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The case for developer charges: fair water infrastructure contributions promote better development outcomes and reduce infrastructure costs to the community

Developer groups have opposed Sydney Water and Hunter Water’s planned reintroduction of infrastructure contributions (or ‘developer charges’). These charges to developers help recover the area-specific, development-contingent costs of providing or upgrading the water, wastewater and stormwater drainage networks to serve new development.

However, such contributions have never been more important to the community. These charges signal to developers the costs of providing infrastructure in different areas, and thus promote socially optimal development decisions – i.e., development in locations where the benefits to the community exceed the costs. They also minimise price increases to customers’ water bills (helping to reduce cost of living pressures), and they allow some of the land value uplift generated by rezoning to fund much needed infrastructure.

Cost-reflective infrastructure contributions can also be an efficient and fair funding source for infrastructure provided by local councils to serve new developments, including much needed public open space, transport (eg, local roads) and local stormwater infrastructure.

The reintroduction of water and wastewater developer charges

The term ‘rent-seeking’ was first used to describe the wasting of resources by entrepreneurs to fight for artificially created wealth transfers. This is an apt description for the time spent in recent years by developers seeking to convince the NSW Government to resist the reintroduction of cost-reflective water, wastewater and stormwater infrastructure contributions (or ‘developer charges’) in Sydney and the Hunter.

Following a review by the NSW Productivity Commission in 2020, the NSW Government committed to reform the infrastructure contributions system, with a key element being the phased reintroduction of developer charges for Sydney Water and Hunter Water’s water, wastewater and stormwater services. This follows over a decade of these charges being set to zero (set by Ministerial direction in 2008). The consequence has been that Sydney Water and Hunter Water’s additional costs to provide water infrastructure to service new developments has not been recovered from developers, but from all water, wastewater and stormwater customers via their quarterly bills.

Under the methodology set by the NSW Independent Pricing and Regulatory Tribunal (IPART), these infrastructure contributions would recover Sydney Water and Hunter Water’s costs of providing water, wastewater and stormwater services to new development areas that are above and beyond the retail price revenue the water utilities will receive from servicing customers in the new development areas over time.[1]

Developers have long opposed paying these infrastructure contributions, arguing these costs should be borne by the wider community. They have suggested a broader revenue base (i.e., anyone but them) for infrastructure funding is needed, and that there is limited public benefit to infrastructure contributions.

Given concerns about housing affordability, the community is naturally interested in the key supply-side and demand-side drivers of house prices. Seeing an opportunity, developer groups have sought to re-prosecute their case opposing the developer charges as they claim they increase development costs and house prices.[2]

However, given the incentives at play, this requires closer scrutiny. Do these charges really increase development costs and house prices? What are the implications to the broader community and water customers if these infrastructure contributions are not reintroduced?

A cost to whom?

Infrastructure contributions may be a new cost to developers, but not to society. That is, infrastructure contributions do not create costs, they just represent a way of recovering them.

Since 2008, the costs of providing development-contingent water infrastructure have been paid by all water, wastewater and stormwater customers across Sydney Water and Hunter Water’s areas of operation through their regulated prices. IPART, with responsibility for setting maximum charges levied by Sydney Water and Hunter Water, explicitly accounts for these when setting the charges that are levied on customers via their quarterly bills. This decade old subsidy from water customers (including households) to developers has added billions of dollars to water bills of households and businesses, directly impacting the affordability of these essential services.

In 2019, IPART estimated that by 2029, Sydney Water’s average customer would be paying an additional $140 per year for their water, wastewater and stormwater services if infrastructure contributions were to continue to be set to zero.[3]

Despite the overwhelming current media focus on the cost of living, this impact on the affordability of water is one of the few areas that has escaped public scrutiny.

Re-introducing cost-reflective infrastructure contributions would simply reallocate these costs back to developers, who are creating the need to incur them and benefitting from them. This is in line with the “impactor pays” principle, enshrined in the Council of Australian Government’s National Water Initiative Pricing Principles, which were designed to increase the efficiency of Australia's water resources and infrastructure assets. This principle also underpins funding for a range of other critical services.

The reintroduction of infrastructure contributions would provide bill relief to all water customers, which will be increasingly important as major metropolitan centres in Greater Sydney and the Hunter continue to grow, and households face cost of living pressures.

Supporting planning objectives and efficient development

Cost-reflective infrastructure contributions also support planning objectives, by signalling to developers the costs of providing water infrastructure to different areas in Sydney and the Hunter – with some areas being higher cost and others lower cost to service, and these variations being ideally reflected in infrastructure contributions.

This price signal would encourage efficient development decisions. Currently, without such cost-reflective infrastructure contributions, developers do not need to consider the different cost of providing water infrastructure to different areas in Sydney. This means there is a risk they develop in areas where the costs to the community of providing such infrastructure exceeds the benefits of the development.

Smearing development-contingent costs across all water customers risks diluting one of the key signals related to the cost of development between locations, which in turn can contribute to inefficient investment in relatively high-cost areas.

As the NSW Premier and Productivity Commission have recently said, we need to improve how we plan and develop Sydney to minimise stretching of infrastructure services, including building more housing in infrastructure corridors to enhance amenity, lower infrastructure costs and improve housing affordability.[4]

Water infrastructure contributions and house prices

Provided developers have sufficient line of sight of infrastructure contributions (i.e., they are aware of these contributions before they purchase developable land), the economics of housing supply tells us that these costs are not necessarily passed through to homeowners through higher house prices.

