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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

Transition support for the NSW native forest sector

With the Victorian government announcing an end to native forest logging by 1 January 2024, we revisit a recent report prepared for WWF–Australia (World Wide Fund for Nature Australia) in August last year. In it, Rachel Lowry, Acting CEO, WWF–Australia explains, “This report was not commissioned to ignite or exacerbate ‘forestry wars’. Instead, it is designed to inform and motivate critical solution-focussed discussions, ideally led by the NSW Government.”

The New South Wales (NSW) native forest sector has been contracting over a long period as publicly provided wood supply has fallen to more sustainable levels. The 2019–20 Black Summer fires compounded this trend, significantly reducing sustainable wood supplies, particularly in the South Coast and Tumut regions. This shock to the sector, economy and regional communities – combined with an increased recognition of the significantly higher value that standing native forests offer in comparison to logging– provides an opportunity to reconsider the best use of NSW’s native forest resource. Other states including Victoria and Western Australia facing similar issues have made the decision to end the native forest logging.

In this context, Frontier Economics was engaged by WWF–Australia to consider options for the design of appropriate structural adjustment arrangements that would accompany a decision to end public native forest logging in NSW. Our Report, Transition support for the NSW native forest sector, outlines a design and cost estimate of such structural adjustment supports.

The financial return and economic contribution of public native forestry is small

Our Report found that Forestry Corporation of NSW’s (FCNSW’s) native forest logging business appears to offer poor financial returns to NSW taxpayers, with some parts of the hardwood business unlikely to be covering costs. The Independent Pricing and Regulatory Tribunal of NSW (IPART) has also reported on the loss-making activities of FCNSW’s hardwood division.

There is also clear evidence that that value of the native forest would be higher as a standing resource.

The volume of wood supplied by FCNSW’s native forest business has been falling, and is unlikely to return to historic levels of production given the current state of the native forest after the Black Summer fires and the increasing impacts of climate change.

Employment and economic contribution have also fallen to modest levels, even when both hardwood and softwood, and private and public industry in NSW is accounted for. Direct employment associated with FCNSW’s hardwood business is in the order of 1,070 across the State – including those employed by FCNSW, harvest/haulage contractors and mills.

Designing a comprehensive structural adjustment support package

A comprehensive structural adjustment package should accompany the decision to cease the remaining native forest logging activity by FCNSW. This package would support impacted employees, firms and communities during the transition.

Across jurisdictions, there is a broad consistency in the design of public native forest logging structural adjustment packages, including:

Structural adjustment packages are also often complimented with longer term support for increased investment in plantation resources.

Alongside a package of structural adjustment support, our Report finds there are likely to be alternative employment opportunities for displaced workers from the public native forestry sector, particularly in management of protected forest areas, recreation and tourism, plantation-based forestry work, fire and invasive species management and the management of carbon and biodiversity credits.

The estimated cost of structural adjustment support

The estimated cost of the government-funded structural adjustment is $302 million in total. This includes:

Our Report developed these estimates along similar lines to those adopted in other jurisdictions. It is assumed the adjustment package would be implemented from 2028- 29 once the majority of the current WSAs with processors have expired.

The cost of the structural adjustment package is likely to be readily outweighed by a range of positive budgetary impacts including:

FCNSW and plantation investment

Complementing a structural adjustment support package, the NSW Government may invest in increased plantation resources. The Victorian and West Australian governments have announced funding for plantations of $110 million and $350 million, respectively.

Alternatively, FCNSW may consider the investment opportunity to expand its hardwood plantation estate in the expectation of a long-term financial return.

The forestry sector would sensibly lead any plantation expansion in NSW based on its understanding of the best locations, appropriate size of expansion, plantation species and market needs.

View the full report commissioned by WWF-Australia here.


Dr Tyron Venn of the School of Agriculture and Food Sciences, University of Queensland prepared a critique of the Frontier Economics and the Australian National University report Comparing the value of alternative uses of native forests in Southern NSW, 30 November 2021.

Frontier Economics and the Australian National University provided a comprehensive response.

Dr Venn has subsequently published a partial apology and amendment to his critique.

Frontier Economics and Tim Cummins & Associates have analysed the social and economic issues associated with water recovery for the environment in Victoria under the Murray Darling Basin Plan. The report can be found here.

This 2022 report updates previous analysis undertaken in 2017, both commissioned by the Victorian Government to help inform Victoria’s policies on water recovery and Basin Plan implementation.

Under the Basin Plan, the relevant Governments agreed that 2,750 GL of water would be recovered for the environment by 30 June 2024 — the ‘Bridging the Gap’ water recovery requirement. This water was to be recovered mostly from buying water entitlements from farmers, by enabling water efficiency projects, or by investing in projects that deliver the same environmental outcomes using less water. Beyond the ‘Bridging the Gap’ water recovery, the Basin Plan allows for enhanced environmental outcomes from the recovery of an additional 450 GL per year of environmental water through efficiency measures.

