New development industry research has found Premier Chris Minns's signature housing policy will not work in Newcastle because construction costs are putting apartments out of most buyers' reach.
The Urban Development Institute of Australia published research on Thursday which says a typical new two-bedroom flat in the nine Newcastle suburbs covered by the government's Transport Oriented Development (TOD) Program would need to fetch more than $1.15 million to be viable, 53 per cent higher than the average market price.
The TOD program allows for six- to eight-storey apartment buildings within 400 metres of Newcastle, Hamilton, Adamstown, Kotara, Cardiff, Teralba, Booragul, Cockle Creek and Morisset train stations, regardless of existing council planning controls.
The UDIA research suggests it is unlikely developers will be queuing up to take advantage of the new rules.
The "feasibility gap" was 39 per cent across the four station zones in Newcastle local government area, where typical new two-bedroom units sell for $850,000.
The report, by consultants Astrolabe Group, found the only Newcastle apartments coming close to hitting the $1.18 million feasibility mark were "luxury products in high-rise buildings with harbour views".
"The market expects high-end apartments with harbour views at this price point," the report says.
"The market is not willing to pay for a TOD development at current prices."
The feasibility gap was 71 per cent across the five zones in Lake Macquarie, where the typical unit cost $675,000.
Even new "high-end" two-bedroom apartments in Lake Macquarie were selling for $360,000 less than the $1.15 million required to be feasible.
The Newcastle Herald has reported about a host of delayed apartment developments in the inner-city, some of which were approved five years ago but remain incomplete or, in some cases, on the drawing board.
The UDIA said high construction and financing costs and increased development contributions meant an average new unit around the Newcastle and Lake Macquarie stations would need to sell at a price that was "out of reach for many local buyers and a massive premium to the median apartment price in those markets".
The report found only development in Sydney's North Shore and Inner West was viable under the TOD program, while Tuggerah and Wyong faced a massive feasibility gap of 111 per cent.
The research calculated the average cost required to finance and build an apartment across all the TOD zones at $1.1 million, allowing for an 18 per cent profit for the developer.
The report says the profit "hurdle rate" varies between developers and developments but UDIA members agreed 18 per cent was an "appropriate proxy" figure.
The UDIA-commissioned report says that even with four major interventions, reducing construction costs by $1000 a square metre, cutting all government taxes and contributions, doubling the allowable floor-space ratio and lowering approval times, developments in all but three TOD areas will remain unfeasible.
Under this intervention scenario, the Newcastle stations would join the North Shore and Inner West as feasible precincts while the Lake Macquarie zones and others would remain unviable.
The NSW Opposition plans to introduce legislation allowing Parliament to disallow the TOD program, arguing councils and communities were not consulted adequately about the new planning controls.
Residents in dozens of Newcastle and Lake Macquarie streets will see building height limits double or almost triple after the government published maps last month showing where the new rules will apply.