As observed through numerous studies across multiple jurisdictions and the NSW Productivity Commission (see Box 1 in PDF Bulletin), they are likely to be factored into the prices developers pay for developable land – resulting in a lower than otherwise price to the landowner, who may still receive significant windfall gains by virtue of their land being rezoned or deemed developable.

That is, infrastructure contributions can allow some of the land value uplift generated by rezoning to fund much needed infrastructure.

If there are occasions where this means the landowner is not willing to sell to the developer, this would indicate that the benefits of the potential development in that location (as measured by what the developer is willing to pay for the land) does not exceed its costs to the community. However, this is unlikely to be common, as in an environment of increasing population, the value of developable land in and surrounding cities often exceeds its opportunity cost in alternative uses (e.g., for industrial use or agricultural production).

This key conclusion – that housing affordability is not exacerbated by infrastructure contributions, provided developers are aware of these contributions before they purchase developable land – is also backed up by empirical literature. Abelson (1999)[5], Ruming, Gurran and Randolph (2011)[6], Davidoff and Leigh (2013)[7] and Murray (2018)[8] all found that the incidence of development contributions likely falls on developers or landowners rather than home buyers.

The most reliable Australian evidence is consistent with this view; with little credible evidence to the contrary.[9]

The NSW Productivity Commission has observed that, as a policy to increase housing supply, setting Sydney Water and Hunter Water’s infrastructure contributions to zero has been ineffective and costly, predominantly resulting in a transfer of wealth from water customers to owners of developable land, “including those that would have developed land regardless”.[10]

Where to from here?

Cost-reflective infrastructure contributions can help to fund infrastructure more fairly, reduce pressure on water bills to residential and non-residential customers, and support better planning and development outcomes.

The focus should not be on whether these contributions should be reintroduced, but rather how to:

Resources spent on doing these well, rather than “rent-seeking”, will deliver value to the whole community, including developers.

Importantly, for the same reasons as outlined above, cost reflective infrastructure contributions can be an efficient and equitable funding source for infrastructure provided by local councils to serve new development – including public open space, transport (such as local roads) and stormwater infrastructure.

[1]  Retail prices to customers reflect network-wide average costs (i.e., all customers face the same prices, regardless of their location within the utility’s network). Infrastructure contributions therefore recover the difference between the costs of servicing a specific development area and network-wide average costs.

[2] Daily Telegraph, Water torture for new housing, May 12, 2023.

[3] IPART, Prices for Sydney Water from 1 July 2020, Issues Paper, September 2019, p 29.

[4] NSW Premier Chris Minns puts Sydney NIMBYs on notice, 15 May 2023; Sydney Morning Herald, Sydney’s richest suburbs need to be higher, denser to solve housing crisis, 31 May 2023.

[5] Abelson, P, 1999, ‘The real incidence of imposts on residential land development and building’, Economic Papers, vol. 8, no. 3.

[6] Ruming, K, Gurran, N, & Randolph, B, 2011, ‘Housing Affordability and Development Contributions: New Perspectives from Industry and Local Government in New South Wales, Victoria and Queensland’, Urban Policy and Research, vol. 29, no. 3, pp. 257–274.

[7] Davidoff, I & Leigh, A, 2013, ‘How do Stamp Duties Affect the Housing Market’, Economic Record, vol. 89, no.286.

[8] Murray, CK, 2018, ‘Developers pay developer charges’, Cities, vol. 74, pp. 1–6.

[9] Bryant (2017) finds a substantial impact on house prices however there are a number of concerns with the empirical approach taken. UQ Economist Cameron Murray’s paper, in response to the work of Bryant, is more convincing, having applied a clear empirical strategy exploiting unanticipated changes to the developer charge regime to identify the impact of these developer charges, finding no impact on house prices and therefore house buyers. Even more illustrative is the replication of the results of Bryant (2017) when ignoring the mechanical relationship between house characteristics and developer charges.

[10] NSW Productivity Commission, Review of Infrastructure Contributions in New South Wales, Final Report, November 2020, p 101.DOWNLOAD FULL PUBLICATION

Integrated planning, economics and quantifying the value of urban cooling

The costs of excessive urban heat are significant and lead to negative consequences for the health of our communities, environments and infrastructure. Increasingly, integrated planning of our natural and built environment covering blue, green and grey infrastructure is recognised as a force to reduce urban heat. This bulletin describes how mainstream evaluation practice can incorporate economic tools to identify, quantify and integrate urban cooling into decision-making frameworks in order to quantify benefits and support better decisions.

Excessive urban heat is a growing economic problem for our cities

Australia is particularly exposed to the physical risks of climate change, including heatwaves. In 2019 and 2020, Australia experienced the two hottest summers on record, with major metropolitan areas, as well as regional towns, experiencing catastrophic bushfires.

Across the coming decades, global temperatures are expected to rise more than 2.4⁰C above pre-industrial levels, the consequences of which are likely to disproportionally fall on our urban spaces.

Cities are more vulnerable to temperature rises because vegetation, open space and tree canopy is often replaced with concrete, roads and other heat-absorbing materials that radiate the heat they absorb during the day and through the night.

Our cities are already paying the price of excessive urban heat. These costs include increased pressure on our water and energy infrastructure as the infrastructure manages the consequences of increasing average and maximum urban temperatures. These also include increased likelihood of heat-related illness which put pressure on our healthcare sectors. Of all natural hazards, heatwaves currently represent the biggest cause of death in Australia.