There is unambiguous evidence that environmental watering is restoring the environmental values of the Basin. However, we found that Basin Plan water recovery has had significant socio-economic impacts on irrigators and communities in northern Victoria, and that further water recovery from the consumptive pool will add to the impacts already being experienced. The socio-economic impacts of the Basin Plan in Victoria are particularly apparent in the Goulburn Murray Irrigation District (GMID) — without the Basin Plan, water use in the GMID could be expected to have been about 50% higher in recent years (2018-19 to 2021-22) and GMID milk production could also have been expected to be about 50% higher than was observed. In a repeat of the Millennium Drought, the socio-economic impacts of the Basin Plan will also affect the horticultural industries of the Victorian Mallee and surrounding areas — requiring an extra 25,000 hectares of high value horticulture to be dried off due to the reduced consumptive pool.

The report considers the range of mechanisms that have been used to recover water for the environment and enhance environmental outcomes — including water entitlement buyback, on-farm investments, off-farm investments, and Sustainable Diversion Limit Adjustment Mechanism (SDLAM) projects. As a result of the way in which water was recovered, there is now more volatility in the total volume of allocations available for irrigation from one year to the next.

There are reasons to be optimistic about meeting most of the ‘Bridging the Gap’ requirements of the Basin Plan by 30 June 2024. On current estimates, up to 94% of the 2,750 GL requirement could be achieved (leaving a shortfall of 160.3GL). However, if various identified risks cannot be managed, the shortfall in the 2,750 GL requirement at 30 June 2024 may be significantly larger —up to 372.3GL. ‘Constraints projects’ constitute most of the projects at risk.

After considering four scenarios of future implementation of the Basin Plan and the current state of play, we consider a sensible and plausible scenario is for Basin Plan implementation to focus on current or alternative SDLAM projects to offset the full 605GL in a timely manner (rather than by the current 30 June 2024 deadline). Buying back an additional 372.3 GL of water entitlements, instead of extending the deadline, would involve significant socio-economic impacts.

Information about the broader set of reports and a fact sheet are also available here.

A report into the economic, social and environmental costs of failing to manage feral deer numbers in Victoria has been released by the Invasive Species Council and Frontier Economics.

The report, Counting the doe: an analysis of the economic, social and environmental costs of feral deer in Victoria, estimates costs of over $1.5 billion (7% discount rate) or $2.2 billion (4% discount rate) in present value terms, over the next 30 years. Avoiding these costs represents a benefit to society. The expense involved in managing feral deer population is a fraction of the cost these invasive species impose on society and the environment.

The Victorian feral deer population and distribution have rapidly increased, with analysis by the Victorian Department of Environment, Land, Water and Planning estimating that the population of deer could be between “several hundred thousand up to one million wild animals or more”.* It is likely to become more challenging to manage feral deer in future, with populations expected to increase further over the next thirty years, driven by a combination of climate change, natural dispersal and deliberate releases and farm escapes.

Feral deer numbers are having a significant and detrimental impact on a range of economic, social, cultural and environmental impacts in Victoria.

“Without effective controls on feral deer numbers our analysis shows that the population is likely to significantly increase, imposing a substantial cost on the Victorian community”, Frontier Economics’ managing director Danny Price said.

Even with conservative assumptions around the detrimental impacts of feral deer, key findings include:

Given the availability of information on the impact of feral deer, these figures do not capture the full range of potentially significant costs of feral deer in Victoria, such as the impact on:

As such, it is likely that the true economic, social, cultural and environmental costs imposed on the community as a result of feral deer in Victoria are larger than this estimate.

“While there is uncertainty around the number of feral deer in Victoria, what is certain is that the Victorian community is losing out by not managing feral deer. These losses will only grow as long as the Government fails to control feral deer numbers now and into the future” Mr Price said.

The NSW Government has recently announced a target of reducing the state’s emissions by 50% by 2030 on 2005 levels. Meeting this target while driving increased prosperity requires the realisation of the cheapest sources of abatement.

Consistent with this commitment, there is an opportunity to expand the role of forests in NSW’s climate strategy by stopping logging in state forests. Frontier Economics and Professor Andrew Macintosh of the Australian National University have prepared a report, Comparing the value of alternative uses of native forests in Southern NSW, that looks at the climate and economic outcomes of this strategy, based on a case study in the southern forests of NSW, covering the Southern and Eden Regional Forest Agreement (RFA) areas.

Based on conservative assumptions, the study found stopping native forestry in the Southern and Eden RFA areas would produce a net economic benefit to the state of approximately $60 million, while also reducing net greenhouse gas emissions by almost 1 million tonnes (Mt) per year over the period 2022-2041.

A report into the economic, social and environmental costs of failing to manage feral horse numbers in Kosciuszko National Park has been released by Frontier Economics today.

The report, Reining in feral horses in Kosciuszko National Park, estimates benefits of up to $50 million a year if feral horse management of the park is improved. These benefits are expected to far outweigh the costs of controlling feral horse numbers. Feral horse numbers in Kosciuszko National Park have increased substantially over the past 20 years, with a recent survey estimating the population at around 14,000 horses *.

The Kosciuszko Wild Horse Heritage Act 2018 has prevented effective management of feral horses within the park,” report co-author economist Anna Wilson said.

