ICP Vs DCP – Land Contributions Ministerial Direction

The Planning and Environment Amendment (Public Land Contributions) Act 2018 (PLC Act) became operational this week. This legislation introduces a new system known as Infrastructure Contribution Plans (ICP), which is designed to replace the Development Contribution Plan (DCP) process for new Precinct Structure Plans (PSP) in the greenfield areas.  In addition to the PLC Act a Ministerial Direction under Sections 46GJ and 46GZI was also adopted.

Some of the key changes include;

• A flat ICP contribution rate per net developable hectare is applied, subject to indexation. Defined criteria established where the application of a supplementary levy may be adopted.
• The Ministerial Direction identifies allowable community, recreation and transport items to be included or excluded from an ICP.
• The Ministerial Direction at Annexure 1 – Attachment 1 identifies Metropolitan Greenfield Growth Areas where an ICP can be introduced (see below).
• An average public land area percentage will be identified on a ICP by ICP basis for inner public purpose land. Landowners will then be required to contribute land up to the average percentage without a monetary reimbursement. If a particular land owner contributes above the average percentage (the overage) they will be entitled to a monetary reimbursement for the overage. Land owners that provide less land than the average will be required to fund the monetary reimbursement for those providing an overage.
• Councils administering ICPs will be able to acquire inner public purpose land as required. Owners of inner public purpose land are not entitled to compensation under the Land Acquisition and Compensation Act 1986 (LACA).
• The valuation methodology adopted to assess the reimbursement for those landowners providing above the average has evolved from the previous DCPs and is detailed below.
• The inner public purpose land component will revalued every 3 years and indexed by a rate prepared by the Valuer General Victoria for the intervening 2 year period.  Landowners will have the opportunity to object on revaluation years and have the matter determined via a Valuer General Victoria process.
• The concept of outer public purpose land is introduced. If land outside the ICP area is required to set aside for a public purpose to enable or satisfy development needs within an ICP it will be identified. Outer public purpose land is to adopt the valuation methodology contained the LACA, however a Public Acquisition Overlay may not be applied. Additional clauses have been introduced to the Planning and Environment Act 1987 designed to exclude owners of properties that have outer (and inner) public purpose land identified from triggering a claim for compensation for financial loss.

ICP Land Valuation Methodology

The Ministerial Direction requires inner public purpose land to be valued on the following basis;

31. For each parcel of land for which an estimate of inner public purpose land value report is to be prepared, the valuer engaged by the planning authority must:

(a) determine the estimate of value of all the inner public purpose land identified in the parcel using the following assumptions:

(i) the subject land is zoned for an urban purpose and valued at its unencumbered, highest-and-best use within this context;

(ii) land in and around town centres identified in the relevant Precinct Structure Plan or equivalent strategic plan will be assumed to be zoned for residential purposes;

(iii) the subject land is readily serviceable and accessible by road;

(iv) the subject land is regular in shape with two existing road frontages and any GAIC (if within the GAIC area) has been paid and any infrastructure contribution has beenprovided; and

(v) the subject land is at the development front and market demand exists.

(b) calculate a $/hectare rate for all the inner public purpose land identified in the parcel.

This valuation methodology has significant differences to the assessment of inner public purpose land as compared to the DCP system. For instance elongated arterial roads that were typically valued as part of a larger broad hectare parcel as they didn’t have development potential in their own right are now to be valued as a regular shaped parcel with 2 street frontages. The site specific assessment requires a valuer to assume that land is not subject to GAIC or ICPs. This means that adjustments to sales evidence must be made to reflect this benefit.

What Valuation Methodology has been adopted?

Depending on which ICP/DCP area your greenfield land is located may mean that you are entitled to a different land monetary reimbursement based on differing valuation methodologies. For example, the following ICP/DCPs have been approved in the last 2 years in Melbourne’s northern growth corridor.

Conclusion

The new PLC Act and Ministerial Direction significantly enhance the transparency and efficiency of the DCP/ICP process. Due to the change in valuation methodology those that are either over or under providing the inner public purpose land average will now obtain greater reimbursements or be required to pay greater land equalisation amounts respectively than compared with the DCP system.

Outer public purpose land requirements have the potential to be controversial in certain circumstances, although in other circumstances it may provide Councils with an incentive to acquire land early in accordance with the LACA.

The application of the new legislation will be welcomed by the majority of land owners in the nominated greenfield areas. There has been discussion about adopting the ICP system for Fisherman’s Bend. The majority of the land in Fisherman’s Bend is currently improved and occupied with more complex considerations than the change from a rural to an urban use in the greenfields. A more sophisticated approach and valuation methodology is likely to be required.