However excessive urban heat can create longer-term costs associated with inactivity and mental health related illness as a result of reduced opportunities for passive and active outdoor recreation. Many of these costs accrue slowly over time.

At the same time, mainstream approaches to the provision of infrastructure and services are often blind to these costs, or struggle to rigorously recognise and incorporate them into decision making.

The good news is we have the tools to address urban heat: integrated planning of our natural and built environment covering blue, green, and grey infrastructure. This includes integrating the provision of:

Blue, green and grey infrastructure provides the potential to use existing and any new infrastructure more efficiently and create cool, liveable communities and environments. In many respects, these investments can have public good related characteristics with benefits accruing to a range of beneficiaries, some beyond the local environment.

Blue, green and grey infrastructure provide proven urban cooling benefits, but are not always well integrated into decision-making

It is increasingly recognised that blue, green and grey infrastructure plays an integral role in the provision of cool, green, liveable cities. Despite this, historically the benefits of reduced urban heat have not been well integrated into infrastructure investment decisions.

In our experience, this is because the site-specific, dispersed nature of urban heat means for integrated blue, green and grey infrastructure investments (compared to more traditional investments), it can be more difficult to:

Economics is the key to integrating the value of urban cooling into decision-making

Too often these barriers have led to sub-optimal consideration of the benefits of reducing urban heat and risks inefficient allocation of scarce community resources and funding. This is especially pressing given that the current scale of urban development across Australia presents time-limited window of opportunity to avoid locking in our historical urban development paradigm for the long-run. Our decisions made today cannot be easily reversed.

The question then is, how do we embed active consideration of these urban cooling benefits into our decision-making process?

While government policy could mandate investment in blue and green infrastructure, prescribing a one-size-fits-all approach does not guarantee smart investments. In some circumstances, the expense of setting up and maintaining blue, green and grey infrastructure will be more than outweighed by its benefits.

Economic evaluation frameworks such as cost benefit analysis (CBA) provide the means to identify value-enhancing urban-cooling investments through incorporating and monetising these broader costs and benefits. This requires 3 steps:

  1. Identifying the causal link between the blue, green or grey investment and urban-cooling related outcomes (such as reduced energy demand, reduced heat related illness or increased inactivity related disease).
  2. Quantifying the incremental change (ΔQ), which can be challenging and often requires site-specific scientific or engineering analysis. For example, properly assessing the urban cooling mitigation impact of an urban heat mitigation option might require establishing the change in urban temperature attributable to water investments alone.
  3. Monetising this change in outcomes. (ΔQ x P), which can require undertaking primary research or the application of economic techniques such as benefit transfer.

While these steps are not always easy and can require collaboration across sectors and disciplines, they provide a robust and defensible framework for identifying where and when blue and green investments can cost-effectively manage urban heat.

We know this approach works: The $6.5 billion opportunity in Sydney’s Western Parkland City

The Western Parkland City is a priority growth area located in one of the hottest and driest parts of Greater Sydney. To draw people and businesses to the area, the City will need to offer a ‘cool and green’ environment. This means creating attractive urban communities and appealing places to live, work and play.

However, this urbanisation will place major pressure on the health of Wianamatta South Creek, its tributaries and the local environment and pose significant challenges in meeting a much higher community demand for water-related services. Water will also be needed to increase the urban tree canopy, maintain shaded, open and green space and support water features

Infrastructure NSW and Frontier Economics’ strategic options business case for the Western Parkland City (South Creek Catchment) found that, in the face of these challenges, integrated land use and water cycle management in the City can deliver significant economic, social and environment benefits.

The framework developed to monetise these economic, social and environmental impacts, found that integrated land use and water cycle management can deliver around $6.5 billion in benefits to the local, Greater Sydney and broader NSW communities.[1]

A key driver of these benefits was related to urban cooling related investments, which could lead to a reduction of up to 2.2°C in forecast maximum summer daily temperatures across the Western Parkland City. This reduction in urban temperature, in turn, was found to lead to associated reductions in energy consumption, peak demand, and heat-related deaths and healthcare costs.

Our analysis showed that quantifying these values in dollar figures enables effective policy, regulatory and investment decision-making, and ultimately leads to more attractive, liveable and productive places.

Further, as a result of our work with INSW, Infrastructure Australia designated blue-green infrastructure in the Western Parkland City as a national priority initiative.[1] It is a rare example of a non-traditional infrastructure project on the list.

Where to from here?

There is often only one chance to get urban spaces truly right, and now is the time to integrate the benefits of urban cooling into our urban infrastructure choices. It becomes harder and more costly to rectify the outcomes of poor past decisions.

Failure to address the resilience of cities to urban heat − including the role of blue, green and grey infrastructure − as a part of decision-making exposes the community to growing risks, which if were to crystalise would impose significant and broad economic, social and environmental costs.

Decision-makers should approach and incorporate economic, planning, design and development decisions.

Basing infrastructure decisions on good economics that draws on scientific, ecological, planning and engineering expertise and properly factors in economic, social and environmental outcomes into the ultimate investment decision is critical to delivering cool, green, liveable and resilient cities today and for decades to come.

This will require collaboration between economists, scientists, planners across the public and private sector to better identify, quantify, value and incorporate these benefits into decision-making.

