval timeframes. a. Council fees Typical development application fees for a home or renovation approval would be $1,000. With half of all jobs needing this approval the total cost each year would be $40m. b. Planning reports Development applications to council need an associated planning report that covers all of the constraints on the site and how the applicant addresses those issues; these reports are not required for a building approval. A low level planning report would typically cost $1,500 to prepare, so for the estimated 40,000 new homes and renovations that need a report the total cost would be $60m. c. Delay costs A typical code assessable application would add at least 10 weeks of delay time. The cost of the delay time would fall mainly on the home owner as they have paid for land on which they cannot build. Again, assuming a $210,000 land value for 10 weeks at 5% the cost to the home owner would be $2,020. It is assumed that there are no delay costs for renovations. Even with a state-wide housing code a proportion of new homes would still trigger a planning application if they did not meet the requirements of the state-wide code. If say 5% of applications were in this category then planning applications would not cause the 10 week delay for 9,000 homes. So the cost to the community from planning delays would be $19m. 5. Inconsistency leading to uncertainty and risk on planning and design outcomes Page 10 of 12

13 The risk of triggering a planning application would encourage some home owners and developers to adopt conservative approaches to housing design, stifling innovation and market responsiveness. The cost of this conservatism is difficult to quantify. The spreading of innovative housing solutions is slowed by the many council planning codes that need to be changed before these new solutions can be adopted across the state. A statewide code would mean that only one code would need to be changed. Again the benefits from this speed-to-market are hard to quantify. 6. Costs to local government a) Developing their unique codes A council could spend $ 2m on staff and/or consultants developing their own version of a housing code and a further $.5m each year maintaining and updating that code. If twenty of the higher growth councils adopt their own housing code in this way, the total cost to the community would be a minimum of $10m a year. b) Administering the planning applications that are triggered There is an administrative cost associated with opening, assessing and deciding each of the planning applications that are made for a detached home each year that could otherwise be approved via a building application only. It is assumed that the fees charged by council above would cover councils costs. c) Managing constituent expectations in an uncertain environment General inquiries from rate-payers about interpreting council-specific housing codes and managing associated complaints would be a cost to council that could potentially be avoided if there was a state-wide housing code. However these costs are difficult to estimate. d) Wasting planning expertise on low level planning applications These costs are also difficult to estimate but would include the cost of enforcing the complex codes when complaints are made of alleged non-compliance. 7. Costs associated with disputes and appeals The complexity and inconsistency among the council housing codes generates mistakes by applicants and council staff which will result in disputes and appeals to the Dispute Resolution Committees or the courts. These will be expensive matters for both applicants and council. Each dispute could cost the applicant a minimum of $1,000 with a similar figure for the council. So with a minimum of $2,000 per dispute the cost for say 500 disputes that go to the Disputes Committees alone would be a minimum of $1m. The cost of disputes going to the courts would be considerably higher and there would also be costs for those disputes that were resolved prior to a formal procedure. Page 11 of 12

14 8. Costs associated with building-related conditions Councils imposing their own building requirements as part of housing codes and development approval conditions can add unnecessarily to the cost of housing, notwithstanding the council arguments about special local circumstances. The requirement for recycled water plumbing in some areas where recycled water is not available is one example. Councils specifying building material and design features can also add to costs (without even a rudimentary cost-benefit assessment of the requirements). Conclusion The absence of a mandated state-wide housing code is at least $ m each year in direct costs and considerable additional indirect costs as summarised below. 1. Cost of establishing development constraints and the potential need for a planning application 2. Builders need to develop different plans for different local government areas 3. Homes as displayed may not be able to be built in all local areas leading to sales confusion, redrawing of plans, disappointed customers as additional costs are faced or a different home needing to be selected. Annual Cost $40m $2m $4m 4. Costs associated with planning applications that can be triggered $119 m 5. Inconsistency leading to uncertainty and risk on planning and design outcomes and slow adoption of innovation as changes to many codes are required 6. Costs to local government a. Developing their unique codes b. Administering the planning applications that are triggered c. Managing constituent expectations in an uncertain environment d. Wasting planning expertise on low level planning applications? a. = $10m b., c., d., =? 7. Costs associated with disputes and appeals $1m 8. Costs associated with building-related conditions? Total Minimum $170m per annum Page 12 of 12