Developer's perspective on economically sustainable development

Lesli Berger
General Manager
Fivex Property Group
November 2007

Background

We are a private family company which carries out development in and around Sydney.  The development which I have analysed for the purpose of this paper is as follows:

Pre-DA issues

The development involves a 4-storey sustainable commercial (ground floor retail and 3 levels of commercial office space) development that harvests rainwater on site, recycles sewage for non-potable water uses, and, as a result, the base building has no connection to mains water or sewage, uses passive solar design features, low wattage light fittings, maximises natural light to each tenancy, uses only non-rain forest wood, low VOC paints, carpet tiles, will have a productive roof garden, was built using sustainable construction methodologies, and critically provides no onsite basement parking.  Michael Mobbs, the ecological sustainability coach for the project rated the building as equivalent to a 6 star green star rated development.

When Fivex purchased the site, there was an approved DA for a mixed use residential scheme of 4‑storeys in height (ground floor retail and 3 levels of residential apartments) and a basement car park underneath.  The first hurdle we had with Woollahra Council was that it would not accept as met any of its criteria for the new development, which had been approved under the old development.  For example, the previously approved scheme had approval for a basement car park.  Fivex did not seek approval for a basement car park but did seek approval for a minor excavation for an 80,000 Litre rainwater tank and sewage tanks.  Council required a new geotechnical report as well as an acid sulphate soil analysis.  This was an expensive exercise and delayed the assessment of the Fivex DA by at least a month.  Further, the issue had not been advised in the formal pre-DA meeting, and then was put up as a reason to delay the DA approval.  Notwithstanding that Council agreed to a certain number of test points, it later resiled from that agreement and requested further test points creating delays and costs.

DA issues

DAs are no longer merely approval for a design concept, and the DA process is no longer just about town planning.  Since the introduction of the private certification system, councils require construction information such as geotechnical analysis, structural engineer's reports, acid sulphate soil tests, and even a Work Method Statement to be submitted at the DA stage.  Providing all of these reports is not only expensive without knowing whether or not development will be approved, but it is also time consuming to prepare these reports and time is a large part of the cost in construction.

Woollahra Council took 7 months to process our DA however the DA should have been processed significantly faster for the following reasons:

Post consent issues

After obtaining our development consent, we ran into post development conditions which we were required to meet, and which councils tend to be slow to process.  These conditions included:

The main issue Fivex had with this new condition was that it meant Fivex would not have been able to house the sewage treatment tanks on the roof of its building (which are visible from the public domain), nor would Fivex have been able to go ahead with the public productive roof garden concept which required at least stair access and preferably lift access as well.  Both the stairwell and the lift core are visible from the public domain.

Fivex lodged a section 96 application to modify the consent and when the matter came before a committee of councillors (of Woollahra Council) Fivex had its name put into disrepute by a councillor who suggested it had deliberately doctored its photomontages, which of course was not true.  I explained to the councillors the impact on the environmental systems as a result of this condition and majority of the councillors agreed to remove the condition to allow Fivex to have plant and equipment on the roof that was visible from the public domain.  However, this exercise was extremely expensive and time consuming to go through for a relatively minor change, and as a result of the politicisation of this issue, it was necessary for me personally to call all 15 councillors and explain to them why the condition had to be removed. 

Requirement for an electricity substation

Energy Australia made it clear to Fivex that Double Bay had a limited electricity supply and Energy Australia initially indicated that Fivex would need to provide an electricity substation on our property.  Energy Australia offered no compensation to take our land.  We suggested two alternatives to Energy Australia:

So, without any rights of appeal, and without any financial compensation, Fivex was forced to give Energy Australia 40 sq metres of prime retail space for the provision of an electricity kiosk substation.  Since the majority of the supply provided by the kiosk substation would be provided to other users in Double Bay, Energy Australia paid for the actual installation of the kiosk substation.  The capital value of the land taken by Energy Australia is, conservatively speaking, valued at $700,000.00.