[1]   See NSW Government, Greater Sydney Water Strategy – Draft,2021, p80:



The property sector has been exploring the ways that climate change could affect business, and until now, this has mostly been focused on the physical effects. However, it is important that businesses don't overlook transition risks as they start to deal with the move to a low carbon economy. There is growing industry level discussion about the potential material financial impacts of this transition for the property sector. We see three key issues as important for those businesses navigating their way through this challenge.

These are:

Frontier Economics and Edge Environment have partnered to provide comprehensive sustainability and economic advice to guide businesses through climate change risk and reporting. A new article, co-authored by Ben Mason from Frontier Economics, along with Mark Siebentritt, Miranda Siu and Jackie McKeon from Edge Environment, discusses the challenges that the property sector face navigating this complex area.

To read the full article, click below:



Infrastructure Australia today released the 2021 Australian Infrastructure Plan, which provides Australia’s green, grey and blue infrastructure sector with a 15 year roadmap to drive economic growth, maintain and enhance our standard of living and improve the resilience and sustainability of Australia’s essential infrastructure.

The 2021 Plan provides Infrastructure Australia’s reform pathway to respond to the 180 infrastructure challenges and opportunities identified in the 2019 Australian Infrastructure Audit. There are a number of key themes in the plan. We highlight and discuss several of these below.

The inclusion of waste and social infrastructure (such as green and blue infrastructure) for the first time, alongside energy, transport, telecommunications and water.

The need for place-based decision-making, including the need to holistically plan blue, green and grey infrastructure.

Recognition of the need for a consistent approach to valuing the economic, social and environmental benefits of blue, green and grey infrastructure (which has also been recognised by NSW’s Department of Planning Industry and Environment). Frontier Economics has discussed this in two recent bulletins: Greening our cities: from vision to value and Greening our cities: from vision to reality.

The need to embed sustainability and resilience into infrastructure decision-making, including the importance of a consistent all-hazards, systems approach to resilience planning and quantification of the costs, impacts and benefits of resilience investment.

Recognition of the need for clear management and governance of the water cycle, including stormwater and waterways.

The need to remove targets, mandates and subsidies for certain types of water, including recycled water. (For a look at how to encourage uptake of recycled water initiatives, and barriers, Frontier Economics undertook a review for Infrastructure NSW.)

It is a comprehensive plan addressing all aspects of infrastructure. It puts forth a compelling vision of Australia in 2036, that includes liveable, attractive and resilient communities with social infrastructure supporting a strong, healthy and prosperous nation.

The urban economics team at Frontier Economics advises across these areas. For more information or to discuss a project, please contact us.

Once thought of as purely an environmental issue, climate change is now recognised as a major threat to economies and financial markets around the world. As a result, public and private sector organisations are being asked to provide public disclosures of how current and future climate risks will impact their operations.

Recognising the increased need for climate change impact reporting with a greater focus on financial analysis, Frontier Economics and sustainability services consultancy Edge Environment are very excited to be partnering with each other to offer clients advice that combines in-depth environmental expertise underpinned by solid economic analysis and modelling.

“The requirements for climate disclosure reporting have been increasing around the world in recent years. We have seen climate change shift from being primary an environmental or “green” issue to one with legal, governance and financial implications” said Dr Mark Siebentritt, Edge’s Commercial Director and one of its climate risk analysis experts.

“We are seeing many of our clients step up their analysis of climate risk. This is in response to commentary by financial regulators in Australia about the need for companies to address what is now regarded as a foreseeable and material risk. Change is also coming through international markets with some countries like England and New Zealand headed toward mandatory climate risk disclosure reporting.”

One of the key challenges of climate risk disclosure reporting aligned to frameworks like the Taskforce on Climate Related Financial Disclosures (TCFD), is the need to better understand the financial implications of climate change.

“The impacts of climate change on the financial statements of an organisation is complex.  Companies can find it challenging to do this as there are many drivers that need consideration. For example, take the impact of extreme heat on a property portfolio. You first need to understand the risk of such extreme weather in different climate change scenarios. Then you need to understand the physical impacts of extreme heat, this may include increased energy costs, damage to the property and even consideration of whether the property is unhospitable in extreme heat. Finally, you need to place a financial value on these physical impacts. Climate risk specialists and financial experts working together can give companies these insights” said Ben Mason, economist at Frontier Economics.

“A key risk companies are often interested in is around energy supply transitioning to renewables and the impacts on energy prices. We have energy network models and have provided shadow carbon price advice to various clients.”

Building on our expertise in TCFD reporting, Frontier Economics is expanding into ESG related advice more broadly. Ensuring decisions are based on sound and rigorous economics is critical for companies navigating this complex area.


Edge Environment and Frontier Economics have worked across a broad range of climate risk projects, including within the property, infrastructure and government sectors. Together, this partnership provides a unique opportunity to better understand both financial risks and opportunities for Australian and New Zealand businesses.

About Edge Environment

Edge is a specialist sustainability advisory company focused on Asia-Pacific and the Americas. Its teams are based in Australia, New Zealand, the United States and Chile. Edge exists to help its clients create value from tackling one of world’s most fundamental challenges: creating truly sustainable economies and societies. Edge does this by combining science, strategy and storytelling in a way that gives our clients the confidence to take ambitious action, and do well by doing good.

About Frontier Economics

For more than twenty years, Frontier Economics has contributed sound economics to many important debates and decisions in Australia, New Zealand and the Asia-Pacific. Governments, regulators and businesses use our economic advice to inform policy development, market design, regulation and investment. Frontier Economics prides itself on delivering quality, independent economic input that can lead to better decisions and better outcomes for our clients.

