People needed to be given an incentive to move out of old inner areas where it was socially desirable to have renewal, according to the Australian Institute of Valuers and Land Economists.
For that reason, it said, betterment should be levied at something less than 100 per cent of the change in value as a result of change of land use.
It acknowledged the present system had been eroded because present law changed betterment according to the difference in the “”before value” under the old lease purpose and the “”after value” with a new lease purpose. The market value of the “”before value”, however, contained a component for potential redevelopment, so the difference between the two values had narrowed significantly.
The difference “”now only represents the value added for the formalisation of the potential recognised by the market”. In other words, the return to the community from betterment had decreased.
However, the institute rejected calls for 100 per cent betterment based on a “”before value” that excluded potential for redevelopment.
It said in a paper issued last week that the current situation had resulted in the majority of the increase in value going to the original lease-holder, not the developer.
Developers sought to make profits from development projects, not necessarily to expect to make additional profits from the increase in land value on change of lease. The same developers had been prepared in the past to pay full market value for raw land with medium-density land use at auction.
Redevelopment was only viable when the value of the cleared site with the new use was higher than the cleared site plus the improvements under the old use.
The Government got benefits from redevelopment: stamp duty on the initial transfer and on the later units transfers; higher rates and land tax; and increased use of existing schools and shops etc.
Further, redevelopment had desirable social consequences, enabling asset-rich, cash-poor inhabitants of old houses to upgrade and cut maintenance costs. Redevelopment prevents urban decay.
To do this it was necessary that some of the increased value should go to existing lease-holders to encourage them to move to permit redevelopment.
The institute favoured a system of augmentation fees, as was used in the Kingston/Griffith redevelopment. Under this system old leases had uses marked “”residential”, not stating its density. So there was no need to change the lease. However, the Government could charge a fee to permit higher densities. It would be at a per-unit rate.
The rate would be struck at different levels for different areas according to government policy. It had the advantage of certainty. Developers would know what the fee was before going into an area. Under betterment, they did not know what betterment would be levied until after they had bought existing leases.