Doncaster Hill Triple Bottom Line - Benefit Cost Assessment

Transcription

1 A U S T R A L I A Research Analysis Solutions Doncaster Hill Manningham City Council June 2001 MacroPlan Pty. Ltd. (ACN ) Ref: Final /28/06/01 P.O. Box 347 North Melbourne Vic 3003 Ph: (03) Fax: (03)

2 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION Background Our Opportunity Development Outcomes DEVELOPMENT SUMMARY Residential Office Retail METHODOLOGY Introduction Application in Benefit Cost Analysis The Discount Rate The Analysis Procedure Impact Assessment Boundary Benchmark Data TRIPLE BOTTOM LINE - COST AND BENEFIT ANALYSIS Project Benefits Economic Environmental Social Project Costs Scenario Liveability Matrix BENEFIT AND COST SUMMARY CONCLUSION Major Benefits/Costs Major Benefits Major Costs The Results Sensitivity Analysis... 38

3 APPENDICES Appendix 1 BENEFIT COST SPREADSHEET (High Density Development Strategy) Appendix 2 SUSTAINABLE RETAILING Appendix 3 CENSUS STATISTICAL SECTION DRAWINGs Appendix 4 MEDIUM DENSITY DEVELOPMENT STRATEGY RESULTS Appendix 5 BENEFIT COST SPREADSHEET (Medium Density Development Strategy)... 45

4 EXECUTIVE SUMMARY 1. MacroPlan was commissioned by Manningham City Council to provide an indicative triple bottom line analysis of the costs and benefits of developing the Doncaster Hill precinct, which is forecast to accommodate up to 8,300 residents within the next 20 years. 2. The assessment undertaken tested the social, economic and environmental impact of creating a high density development node in the Doncaster Hill precinct (shown below) and the sustainability outcomes associated with such development. Manningham City Council Vacant/underutilised sites ÊÚ < Sovereign Crest Ring Road Shoppingtown ÊÚ ÊÚ A Doncaster Hill Study area Sitesunder construction Approveddevelopment applications A Municipal Offices ÊÚ N W E S The high density development strategy was devised by the City of Manningham in order to address a number of issues facing the municipality by maximising the locational potential of the Doncaster Hill precinct. The principal issues facing council are the current low level of amenity along Doncaster Road and Manningham Road, and the common acceptance that the continuance of a no strategy approach is unlikely to result in net community benefit. A number of other factors addressed by the strategy include: Meeting the demand of an aging population with changing needs Maintaining vitality in the municipality The expansion of Westfield Shoppingtown which is currently moving into detailed planning stages The significant reduction in traffic in the precinct due to the extension of the eastern freeway Responding to development applications for high rise residential buildings with commercial uses at street level Providing certainty for residents and businesses located in and proximate to Doncaster Hill. 1

5 Doncaster Hill offers the opportunity for a diversity of residential living, commercial, office, community and entertainment activities to be developed as part of a vibrant selfcontained village. The urban village environment provides the opportunity for safe attractive streets, with medium to high density housing, shops, workplaces, and entertainment facilities with direct access to public transport and proximate car parking as well as access to a diverse range of open space and recreational opportunities Consistent with Council s policies in support of a sustainable community, the assessment has tested the extent to which development in accordance with a strategy of increasing densities in Doncaster Hill would deliver sustainable and beneficial outcomes for future generations. 3. The report provides a triple bottom line assessment through a cost benefit approach to measuring the induced economic, social and environmental benefits associated with increasing the population in Doncaster Hill under the guidelines of the draft strategy. The cost benefit analysis undertaken included an assessment of a medium density scenario and a high density scenario compared to a base case which is established upon a no strategy development outcome. The general nature of the scenarios is outlined below: Scenario 1 - High Density Development - This scenario focuses on a Strategy that supports high density development within the Doncaster Hill precinct accommodating up to 8,300 residents within the next 20 years. In summary the mix of uses generated by private development is estimated to include: Residential- 340,000m 2 Office- 20,000m 2 Retail- 9,800m 2 Scenario 2 - Medium Density Development - This scenario focuses on a Strategy which supports limited medium density development within the Doncaster Hill precinct (buildings ranging between 4 and 5 storeys) with up to 2,040 residents within the next 20 years. In summary the mix of uses generated by private development is estimated to include: Residential- 85,000m 2 Office- 20,000m 2 Retail- 3,699m 2 In addition, each of the two development scenarios will include: Next stage of Westfield Shoppingtown (20,000m 2 ) Public Art, theme lighting and urban spaces Development of Manningham City Council Function Centre, educational space and a gallery A shuttle service provided for residents 2