Specifying required outcomes is key to unlocking green infrastructure funding

A clear view of the outcomes we want in our urban landscape is key to unlocking funding for green infrastructure. COVID-19 has highlighted, more than ever, the importance of green infrastructure and open space – as for many of us these features of our urban environment have been an important source of refuge during the challenges we’ve faced over the last year. Green infrastructure (or blue-green infrastructure) refers to the tree canopy, parks, waterways, vegetation, wetlands and lakes in our cities. It delivers enormous benefits to our community, and it is much more than just pleasant ‘greening’. Green infrastructure can make our cities cooler, healthier, more ecologically sustainable and attractive places to live and work.

Given the rate of development in our cities, the pressures on our urban environments and the adjacent natural environments, and the importance of integrating green infrastructure with other forms of infrastructure early in the development process, there is an urgency to improve the provision of green infrastructure. This requires a step-up in funding.

In a previous bulletin, Greening our cities: from vision to value, we observed that we need to actively embed consideration of green infrastructure into our planning and decision-making processes, and that a key element of this is identifying and accurately valuing the costs and benefits of green infrastructure.

This bulletin explores why greater clarity about the specific green outcomes (or standards) we need as a community is a key step in securing efficient and sustainable sources of funding for green infrastructure. As much as possible, policy and funding certainty for green infrastructure needs to be in place ahead of the growth and development that is occurring across major metropolitan areas.

There’s value in green

In high-level strategic plans for cities and urban areas, governments are now recognising urban nature as genuine infrastructure that delivers valuable services to the community and which merits policy and planning priority. They recognise that the natural green (and blue) assets of a city can deliver real public benefits, including mitigating the urban heat island effect, protecting and restoring ecological health, promoting active lifestyles, and providing beautiful places to live, work and play.

A clear government policy vision for green infrastructure is a good (and necessary) start. To transfer this vision into reality, however, requires:

The clock is ticking. With climate change, higher levels of population and development, and increasing urban encroachment on the natural environment, there is an urgent need to improve the supply of green infrastructure in many cities. In particular, it needs to be planned, delivered and truly integrated with development and other forms of infrastructure, rather than being supplied as an afterthought (as often seems to be the case).

Western Sydney, for example, is continuing to undergo significant development via the Western Parkland City initiative. Green infrastructure is critical to ensuring this new region is productive, liveable and sustainable. Failure to adequately plan, integrate, fund and deliver green infrastructure would consign future generations of people living and working in the Western Parkland City to missing out on the substantial benefits that flow from green infrastructure.

Below we outline some important steps for turning the vision for green, highly liveable urban areas into reality.

Providing certainty that there are enduring and sustainable funding frameworks ahead of investment occurring is crucial

A range of stakeholders including developers, utilities and various levels of government will be involved in planning, funding and delivering critical green investments in our cities.

Providing certainty to these stakeholders ahead of investment and development occurring that there are sustainable frameworks for funding green infrastructure is crucial for ensuring this infrastructure is delivered effectively and efficiently.

Clear and certain funding frameworks can ensure that:

We need to be more specific in defining required green outcomes

Government policies and city plans often set out general or high-level objectives or targets for amenity and improved environmental outcomes. However, greater clarity is often required about the specific environmental, amenity and other green outcomes we want and need as a community.

Such green outcomes (or standards) should be set after robust analysis of their economic, social and environmental costs and benefits, and the costs and benefits of alternative outcomes.

The Australian Productivity Commission’s 2020 Research Paper on Integrated Water Management – why a good idea seems hard to implement

The Commission noted that City Plans recognise the importance of green open spaces for community health, well-being and urban cooling, but they often only include high-level ‘motherhood statements’.

It cited a lack of clear and precise objectives (and subsequent allocation of responsibility and accountability) for urban amenity and enhanced environmental outcomes as a key impediment to investment in integrated water cycle management.

It stated that until high-level aspirations are turned into more precise objectives, there is not a strong basis for normal project (and hence funding) assessment processes. These processes typically begin by identifying a specific problem that needs to be solved or objective that needs to be achieved, and then involve identifying and evaluating options to solve this problem or achieve the required objective at least net cost or greatest net benefit.

The NSW Productivity Commission’s 2020 Review of Infrastructure Contributions in NSW

The NSW PC found that, in terms of local infrastructure for new development areas, roads and drainage often take precedence over amenity and open space when funding is short. This is because the former are often considered ‘essential’ to unlock development. The implication being the latter is often considered discretionary.

The NSW PC also found that current open space standards for new development are outdated.

In Australia, both the NSW and Australian Productivity Commissions have recently recognised that a lack of clarity around required green outcomes can act as a significant impediment to adequate funding of green infrastructure and hence achievement of green outcomes.

Greater clarity around required green outcomes would focus attention on how we as a community achieve these outcomes, including the specific governance, regulatory and funding arrangements that are required. In particular:

Integrate specific green outcomes into planning and regulatory instruments

Once required green outcomes have been determined, they should be integrated into relevant policy documents, planning instruments and, where applicable, other legislative and regulatory requirements.

This should assist in putting green infrastructure on an equal footing with traditional or ‘grey’ infrastructure and help to ensure that green infrastructure is considered upfront and integrated with development and other forms of infrastructure rather than provided as an afterthought.

This upfront consideration of required green outcomes, and hence integration of green infrastructure with other forms of essential infrastructure (e.g., transport, water) can be particularly important for efficiently achieving amenity and environmental outcomes.

