Melbourne’s VCAT Bypass Welcomed, Construction Still Years Away

Victoria may have handed Melbourne developers the planning certainty they have long sought but insiders say whether that translates into homes being built is another question. The state has finalised planning controls for 25 train and tram activity centre zones across Melbourne’s inner and middle suburbs, with core precincts allowing buildings of up to 20 storeys and a streamlined approvals pathway that removes VCAT exposure. Released last week, the final controls cover stations along the Metro Tunnel, Glen Waverley, Sandringham, Belgrave, Lilydale, Upfield and Hurstbridge lines, as well as three tram corridors at Thornbury and Kew. Core zones permit building heights ranging from 6 to 20 storeys depending on location, with inner catchment areas allowing up to four storeys, or six on larger blocks. Outer catchments are capped at three storeys, or four on larger sites. Projects that comply with planning rules in core zones will be deemed to comply, removing the right of appeal to the Victorian Civil and Administrative Tribunal. Planning minister Sonya Kilkenny says the changes will enable “more Victorians to live in places that have great trains, trams, schools and jobs nearby”. Height limits in the finalised controls differ from earlier drafts across several locations. Parts of Brunswick and Coburg have been lifted to 20 storeys, up from a proposed maximum of 16, while Oakleigh’s core around Eaton Mall has been reduced from 12 to 6 storeys. Heights around Kew Junction were also reduced, with sections previously proposed at 12 storeys cut to eight or 10. Premier Jacinta Allan says the reforms targeted suburbs that had experienced slow housing growth despite strong transport links. ▲ Kew Junction activity centre is one of three tram corridor zones included in Victoria’s finalised planning controls. “For years, some of Melbourne’s best-connected suburbs have been locked up and it’s pushing young people and families out,” she says. Economics the remaining hurdle Industry reaction highlights the gap between planning permission and delivery. Molti managing director Ben Teague says loosened controls in prestige suburbs such as Kew, Brighton and Hawthorn would benefit landowners who bought sites before the new controls were gazetted but were unlikely to improve affordability for buyers. Taxes, levies and infrastructure contributions, none of which the controls address, continue to compress feasibilities and get passed on to end purchasers, he says. “Developers will not deliver housing if it’s not viable,” Teague tells The Urban Developer . Carpe Group co-director Stuart Kacir agrees that construction costs and increased taxes remained the bigger obstacles to delivery. Higher-density projects also carry their own market risk, he says, with buildings of up to 20 storeys potentially losing the boutique appeal that attracts buyers in established inner suburbs. Kacir highlights Victoria’s weak price growth over the past five years as a compounding constraint, with construction costs rising around 40 per cent over the same period. The resulting squeeze on the wealth effect had dampened buyer appetite and made new construction difficult to fund outside the affluent downsizer market. Prime Edition managing director Eric Loi welcomes the density push but said most activity centre locations would struggle to convert approvals into supply. “Developers will not simply start building overnight because they suddenly double the number of apartments on their site,” Loi tell The Urban Developer . “There are definitely some suburbs that will benefit from the increased density but I’m afraid the majority will not work—certainly not at this point in time.” The core obstacle, he says, is that developers are not achieving the revenue needed to make projects financially viable due to high costs and property taxes. A genuine supply response would require tax reductions, measures to encourage foreign capital back into Victoria and policy settings that give landlords confidence to invest and lease again. Approvals certainty a welcome step Charter Keck Cramer national executive director of research Richard Temlett welcomes the planning changes as a necessary step but says tax reform remained the critical unresolved issue. ▲ Charter Keck Cramer national executive director of research Richard Temlett. Delivery costs are running around 30 per cent above pre-pandemic levels, driven by lockdowns and the cost-of-living crisis, and planning reform alone would not be sufficient to make projects viable across many of the activity centre locations. “It is one of the levers that they can and should pull and I commend them for doing that,” Temlett tells The Urban Developer . “The market response is likely to be that developers will get approval for greater density but it’s not necessarily going to convert into new supply just yet.” All three said the VCAT removal was the most immediately useful element of the package. “Planning certainty is fantastic for our business model, so the removal of VCAT exposure is appealing for us and our investors,” Teague says. “Risk management is everything in development—it’s one less thing to worry about.” Kacir says the deemed-to-comply pathway allowed Carpe to begin preparing sales, marketing and construction programs from the outset without waiting on a planning approval, which would cut six to twelve months from a project timeline. The time savings would ultimately flow through to landowners via higher site values or to purchasers through a lower cost base, he says, rather than directly improving financier appetite. Teague says that height uplift on paper does not automatically translate to a changed highest and best use. Overshadowing and overlooking provisions remain in force and owners in quieter suburban streets may find their development potential is more constrained in practice than the zoning maps suggest. ▲ Teague (left), Stuart Kacir (middle) and Loi (right) say taxes and construction costs remain the bigger obstacles to delivery despite the planning reforms. Election uncertainty freezing decisions Opposition leader Jess Wilson has says she would scrap the activity centre program if elected, favouring concentrated high-density development within Melbourne’s CBD. Temlett says the policy divide between the two major parties meant many developers would be unlikely to commit capital before the November state election. “They’re not going to make decisions until the election is decided. They can’t,” he says. With so much money at stake, the market effectively holds its breath until the outcome is known and when one party signals it will reverse the other’s reforms, developers sit on their hands, he says. Both sides of politics would be well advised to pursue bipartisan positions on housing supply, Temlett says, warning that a policy reversal after an election would be “an absolute disaster” for projects already in motion. Loi says the opposition’s stance was undermining confidence at an already difficult time for the industry. “We need both sides of government to work together collectively and look at the bigger picture of how to increase housing supply,” he says. Kacir says the uncertainty was causing hesitation on new acquisitions, particularly where planning approval was unlikely before the election. In that scenario, feasibility work would revert to the previous zoning. Carpe had recently acquired several sites within the new activity centre zones, including one in Hampton, where planning applications could now proceed immediately, he said. Supply response years away Temlett says the government should not expect an immediate supply response regardless of approvals activity, as the controls now being finalised were laying the groundwork for supply several market cycles away. “It’s not going to change things overnight,” he says. “Planning takes 7 to 10 years to play through anyway. Even if all these projects are approved and launch to market now, it’s still going to take one or more market cycles for supply to be delivered. “The government mustn’t get frustrated when they see all these things getting approved but then nothing actually launching to market … unless they change that tax wedge.”

Melbourne’s VCAT Bypass Welcomed, Construction Still Years Away

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