What’s the Development Cost per Lot across the SEQ Growth Corridors?

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7 September 2021 - Do you know how much it cost to develop a site in Moreton Bay? How about Logan, Ipswich, Brisbane, or the Sunshine Coast?

By Andrew Ngo, Principal Engineer, PEAKURBAN

Do you know how much it cost to develop a site in Moreton Bay? How about Logan, Ipswich, Brisbane, or the Sunshine Coast? Well, there’s now an easy way to find out. We’ve done the heavy lifting and collated data from 80 projects to provide a snapshot of the average cost per lot to develop land across the SEQ growth corridors.

While nothing beats a good comprehensive due diligence, we know that’s not always possible so this snapshot should be useful for a high-level assessment.

We’ve extracted this data from our 2021 data set including 32,000 lots in cost estimates and constructions costs for circa 1,300 lots (currently under construction in 2021) and share the findings below:

Table 1 – Average Internal, External, and Total Development Costs per Lot.

Notes:
1. Civil costs to service allotments.
2. Civil costs not directly associated with servicing allotments.
3. Includes civil, electrical/comms, Authority fees, contributions and offsets, professional fees and 10% contingency.

Insights gained from data

Since we first started tracking this data in 2019, overall development costs have increased with the most obvious reason being increases in civil construction costs due to supply constraints. However, that’s over-simplifying the situation and we believe there are several other reasons.

We start with the more straightforward ones for what we see happening in Brisbane, Logan Reserve/Park Ridge, and the Sunshine Coast.

Brisbane North (1.5% increase)

  • Is defined by fragmented land and has been for many years.
  • Sites are also typically steeper or low laying so require significantly more earthworks.
  • Development has typically required interim servicing solutions which increases internal costs (development against grade, deep services, pump stations, etc).
  • A good example of the above is in Bridgeman Downs where development has (once again) outpaced planning so interim solutions have been negotiated.
  • External works are reduced by relying on “sweating existing networks” until augmentations occur or are absolutely necessary.
  • As such less trunk infrastructure is being delivered but full charges are being paid.
  • Where charges are being credited, the infrastructure is typically quite significant i.e. water reservoirs, road upgrades, etc. The key has been in negotiating full offsets to keep the overall costs down.
  • The rate of increase has not been significant but note that the baseline costs were already high.

Brisbane South (10% increase)

  • Much like North Brisbane, there is limited development opportunity due to fragmented land.
  • In contrast to North Brisbane, planning has been well developed so we generally know what to expect when we develop in Brisbane South.
  • External costs have reduced from previous years as major infrastructure has been delivered and is currently able to be utilised.
  • However, land fragmentation is becoming a bigger issue and has resulted in interim servicing strategies being required which has driven up the internal costs.
  • A key finding is that projects are typically required to be bought on terms due to fragmentation leading to extended approval times.
  • The impacts of amended Local Government Infrastructure Plans (LGIP) which reclassified trunk infrastructure to non-trunk infrastructure is only now being realised with costs being passed onto developers.

Logan Reserve/Park Ridge (8% increase)

  • Planning is well developed in this area.
  • While fragmented land still occurs Logan City Council have been very proactive in delivering critical infrastructure in areas to meet the increasing growth/demand.
  • It is unsurprising that internal development costs have only increase moderately (8%) while external costs have reduced as a result.
  • Good development opportunities still exist but be mindful of development sequencing with regards to timing of planned infrastructure works as the further reaches of the catchment are forecast for development beyond 10+ years.

Sunshine Coast (43% increase)

  • There are limited greenfield development opportunities beyond the 2 or 3 major projects. Given this, the costs have increased significantly since 2019 as the result of the previous data set being limited to smaller projects.
  • Infrastructure Planning is well advanced for those large projects
  • As such, it is not unexpected that significant capital investment is required for external infrastructure to support the growth in these major project corridors.
  • Note that the range of development costs is between $96k to $125k in data. It is appropriate to consider projects on a case-by-case basis in this corridor noting the following:
    • The higher range aligns to projects with higher levels of State Infrastructure
    • The data shows that the range for master planned projects with less state infrastructure would between $96k to $110k/lot.

We now look at Moreton Bay and the remaining growth areas.