The Australian Productivity Commission has noted that water infrastructure, for instance, can offer opportunities for enhancing urban amenity and environments (in addition to the traditional water and wastewater services that it provides). For example:

Similarly, the NSW Productivity Commission has observed that more efficient delivery of open space “will be achieved by shifting to performance-based benchmarks and a requirement to consider efficient land needs during the strategic planning process. This could, for example, include the dual use of land around creeks for both drainage and passive open space.”

Establishing sustainable funding sources for green infrastructure

There are strong economic efficiency and equity reasons for allocating the costs required to achieve green outcomes to those in the community that create the need to incur the expenditure (i.e., ‘impactors’) and/or those that benefit from this expenditure (‘beneficiaries’). In some instances, however, it may not be possible or practical to recover costs from specific groups of impactors or beneficiaries, in which case the broader community (taxpayers or ratepayers) may have to pay.

Clarity about required green outcomes is an important step in determining who is creating the need to achieve, or benefiting from, these outcomes, and therefore in establishing secure and sustainable sources of funding for green infrastructure.

If, for example, specific green outcomes are required to service or accommodate a new development (e.g., in relation to open space, waterways management, etc), which would not be required in the absence of that development, the local council should have a mandate to require developers to fund the capital costs of supplying green infrastructure for the development to achieve these outcomes– along with other essential infrastructure routinely funded or provided by developers for new development.

Similarly, if a water utility whose prices are regulated was required by its operating licence or similar regulatory instrument to meet specific green outcomes (e.g., in terms of stormwater and waterways management), then it should have assurance that it would be able to recover its costs, via its prices to its customers or charges to developers, of delivering servicing solutions that efficiently achieve these green outcomes. Notably, it would not likely have the same level of assurance, and hence funding certainty, if its statutory green objectives/requirements were less well defined.

Where it is appropriate for government to fund green infrastructure (on behalf of the broader community), greater clarity about required green outcomes can:

Greater clarity about required green outcomes can also enable us to better assess the adequacy of existing funding mechanisms in meeting the scale and pace of development and investment required.

Where to from here?

Providing greater clarity about required green outcomes (or standards) can be challenging. However, it is important for improving governance, regulatory and funding arrangements for green infrastructure, and necessary if these green outcomes are to be achieved.

Along with best-practice regulatory design principles, valuation of the full costs and benefits to society of the environment and amenity outcomes related to green infrastructure can play an important role in both setting these outcomes and in assessing the range of options available to achieve them. As we discussed in a previous bulletin, there are a range of techniques that can be employed to undertake such valuation.


The population in the Lower Hunter is forecast to grow by 20% over the next 20 years, and so too will the demand for water, wastewater and stormwater services.

Meeting the increased demand for water and the community’s expectations will involve new sources of water supply (including new climate-independent water sources), demand management, and measures to improve waterway health. The aim is for the region to remain a productive, liveable and resilient region, rather than one incurring ever more frequent water restrictions and an increased risk of being unable to meet community expectations for minimum levels of water supply during drought conditions. Meeting the community’s evolving expectations for water security could involve significant investment in long-lived assets with a range of economic, social and environmental outcomes.

In this context, Hunter Water in partnership with Department of Planning, Industry and Environment (DPIE), is coordinating the Lower Hunter Water Security Plan — a whole of government approach to ensure long-term water security for the Lower Hunter. The Plan was released for public exhibition today.

As part of developing the Lower Hunter Water Security Plan, Hunter Water engaged Frontier Economics to undertake economic, funding and distributional analysis of a range of potential portfolios of water supply and demand measures. Our work aimed to answer several key questions:

Our analysis entailed two streams:

Economic analysis
This ‘efficiency’ analysis used economic modelling including cost-benefit and adaptive pathway (or real options) analysis to identify:

Funding and distributional analysis
This ‘equity’ analysis used regulatory and financial analysis to identify:

Our analysis found that there are portfolios of water supply and demand measures that are likely to provide significant economic, environmental and social value to the community in the face of significant risks and uncertainties (such as climate change and demand). This includes identifying the significant value the proposed Belmont Desalination plant is likely to deliver to the community in managing both growth and drought in the Lower Hunter region. We note that the NSW Department of Planning, Industry and Environment has recently provided Hunter Water planning approval for the Belmont Desalination plant.

Frontier Economics is pleased to announce that Alexus van der Weyden has been appointed a director of Frontier Economics Pty Ltd.

Alexus joined Frontier Economics in 2015. He is responsible to the board for Urban Economics and Water and has been instrumental in growing this practice area into a dynamic and innovative team with a strong roster of clients. Our work in urban economics and water applies economics to policy, regulation and investment planning projects across our urban environment, including place-based decisions covering water, liveability, open spaces and sustainable communities.

“Alexus is a strong economist. The growth and spread of our work in urban economics is testament to how much clients enjoy working with him and the results for them that he and the team have achieved together. ” said Danny Price, managing director of Frontier Economics. “I’m delighted that he’s come onto the board and look forward to working with him in this new chapter of his career”.

Alexus joins fellow directors Stephen Gray (chairman) and Andrew Harpham on the board, alongside Danny. “I’m excited about the challenge and being part of Frontier Economics’ future” said Alexus.

