Every now and again, we assess a potential development site as being equally suitable to be subdivided into 2 large dwellings or 3 small dwellings.
All things being equal, a three unit development should be more profitable than two.
Unfortunately, not all things are equal…
Public Open Space: When developing two units may be better than three…
Assuming that the right product has been made for the right market, why would a three unit development be less profitable than a two unit development?
The answer lies in a Victorian law that only applies to developments of three units or higher.
Public Open Space Contributions
Clause 52.01 of the Victorian Planning Scheme allows for each Council to specify a Public Open Space contribution that must be paid by any developer wishing to subdivide their property into three lots or higher.
The Public Open Space contribution is essentially a ‘tax’ imposed on higher density subdivisions to compensate for the expected increased use of nearby Public Open Spaces (eg. parks, reserves etc) caused by the development.
Some Councils have fixed contribution amounts, while other Councils calculate the amount of contribution to be paid depending on factors like:
- Specific location of the subject site within designated Council boundaries
- How far away the subject site is to Public Open Space
- Type of development
- Amount of Private Open Space devoted to each dwelling in the development
- The number of bedrooms (ie. number of occupants) within the development
Public Open Space contribution example: Mornington Peninsula Shire Council Planning Scheme Clause 52.01
Under the Subdivision Act 1988, if a Public Open Space contribution is not specified in the Planning Scheme, Council may require the developer to pay a Contribution up to 5% of the value of the property.
So for example, a 900 m2 allotment valued at $600,000 that is to be subdivided into three lots, could potentially have a $30,000 Public Open Space contribution that needs to be paid to Council.
Alternatively, the developer and Council may agree to set aside a portion of the site specifically for the purpose of Public Open Space up to 5% of the value of the subject site.
Two units or three?
Public Open Space contributions do not apply to dual occupancy subdivisions and developments (with the proviso being that each sudivided lot can not be further subdivided).
Given the above, two units may* be better than three if:
- The local market has demonstrated an ability to absorb higher priced, larger dual occupancy dwellings
- Your proposed three lot subdivision will be required to pay the maximum Public Open Space contribution due to its location/configuration
- You do not have the financial arrangements to pay the Public Open Space contribution upfront
- The Public Open Space contribution leaves your three lot subdivision project feasibility too tight to justify the increased risk
If you are considering pursuing a three lot subdivision (or higher), ensure you factor in paying your Public Open Space contribution.
Public Open Space: Conclusion
Clause 52.01 of the Victorian Planning Scheme allows for each Council to specify a Public Open Space contribution that must be paid by any developer wishing to subdivide their property into three lots or higher.
Under the Subdivision Act 1988, the Public Open Space contribution is legally permissible to be up to 5% of the value of the property.
Public Open Space contributions do not apply to dual occupancy subdivisions and developments (with the proviso being that each sudivided lot can not be further subdivided).
Depending on your circumstances, two units may* be better than three.
If you are considering pursuing a three lot subdivision (or higher), ensure you factor in paying your Public Open Space contribution.
* Although Public Open Space contributions need to be factored in, given the choice, we advocate developing sustainable, higher density but smaller dwellings.
SUBDIVIDING YOUR PROPERTY?Public Open Space contributions are just one factor.
Ask about our Property Development Assessments today!
Subscribe via RSS
Follow us on Twitter