We have seen the concept of ‘overdevelopment’ dominate town planning debates in past years, when economic settings were strong, but housing policy was relatively weak. With recent reforms, the conversation has flipped 180 degrees, and ‘underdevelopment’ is emerging as the new buzzword.
‘Underdevelopment’ is the clear undercooking of a site’s development potential relative to what the planning scheme encourages. It can raise concerns about whether the proposal delivers the orderly planning outcomes and community benefits sought by the planning scheme, such as housing supply, affordability or employment.
In practice, whether a development is considered underdevelopment will depend on the planning controls applying to the site, the nature and permanence of the proposal, and whether it preserves the potential for future development.
It would appear this issue is likely to surface frequently across the various activity centres in metropolitan Melbourne, where substantially greater building heights and development intensities are now encouraged by the planning scheme.
However, the aspirations of many new planning controls may not yet be financially feasible, and the wheels of commerce must continue to turn in the interim. I believe small business operators must be allowed to remain operational, evolve and, where justified, make reasonable improvements to their premises until such time as economic conditions make the desired urban renewal a viable proposition.
Yet, many councils have indicated that proposals which do not respond to the intended scale of development may face significant planning challenges.
Some might say this is a direct byproduct of the housing targets, with councils facing increased criticism for not doing enough to support housing supply. The converse view, as advanced in the notable VCAT decision Doncaster Road Property Partnership v Manningham CC [2004] VCAT 2445 (8 December 2004), is that ‘an even worse outcome and a higher degree of underdevelopment is no development’.
Underdevelopment when defined by one specific factor such as capital cost, or proposed heights well below those encouraged, does not necessarily mean that a proposal is unacceptable. The key question is whether the development delivers a reasonable outcome now while preserving the ability to achieve a more intensive outcome in the future.
The achievement of a ‘net community benefit’ requires a balancing of a range of sometimes competing matters in the interests of both present and future generations. The challenge is determining where the balance should sit when the planning scheme aspirations are clear, but the economic conditions required to deliver them are not.
There is no single test for determining whether a development is underdevelopment. Each proposal needs to be considered on its own facts and circumstances.
The concept of ‘underdevelopment’ is not a new one. The 2004 VCAT decision ‘Doncaster Road Property Partnership v Manningham CC’ is commonly referenced in this context. In that matter the Tribunal considered and refused a proposed car dealership building on the grounds that it was too low scale and contrary to objectives of the Doncaster Hill Activity Centre area strategy.
It is not, however, the only example. There have been many other VCAT decisions since then that have considered the issue of underdevelopment, each turning on its own facts and circumstances.
In my experience, there are a number of factors that are relevant when considering whether a proposal amounts to underdevelopment:
A useful starting point is to distinguish between development that supports an existing or interim use and development that is likely to become a more permanent outcome.
Reasonably, I think a distinction can be made between:
Consider an application we are currently advising on. Our client is seeking to extend an existing two-storey development within the Box Hill SRL precinct, where the planning scheme now encourages 9-10 storeys. The extension is intended to provide space for a new play centre.
On the one hand, it could reasonably be concluded that the proposal constitutes underdevelopment. The proposal seeks quite substantive additions that would essentially double the existing floor space, potentially consolidating and entrenching the existing two-storey building on the site.
On the other hand, it could be argued that the proposal is not an underdevelopment because:
In many, and perhaps most, cases, getting expert economic advice will be important to demonstrate that:
There is no rule-of-thumb that I am aware of for determining what constitutes an acceptable level of alterations and additions in a context like this. In my opinion, a practical starting point would be that relatively minor additions, perhaps in the order of 10-20% of the existing floor area, are more readily justified as a practical and reasonable response to the short to medium term business needs of existing owners and tenants. Beyond this, it becomes reasonable to start asking more serious questions about future development potential and the appropriateness of the proposed development scale.
The real question, therefore, is not simply whether a proposal is smaller than the preferred outcome. It is whether what is proposed today makes the preferred outcome harder to achieve tomorrow.
In the example above, we advised the client that, in conjunction with economic advice, the prospects of the application would be enhanced by:
When assessing new builds against the aspirations of the planning scheme, it is reasonable to set a higher bar. However, a brand-new development that does not seek to achieve the encouraged scale of 9-10 storeys, for example, will not necessarily compromise the ability to achieve that scale in the future.
Short-to-medium term uses can also provide important community benefits, including jobs, activity and passive surveillance. In such cases, I expect that the devil will be in the detail. The specific form and nature of a proposal will be important, with factors such as the scale and cost of the development, and the permanency of the proposed structures, all relevant to the assessment.
We have previously provided VCAT representation for a client where we successfully argued that a car wash on a site suitable for urban renewal and intensification was not an underdevelopment because:
In that case, it was acknowledged that the proposed development represented an underdevelopment of the site in terms of capital costs. However, our argument was that this was precisely what would enable the site to be redeveloped in the future, when more appropriate and economically viable circumstances emerged to supported mid-rise and/or mixed-use development. The Tribunal ultimately agreed with our position.
In another case with which I am familiar, prefabricated and demountable buildings, alongside modified shipping containers, were proposed for a service station and convenience restaurant development with an office component. In such cases, the argument is that the proposal is intended to be interim use and development of the land.
Where warranted, approving such proposals can activate the site and generate employment and revenue in the short-to-medium term, typically over a period of 5-10 years. There is also a clear economic incentive for the landowner to pursue more intensive redevelopment in the future, as a more intensive use may generate greater revenue from the site.
In some circumstances, where feasible and appropriate, a discretionary sunset permit condition, detailing an expiry date and formalising the development as an interim use, may also assist in getting the application over the line.
The appropriate response will depend on the scale, cost and permanence of the development, as well as the flexibility of the relevant planning controls.
For new developments with significant capital investment that could reasonably remain in place for 15+ years, greater efforts should generally be made to achieve the strategic aspirations of the planning scheme.
Where the relevant planning controls are discretionary or provide some flexibility – for example, by using language like ‘encourage’, ‘up to’ X storeys, ‘promote’ and ‘support’ – there is generally greater scope to accommodate a development that does not fully realise the preferred outcome. That said, some of the new BFO’s are now recommending ‘minimum’ building heights, which may be more difficult to counter.
I recall a proposal that was intentionally over-engineered in such a way that it could accommodate a tower extrusion at some point in the future. In effect it was designed to be ‘staged’, with the lower-level podium and basement forming Stage 1, while allowing the balance of the site to be developed at a later stage.
I thought this was a commendable approach because it demonstrated that the final development outcome for the site achieved the aspirations of the planning scheme, and that there was a credible pathway to get there that did not preclude future development. That said, it is reasonable to question the practicality and feasibility of this approach, but where there is sound technical justification, and the Stage 1 delivers a net community benefit, it can be a sensible way to balance immediate needs with long-term strategic objectives. So, why not?
Moving forward, it seems likely that the issue of ‘underdevelopment’ will become more prevalent. While each matter will need to be assessed on its own facts and circumstances, we hope that David’s commentary above provides a useful insight into how these issues could be approached.
Ratio can assist developers and landowners navigating underdevelopment concerns, from early planning advice and economic assessment through to planning applications and VCAT representation. Reach out to our team to discuss your next project.