Frontier Economics economists Alexandra Humphrey Cifuentes and Rosemary Jones presented a paper at OzWater21 on 5 May 2021. Decision making in the urban water sector is subject to an increasing number of challenges. "Flexible planning for an uncertain future: Applying adaptive pathways thinking to the water sector" presents an approach which values flexible decision-making.

Key points from the paper include:

Ensuring secure, reliable & cost-effective management of the water cycle is critical to support economic growth & to meet community’s growing expectations for liveable & healthy environments.

Urban population growth, climate change and interdependencies between infrastructure systems are placing significant pressure on ageing water-related infrastructure, and the health of our waterways, environment, and people. However, their impact and the appropriate policy, regulatory and investment response is uncertain.

In this context, a challenge for decision-makers is to identify resilient and flexible decision-making pathways, which are well placed to respond to uncertainty and change. Economic tools and techniques such as adaptive pathways (or real options) analysis builds on cost benefit analysis to value this flexibility, by modelling costs and benefits of responding (or not responding) to new information in future. Decision-makers can then compare the value of flexibility to the cost of the investment, and more importantly, accurately compare the costs and benefits of different options. This is extremely valuable information when making critical decisions about significant infrastructure investments.

While engineering and planning expertise in adaptive infrastructure already exists across the sector, robust approaches to placing an economic value on that flexibility and using economic analysis to explore maximum value infrastructure pathways under uncertainty is an underutilised decision-making tool.


How valuing the invaluable can change our future urban landscapes

Government policy is increasingly putting green infrastructure front and centre of its vision for the future cities where most of us will live. Urban green infrastructure refers to the canopy, parks, waterways, vegetation, wetlands and lakes in our cities. More than just urban nature: these features are assets which deliver valuable services. They can make our cities cooler, healthier, more ecologically sustainable, and attractive places to live and work. To realise a policy vision of greener cities and change our future urban landscapes, we need to start treating green infrastructure in the same way we treat traditional physical ‘grey’ infrastructure ─ by subjecting it to rigorous economic assessment and assurance processes.This isn’t easy, but it can be done. Right now there is significant opportunity to embed green infrastructure in growth areas as part of the urban fabric, especially in areas with large greenfield developments in the planning phases (such as in NSW).  But the clock is ticking as development continues, and this needs to happen quickly. This bulletin explores how we can build green infrastructure into our infrastructure planning processes and what challenges still lie ahead for greener urban communities.

Policy shoots

The NSW State Government in Australia recently released two documents that, together, indicate a policy vision for the role of green infrastructure in the urban environment. ‘Greener Places’ from Government Architect NSW outlines what green (and blue) infrastructure is in the urban context and how it can improve our cities. In addition, the discussion paper and draft ‘50-year vision for Greater Sydney’s Open Space and Parklands’ outlined four key strategic directions to grow and improve parks, open spaces, connectivity and greenery, and resilience.

Both documents convey a fundamental shift in thinking which considers urban nature as genuine infrastructure that delivers valuable services to the community and which merits policy and planning priority. They recognise that the natural green (and blue) assets of a city can deliver real public benefits like mitigating the urban heat island effect, protecting and restoring ecological health, promoting active lifestyles, and providing beautiful places to live, work and play. These benefits can be measured and quantified in dollar terms such that they are no longer an incidental bonus of investment, but part of the baseline justification and cost-effectiveness of green infrastructure in delivering critical services to the community.

A clear government policy vision for green infrastructure is a good (and necessary) start. But for green infrastructure to be funded it must be robustly integrated into formal proposal, evaluation and assurance processes. Realising a vision for greener cities will depend on how effectively we can develop rigorous processes, methods, resources, datasets, and capabilities to value and assess green infrastructure as an ongoing, long-term package of service-delivering investments.

Capturing the value of green infrastructure

There are different ways we could embed active consideration of green infrastructure into our planning and decision-making processes on a more equal footing with traditional ‘grey’ infrastructure options.

For example, government policy could mandate investment in green infrastructure. But green infrastructure will not always be the best option in all circumstances and prescribing a one-size-fits-all approach does not guarantee smart investments. The alternative approach is to assess green infrastructure proposals on their individual merits—by requiring a fair, rigorous, quantitative assessment of the economic, environmental and social impacts of each investment—as we do with traditional physical ‘grey’ infrastructure. Investment would then occur where and when it can be demonstrated to deliver genuine community value relative to the alternative levers available.

However, green infrastructure impacts can be tricky to evaluate because:

We look at each of these issues below.

Challenges with valuing the benefits of green infrastructure

Decisions to invest in infrastructure by governments or other parties are (or should be) determined by the relative weight of benefits to costs. A cost-benefit analysis is the formally preferred evaluation tool of state treasuries and infrastructure agencies around the country and is essential to ensure that limited public money is used as wisely as possible.

Although measuring the costs of green infrastructure is (mostly) straightforward, many of its benefits are not as easy to identify or measure. This can lead to a cost side of the equation that looks robust, ‘real’, and in many cases relatively large, but a benefit side of the equation that looks vague, unreliable and risky.

Take the example of a neighbourhood park. The costs of building and maintaining it are easy to estimate. We could look at what other, similar parks have actually cost. Or, a landscaping firm could provide an estimate of the cost of design, earthworks, materials, park benches, tree planting, tree trimming, etcetera. But how do we measure the benefits of that park to the local community? It’s irrefutable that we value relaxing, exercising, and socialising in parks. Parks clearly provide a range of identifiable community services for mental and physical health, amenity, and aesthetic enjoyment (and others). But none of those benefits are directly paid for per use or otherwise traded directly in a market (for most parks). This means there’s often no observable price to provide some indication of the value of park visits – a so-called ‘non-market’ benefit.

