The ACT Legislative Assembly rejected Government legislation last week over betterment charges. The charges apply when someone wants to change the purpose of their lease, say, from residential to office, or office to retail. The charges are set according to the value of the lease (without improvements) before the change of purpose and what the value would be if the lease allowed a new purpose. So if a lease were converted to retail purpose it might be worth $200,000 more than it is worth as a retail lease.
Health Minister Michael Moore since he entered the first Assembly in 1989 been a consistent supporter of making developers pay the full increase in value to the Government for the change of use. He argues that under the leasehold system any increase in value attributed to change in use is a public asset and should not be given away. Developers should not get a windfall profit. He took off his ministerial hat this week and donned his Independent MLA hat in support of that view. There is some merit in it, but it has one significant drawback.
The Government, on the other hand, feels that development should be encouraged. It feels that the change of use charge should be only 50 per cent of the increase in value, replacing the present temporary rate of 75 per cent which applied until September when it reverts to the permanent 100 per cent rate.
The Assembly majority for the 100 per cent rate arose after the Labor Party changed its earlier stand for a lower rate. The Greens Kerrie Tucker has been a supporter of a 100 per cent rate since she entered the Assembly in 1995. Independent Paul Osborne supported it, too.
The general principle with leasehold is that it is a lesser title than freehold and that the person owning the underlying title, in this case the Government, wants to exercise some on-going control over the use to which the land can be put and (though not in the ACT) a continuous revenue in the form of ground rent. The ACT is unusual for two reasons. The city has grown rapidly so that uses, particularly in the centre, are no longer an efficient use of land. The city has a lot of land held by charitable and sporting bodies and national associations. It is in the public interest that some of these holdings get redeveloped.
Mr Moore is right to say that the increase in land value for a change of use is a public asset, because it was the general building and improvement of the city over the years that has made the land more profitable for other uses. The public should get the benefit. The real question is how much. A 100 per cent charge is right in principle, but it means that many current holders will not give up part of their leases for other uses because there would be nothing in it for them. If there is less redevelopment, then the community which is supposed to benefit from the 100 per cent charge, will in fact miss out. On the other hand, the Government’s proposed 50 per cent charge is an unwarranted gift to developers. There is no evidence to suggest that such a high windfall is needed to encourage development. Under the 75 per cent compromise there has been no impediment. That rate, or perhaps a slightly higher one, seems to provide enough encouragement and cover any risk of misvaluation without either providing unwarranted windfall to developers or loss of public asset.
The sensible thing now would be for the two sides to compromise.