Disconnection from mains water

Normally when you build a development, you make an application at the time of the construction phase to connect to mains water and sewage with Sydney Water.  As part of this a section 73 application needs to be made for Sydney Water to assess any additional load on the system and assess development costs.  Since Fivex was not connecting to mains water and sewage, we did not need to make a section 73 application, nor pay the associated fee to Sydney Water, however, when my plumber approached Sydney Water to make an application to connect the fire hose reel he was asked to produce the section 73 application.  In short, Sydney Water refused to approve our fire hose reel connection to mains water because they wanted us to lodge a section 73 application to demonstrate that Fivex were not connecting to mains water.  After 3 months of negotiations at all levels of Sydney Water, including receiving assistance from the Minister's Office, Sydney Water came to the realisation that a section 73 application is only required when you are connecting to mains water and sewage, not in circumstances where you are NOT connecting to mains water and sewage.  The technical section understood, and accepted, the proposal from an early stage, the section whose role it was to collect the developer contributions from the section 73 application were reluctant to accept the concept. 

Section 94 appeal

One of the key environmental benefits of the Fivex development was its decision not to provide any parking on the site.  However, Fivex acknowledged that the development will generate a need for car spaces, and it offered a voluntary planning agreement with Woollahra Council to trial a car sharing scheme in the nearby Cross Street Car Park.  If the trial was successful, Council would have foregone the section 94 monies, and, if the plan failed, Council had the right to collect the full section 94 monies.  Council rejected the car sharing trial on the basis that it was an unproven and administratively unworkable concept from their point of view.  At no time did Council endeavour to negotiate with Fivex over the terms of the voluntary planning agreement. 

When Fivex engaged Hunt & Hunt it became clear that Council had only carried out a preliminary analysis regarding the reasonable costs to build the additional parking in Double Bay, and based its section 94 contributions plan on that analysis.  Further, on further investigation, it was discovered that the car park Council wanted to expand has a current surplus of car spaces over and above the demand generation rates as contemplated under the contributions plan.

The matter has been subsequently resolved by way of consent orders for a final sum of $693,000.00 which amounted to a 13% development tax.

Section 68

Unfortunately, it was only after we received our occupation certificate that we discovered that our sewage treatment system required a separate Local Government Act approval under section 68 that – naturally by that stage we had already built it.  In our defence, we correctly thought that Council had approved our rainwater harvesting system under the original DA, where we were mistaken is that the sewage treatment system requires not only development approval but also a separate approval (assessing exactly the same issues under the DA) under s68 of the Local Government Act.

As a result of this additional red tape, Fivex will be forced to spend an additional $50,000 to $80,000 on consultants to demonstrate to the satisfaction of Council, DEUS and the Department of Health that our sewage treatment system and rainwater harvesting systems are safe, and rigorous, and in the event of a failure the risks are minimal. 

The Department of Health has now issued some new draft guidelines which require very frequent testing of the water treatment system.  If the guidelines are strictly enforced, we estimate they will cost in the order of $15,000 per annum to implement because the cost of each test is approximately $300.  On inquiry with the Department of Health, it denied the additional cost, claiming each test would only cost $27.  Clearly that is a discount price and not available to Fivex.  If the Department's draft guidelines are enforced, the cost of implementing such a rigorous testing regime will make it financially unviable for almost all new developments to install rainwater tanks for potable water uses.  

The increased cost of building a sustainable building

On a development costing approximately $5 million, the additional cost for ecological sustainable systems incurred by Fivex are set out below (as provided by our quantity surveyor: Bruce Davies).

All of these costs are extra to what would conventionally be anticipated, although some can be justified for architectural as well as sustainability reasons. 

All figures include a loading of 21%, being a proportional allocation of builder's preliminaries, supervision and overheads.

Fivex estimates, based on the expected savings in running costs in terms of electricity and water savings for this sustainable development, that we can capitalise a saving of about $200,000.  Therefore the increased capital cost of the sustainable systems is $487,000.

What has not been fully assessed are the ongoing consultant costs to design and manage the sustainable systems.

Further, I have separately calculated the capital value of lost retail space in the centre of the ground floor retail.  Since there is no basement car park, Fivex needed this space to service the underground rainwater tank and sewage recycling tank:

In addition, there has been a small loss of space on each of the office floors to accommodate sustainable systems, which I have not included in my analysis, but I have assumed this would offset the construction costs of the 40 sq metres if it were retail space.

Therefore the total cost to the project of the sustainable systems was $1,325,095.23.  This was a significant financial commitment given that the building could have been built for $5 million without the sustainable systems. 

Why isn't sustainable development the standard form of development?

In my view, sustainable development is not the standard form of development for the following reasons:

Lesli Berger
General Manager
Fivex Property Group
November 2007