But this does not mean those benefits aren’t real. It does not mean that the community will be better off if we choose not to build that park, or preserve urban canopy, or restore an urban waterway. It simply means that we have to work harder and smarter to identify the end-use benefits of these investments, quantify these (with scientific and engineering tools), and convert those benefits to a robust and fair estimate of value in dollar terms.

Economics has a range of methodologies that can assist (e.g. willingness-to-pay methods, hedonic pricing modelling, productivity cost methods, and more). While these methods require assumptions and are affected by uncertainties, they are a great deal better than nothing and can be refined over time as more and better data become available. The key is executing these methods well. This means exploring (rather than shying from) core uncertainties in the modelling, be those assumptions or data inputs.

Linking investment to impact: the challenge of complex causal chains

To ensure a consistent and systematic treatment of non-market impacts of green infrastructure, it is also important to understand what effects green infrastructure actually has in the urban environment.

A core principle of good cost-benefit analysis is that we only compare costs and benefits that are clearly and exclusively caused by the proposed investment, and not those which would happen anyway, or which would happen under every alternative option. This is the incremental impact of investment, and this is the end measure we convert to a monetary value to tally up different types of costs and benefits.

Nailing down the incremental impact of an investment with rigour can be the most difficult, resource-intensive step in the evaluation process. This is because it requires both a) a defensible case that green infrastructure causes the impact, then b) a defensible measure of how big that impact is.

Demonstrating causal links for green infrastructure is challenging, partly because scientific research and data cannot always readily establish a) and b) above. Further, green infrastructure evaluation can require multiple causal chains to be articulated and linked in a sequence to establish the final incremental impact of investment. This can be extremely complex.

Cooling by urban canopy

A key policy concern is the risk to health, life, and urban amenity of extreme city temperatures. Climate change will likely increase the number of ‘very hot’ (over 35 degrees) days, exacerbated further by the urban heat island effect. This heat can have serious consequences for health, and is a contributing factor for mortality, especially among the elderly and infants. It is also an extreme (and expensive) stress on our electricity infrastructure.

Urban canopy is one form of green infrastructure that can help reduce these impacts. The natural evapotranspiration processes of trees can cool surrounding air temperature. But the first step to evaluating the cooling benefits of urban canopy is to estimate, for the specific site and proposed investment (including what kind of trees, in what numbers, in what kind of environment, at what scale, etc.), the amount of cooling caused by increasing urban canopy. This is a non-trivial exercise, heavily reliant on the state of scientific research and site-specific modelling. Even once achieved, this will only establish one quantified causal chain – how much change in air temperature will result from additional urban canopy (a similar process applies to the case of cooling from retaining water in the landscape).

The second step involves quantifying the causal link between air temperature changes to human health, electricity infrastructure requirements, and potentially other recreation-related outcomes. Again, this would require scientific research and is a data-intensive task.

But both steps are required to eventually establish the benefits, in monetary terms, that result from investment in urban canopy. Recent work in Western Sydney indicates that these benefits can be significant, and more than outweigh the additional costs.

This example demonstrates that that if this process is to be applied as the standard for green infrastructure proposals, it will require developing, accessing and expertly using high-quality, localised primary research and data. Much of this data will be scientific in nature. However, empirical economic data is also critical. Economic research using best-practice research methods is required to uncover the best possible estimates of what value the community places on alternative possible services provided by green infrastructure.

Where to from here?

Being able to assess good green infrastructure options from bad is critical. Valuation is a key element and as we have seen, can be a difficult process. Too often this step is avoided, with the focus on ‘how to invest’ (e.g. funding, delivery, governance etc), prior to answering the question ‘should we invest’.

This may be accomplished more easily in some sectors than others. Water utilities, for example, already have experience in the kind of robust green infrastructure evaluation processes described above. This is because many of the ‘assets’ they build and manage include multi-service delivering natural features. For example, from a traditional water industry perspective, an urban wetland might be one way to manage stormwater quantity, quality and floodplain issues. This is one manifestation of Water Sensitive Urban Design (WSUD), which is now a standard industry concept that prioritises smarter use of nature and its materials to provide services in all stages of the water cycle.

But that wetland is also a piece of green infrastructure that delivers open space, recreational opportunities, wildlife habitat, and possibly other services (for example, large water in the landscape might also be able to cool urban temperatures). The water industry has developed capability because of the regulatory framework that requires scrutiny of spending by utilities. The resultant expertise, datasets, and experience includes quantification of impacts of green infrastructure and the values placed on these impacts by the community (for example, impacts of WSUD options on water quality and species diversity).  Sharing and accessing the information held by various sectors will be a key part of unlocking the data and skill required in the valuation process across different forms of green infrastructure.

Government policy encouraging different industry sectors to view our future urban environments with a green infrastructure focus invigorates the approach to infrastructure development and broadens the horizons for what our future urban landscapes can become. Policies should encourage industry players to factor in liveability, amenity, sustainability, the circular economy and a range of other urban policy goals in infrastructure development. However, demonstrating the value that could result from these investments (or broader interventions) is critical. If we genuinely see these investments as value-enhancing community infrastructure, this step must come first. Further, it must be done well if the case is to be made convincingly and for the long-term that multi-servicing delivering green infrastructure is a sound use of the community’s resources.