NSW Government’s newest property taxes killing Sydney’s housing dream

A new report has revealed two new property taxes recently imposed by the NSW Government will render major housing developments in Sydney’s west financially unviable, with projected rates of return too low for banks to fund and developers to build desperately needed homes.

The Release the Pressure report, by the Property Council of Australia and global real estate company Savills, shows how two fresh property taxes imposed on new housing are in fact working against the government’s own ambitious housing agenda.

The report, the first in a three-part series, examines the impact of both the new Sydney Water Development Servicing Plan (DSP) and Housing and Productivity Contribution (HPC) charges on the delivery of housing in both the Central River City which extends from the Georges River Local Government Area (LGA) through Blacktown, Parramatta and to the Hills Shire, as well as the Western Parkland City which includes the Penrith, Blue Mountains, Campbelltown and Hawkesbury LGAs among others.

Property Council NSW Executive Director Katie Stevenson said the modelling in the report is stark and will see Sydney’s housing crisis only worsen if no action is taken.

“The NSW Government’s ever-increasing tax agenda is crippling our industry’s ability to build new homes,” Ms Stevenson said.

“At the same time the government is rightly declaring a housing crisis, it’s also introduced massive additional costs on building new homes, tipping those projects into the ‘way too hard’ basket for banks and industry to deliver.

“Without a change, there’s no question the state will fail to deliver its 377,000 new home goal under the National Housing Accord. In fact, it’s best described as an ‘own goal’,” she said.

The detailed modelling within the report found a typical 250-unit apartment development, and a 115-lot greenfield development would no longer be financially feasible in 2024, and significantly less feasible in 2026 under planned increases to Sydney Water DSP and HPC charges.

The government introduced both new charges in 2023, applying them at a discounted rate for the first few years, with a plan to lift HPC charges to the full rate from 1 July 2025 and the Sydney Water DSP charges to the full rate in 2026.

The charges are just two of 15 separate levies and taxes imposed on new housing in NSW. The report shows by 2026, those 15 different taxes and charges will make up more than a third (33.3. per cent) of the cost of a new home in the Western Parkland City. In the Central River City, taxes and charges will make up more than a quarter (26.5 per cent) of the cost of every home.

“It’s no wonder this avalanche of taxes on top of already challenging construction conditions is leading to lower building approvals and lower completions,” Ms Stevenson said.

“The good news is if the NSW Government suspends these two new charges and also introduces faster approvals, the industry could deliver an additional 190,000 new homes in Sydney over the next five years,” she said.

In Central River City and Western Parkland City alone industry could deliver more than 126,000 dwellings, which is 55,000 dwellings more than if there is no action to reduce residential taxes and charges and compress planning approval timeframes.

Savills National Director Property Consultancy Stephanie Ballango said the government’s taxing agenda is putting a massive handbrake on its own residential development ambitions.

“The introduction of the Sydney Water DSP and HPC charges examined in this report is startling, particularly when we know that supply has not kept up with demand and we are already dealing with a cumulative shortfall. These additional charges could accurately be described as the straws that are breaking the industry’s back,” Ms Ballango said.

“If we’re serious about meeting our National Housing Accord targets, the NSW Government must partner with industry and pull all available levers, including putting a halt on these ever-increasing costs and reducing approval timeframes,” Ms Ballango concluded.

The report, which has been released ahead of the NSW Government’s June Budget, provides three key recommendations including introducing a moratorium on new taxes and charges over the Accord period, suspending Sydney Water DSP and HPC charges for that same period and accelerating planning processes that reduce approval timeframes by at least six months.

“A moratorium on new taxes and charges will give industry more confidence that the goal posts on our ambitious housing agenda won’t shift mid-game,” Ms Stevenson said.

“Industry desperately needs a commitment from government that no new charges will be introduced while it’s trying to get projects delivered in this next critical five-year period.

“If we’re to have any chance of meeting our housing targets, the NSW Government must suspend Sydney Water DSP and HPC charges for the duration of the Housing Accord period.

“This report shows that time is money. Basic efficiency improvements to planning approval timeframes make a significant difference to development feasibility and could deliver major savings to the cost of a new home in NSW.

“That’s why we’re calling on the NSW Government to reduce planning approval timeframes by 6 months for new apartment projects and greenfield developments.

“The NSW Government needs to make a hard decision about what it prioritises in the upcoming budget and start putting families looking for a new home first.

“This is a stark choice, but this report shows we can’t bury our head in the sand. It’s time for the NSW Government to give our industry a chance to deliver the homes we desperately need,” said Ms Stevenson.

/Public Release. View in full here.