Moreton Bay (9% increase)

  • Is defined by pockets of land that can be developed with reasonable infrastructure, mixed with larger land holdings where growth and demand have outpaced planning and infrastructure investment.
  • Infill sites are very cost effective to develop but are difficult to find.
  • Planning and infrastructure investment continues to lag, so the onus is on the developer to negotiate with authorities on a project-by-project basis for land outside of the Priority Infrastructure Areas (PIA) to determine the cost of infrastructure. Most approvals in MBRC require Infrastructure Agreements (IA’s) which typically involve building a suite of works over and above capped charges, hence the higher costs.
  • The key is in negotiating equitable infrastructure that can be amortized across the achievable yield, the bigger the site the better but fragmentation is making this difficult.
  • Timing of negotiations are critical and must be undertaken well in advance of project commencement given the uncertainty.

Ripley PDA/Ipswich Corridor & Flagstone PDA (27% and 42% increases respectively)

  • Larger master planned communities typically include enviro / bushfire corridors and authority requirements. For example, linear parks / open spaces are required to have esplanade (one sided) roads, and this results in reduced yield resulting in higher costs  per lot. These cost impacts are also applicable for developments in local authorities however, of the projects sampled, it was found that not all projects required these corridors but almost all Priority Development Areas (PDA) areas did.
  • Projects in these corridors are becoming more difficult and costly due to a range of site characteristics. We see that available sites are now pushing into areas with much steeper topography or more geotechnical impacts such as rock. The result being a significant amount of cutting in rock and extensive quantities of retaining walls to produce benched allotments.
  • The further development pushes out, the more trunk infrastructure is required which adds to the cost of development. Authorities are removing a lot of ‘trunk’ offsettable works from their planning schemes / charging regimes and transferring these costs to ‘developer costs’ adding to the nett increase.
  • Increase in infrastructure costs also occur when planning schemes and guidelines are rigidly applied without consideration of the commercial implications. Examples include unrealistic expectations on density, and opportunistically locating schools or parks on development sites due to the ambiguity in development schemes. This renders sites unviable.
  • Unexpected cost increase also has significant impacts such as the recent proposed increases to Development Charges and Offset Plan (DCOP) charges for PDA areas. This could potentially increase costs by circa $7,000+/lot. Note that these proposed charge increases are not included in the current data.
  • Unless a site has sufficient scale (2000 lots plus), there is likely to be insufficient yield to amortize the high trunk and non-trunk infrastructure costs necessary to deliver the project.
  • Smaller sites therefore need to take advantage of nearby infrastructure (as infill), or larger sites are required (bigger the better) so that the infrastructure investment / costs can be amortized.
  • Given this, a sharp focus is required on determining whether the site is the right size to avoid being “stuck in the middle” and requiring significant infrastructure with insufficient offsets available (or high major infrastructure costs).
  • Authorities tend not to entertain any infrastructure refunds so creative solutions are essential in making sites work.

The Effects of Land Supply

Something that we’ve been grappling as an industry for a long time is land supply or lack thereof. We have been saying for many years that policy makers are ‘sleeping through the alarm clock’ when it comes to land supply and the affordability consequences of not having enough of it.

  • There is limited land available across Brisbane and the land that is available is becoming more fragmented.
  • Available land comprises mainly of a handful of key areas i.e. Aura, Harmony, Flagstone/Greenbank, Ripley, and Yarrabilba.
  • The major projects that were intended to be affordable are now the most expensive on a cost per lot basis to develop.
  • Some land remains available in corridors like Moreton Bay, but are locked up because the planning and infrastructure investment has not kept pace with the growth. This will lead to uncertainty around timing of development and likely add to development costs in the future.
  • Logan City Council are doing something right in Logan Reserve/Park Ridge to keep costs at a manageable level. It appears their approach to applying offsets for infrastructure that would have otherwise been eligible for offsets if the land were included in the PIA is helping the commercial metrics of those projects.

Where to from here?

As you can see, the data tells us that we have many challenges ahead of us. Land supply continues to be the key issue, and this is compounded by projects costing more and more to develop. There is no silver bullet, but we believe that there are things that we can do collectively as an industry to meet these challenges.

We have a few ideas and suggestions and will be drawing on the collective power of our contacts in the development industry to present these in our next newsletter. Please feel free to reach out if you wish to contribute. A special thank you to the developers who took time out to share data from their major projects on the Sunshine Coast.

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