Urban Growth Boundaries and Betterment: Rent‐Seeking by Landowners on Melbourne's Expanding Urban Fringe

Abstract

Melbourne's Urban Growth Boundary (UGB) was legislated in 2002 and expanded substantially in 2010. Although based on strategic planning goals, UGBs have the capacity to influence land and housing markets. Landowners on the rural–urban fringe are a stakeholder group directly impacted by UGB policy, with multiple interests in containment policies and any land‐value effects. Following the 2010 expansion, substantial windfall profits to “instant millionaire” Melbourne landowners were openly reported. This paper critically interprets claims made by landowners in 264 public submissions responding to the proposed UGB expansion, and to an accompanying new policy instrument, the Growth Areas Infrastructure Contribution (GAIC). The GAIC was, in effect, a hypothecated tax on betterment expected to result from the UGB shift. Landowners commonly expressed fears that the UGB shift would not result in claimed value increases. On this basis, the GAIC was revised such that it is—at least in intention—a system wherein the tax is to be paid by housing developers and passed forward to homebuyers. The paper argues that the series of changes to the UGB and GAIC, including the modified “purchaser pays” system, may be understood as a response to rent‐seeking policy pressures from existing landowners as “insiders.” Although the unpopularity of the GAIC with landowners might have been anticipated, the outcome appears to legitimise their misinterpretation of the premise of development gain. A broader implication is that rent‐seeking behaviour by existing property owners can determine whether and how strategic planning policies are implemented.

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