“Without effective controls on feral horse numbers our forecast shows that the Kosciuszko population could double again in the next 20 years to around 35,000. Twice as many feral horses as cattle carried on Australia’s largest cattle station in a good year, the 24,000 sq km Anna Creek Station.”

Feral horse numbers are having a significant and detrimental impact on Kosciuszko National Park, putting unique ecosystems such as alpine and sub-alpine herb fields, bogs and fens at severe risk from grazing and trampling. Horses threaten native species that rely on these habitats and damage watercourses.

The Frontier Economics report looks at the economic, social and environmental benefits that are being lost due to inaction on feral horse numbers. Our analysis focused on benefits a reduction in horse numbers would have on the recreational, environmental and water quality values of Kosciuszko National Park.

Even with very conservative assumptions about the detrimental impacts of feral horses, key findings include:

Other potentially significant benefits associated with better management of feral horses in Kosciuszko National Park include a reduction in expenditure by the NSW National Parks and Wildlife Service on repair works for infrastructure damaged by horses and for protecting and restoring areas of high conservation value.

“Society in general is losing out by not managing feral horses,” Ms Wilson said.

“These losses will only grow as long as government fails to control feral horse numbers now and into the future.”

*The spring 2020 survey conducted by NSW National Parks and Wildlife Service found the best estimate for the wild horse population in Kosciuszko National Park is 14,380. The 95% confidence interval of the survey is 8,798–22,555. This means that they are 95% confident that the population is at least 8,798 and could be up to 22,555 wild horses.


On Wednesday 7 November 2018, Frontier Economics is co-hosting a seminar with the Melbourne School of Government at the University of Melbourne.  Gus O'Donnell, Chairman of Frontier Economics Ltd (our sister company headquartered in the UK) will be presenting a public seminar on "Changing Behaviour in the Public and Private Sectors".

This seminar looks at the challenges in applying behavioural insights to alter behaviour in both the public and private sectors.

Gus O'Donnell served three Prime Ministers as the UK’s Cabinet Secretary and head of the British Civil Service between 2005 and 2011. After stepping down as Cabinet Secretary, he was made a life peer of the House of Lords. He has held senior roles at the UK Treasury (including as Permanent Secretary of the Treasury between 2002 and 2005), the British Embassy in Washington, International Monetary Fund and the World Bank. Before joining the British Civil Service in 1979, Gus was a lecturer in economics at the University of Glasgow. He has written and spoken extensively on the use of behavioural economics in policymaking.

Date: Wednesday 7 November

Time: 1.00 - 2.15 pm, followed by light lunch

Venue: Terrace Lounge, Melbourne School of Government, Walter Boas Building


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The Victorian Government today released its findings on the social and economic impacts of the Murray-Darling Basin Plan in Victoria. This includes a joint report by TC&A and Frontier Economics (Asia-Pacific) which the government commissioned to assist its own analysis.

The Murray-Darling Basin Plan formally commenced in November 2012 and sets limits on the amount of water that can be extracted from the Basin. The recovered water will be used to help improve the environmental health of Basin rivers, wetlands and floodplains and the habitats of plants and animals that rely on the river system. The Basin Plan’s overall Sustainable Diversion Limit (SDL) aims to recover 2750 gigalitres (GL) of water for the environment and comes into effect in 2019. There is scope within the Basin Plan, however, for the SDL to be in the range of 2100 GL to 3200 GL with the use of offsetting measures and on-farm efficiency measures.

The report by TC&A and Frontier Economics was commissioned to assist the Victorian Government undertake a socio-economic analysis into the impacts in Victoria of water recovery through the Basin Plan. This analysis will inform discussions with the Commonwealth Government and help to make sure that all future water recovery from Victoria is based on robust evidence that it can be done with neutral or positive social and economic impacts. The report sets out a systematic and repeatable method for analysing the impacts of the Basin Plan in Victoria. It is not a comparison of irrigation before and after the Basin Plan, rather it is a comparison of what happened after the Basin Plan was implemented with what could reasonably have been expected to have happened if the Basin Plan had not been implemented.

The report found that characteristics of water use in the southern-connected Basin have changed significantly as a result of the Basin Plan. The consumptive pool has decreased significantly and the mix of industries has changed; horticulture, with its relatively fixed water demands now accounts for a larger proportion of the consumptive pool. Irrigators have been adapting, but the recent relative abundance of water since buyback was completed (with the notable exception of 2015/16), has enabled many irrigators to maintain water use though water allocation purchases. Consequently many of the socio-economic impacts of the Basin Plan may not be observed until the next drought.

Frontier Economics regularly advises governments, regulators and businesses in the water sector in Australia and the region.

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The New South Wales Planning and Assessment Commission (PAC) announced today that it rejected ANGLO American’s application to approve its Drayton South Coal Project.

The proposed coal mine was within the neighbourhood of the two leading horse studs in Australia: Coolmore and Godolphin (Darley). The studs had fought the development, claiming that they would be forced to leave the area if the mine proceeded. ANGLO American produced various reports from economists in support of its proposal.

Frontier (Asia-Pacific) advised the lawyers for the studs, examining the economic case for the mine.

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