6 The Base Case - No Strategy - This scenario focuses on maintaining the status quo, in other words the Council does not adopt a Strategy in regard to the Doncaster Hill precinct. Development applications (and in turn construction) would be assessed on a site-by-site basis. These scenarios are based upon Doncaster Hill Activity Centre Demand Supply Analysis which assessed the demand and supply for residential, commercial and retail development in the locality. 4. Scenarios 1 and 2 were designed to increase sustainability of the Doncaster Hill site through smart urban design, land use and environmentally friendly architecture. Sustainable development is achieved by considering the long term implications of decisions and meeting the following three objectives at the same time: social progress which recognises the needs for everyone, effective protection of the environment and prudent use of natural resources, and maintenance of viable economic growth and employment 5. Key features of Scenarios 1 and 2 are: Achievement of Government objectives to: Maximise use of existing infrastructure Maximise viability of public transport Minimise public cost Improve Doncaster Hill through: Improved viability of Westfield Shoppingtown Better utilisation of land Creation of a large scale demonstration project which achieves ecologically sustainable development objectives in relation to: Reduced trip generation/vehicle usage Certainty for stakeholders Reduced requirements to extend trunk infrastructure on the Melbourne fringe (water, sewerage, electricity, gas, etc.) Reduced household energy use with higher density living (eg. waste generation) Health benefits of development integration with open space and increased usability of existing parkland Strengthening social networks through design and access opportunities Significantly improving amenities of the area in terms of: Visual integration Vehicle noise reduction and improved safety Road and landscape Reduction in unit development in suburbs through regulatory change fulfilling demand while avoiding public conflict and inconsistent application of regulatory controls 3

7 Raising educational standards Improved standard of housing Reduction in household waste and increasing the rate of recycling Maintaining species, habitats and landscape features Reductions in crime 6. The triple-bottom line analysis utilised refers to a method of evaluating the level of accountability associated with the development at three levels - social, environmental, and economic. It is a method that is finding increasing and widespread international acceptance and one that is informing and transforming reporting practices. The notion of reporting against the three components (bottom lines) of economic, environmental, and social performance is directly tied to the concept and goal of sustainable development. Triple bottom line reporting provides information that enables the assessment of how sustainable a community s operations are. The principles of triple-bottom line accountability were taken into consideration when quantifying the economic benefits for the Doncaster Hill Benefit Cost assessment. Triple bottom line principles were built into the cost benefit assessment undertaken. The cost benefit assessment includes social and environmental costs and benefits where these can be valued, for example indicators of wear and tear incorporate the impact of finite resource use (i.e. oil supply). There are a number of social and environmental aspects that cannot be valued due to: valuations of social and environmental benefits and costs is limited, research in the field is insufficient to make authoritative assumptions as to the induced social and environmental benefit or cost associated with certain elements of the project However this study has attempted to separately identify, in a qualitative way, the full range of social and environmental costs and benefits. This is outlined in a liveability matrix that was developed applying a rating to all benefits and costs identified. 7. The cost benefit analysis undertaken adopted the following parameters: Time 2003/2052 (50 year analysis period) Discount rate 4%, however also tested at 7% 50 year benefits period / 20 year development period Base year $(2000) 8. This analysis produced the following outcomes: The high density development scenario has a Benefit Cost Ratio of 5.14 with a net financial return in present value terms of $165,208,219 and an economic benefit in present value terms of $165,249,944 (see Appendix 1) The medium density development scenario has a Benefit Cost Ratio of 1.87 with a net financial return in present value terms of $29,150,021 and an economic benefit in present value terms of $28,589,903 (see Appendix 5) 4

8 A sensitivity test of the high density development scenario was undertaken based on a 7% discount rate. It resulted in a benefit cost ratio of 3.37:1, with net financial return of $83,964,443 and an economic benefit of $84,048,270 From these results it is seen that the implementation of a high density development strategy will produce the greatest community benefit. This scenario produced a greater level of community return due to a number of factors that include: maximising private sector interest in the locality, critical mass economies of scale, efficiency and maximising utilisation of existing infrastructure, and high level demand for the development type changing community needs, ecological, unique and sustainable 5

9 1.0 INTRODUCTION 1.1 BACKGROUND Since the 1980 s, the Council has been considering the future pattern of development in the area generally described as the Doncaster Hill. In 1994 the Council adopted a strategy for the Doncaster Activity Centre which, amongst other things, recommended maximum building heights of 3 to 4 levels. Since the adoption of the strategy, the Sovereign Point apartment buildings have been constructed in Williamsons Road, at a height ranging from 7 to 9 levels. In this context and given that the new format Manningham Planning Scheme does not specifically address the pattern of land use and development in the precinct area it is timely to review strategies, particularly in relation to built form and the factors which influence it. In the absence of strategic frameworks several high rise development approvals have occurred including a 14 storey proposal on the former Xerbes site, which now accommodates the high rise Sovereign Point and Sovereign Crest developments. The Map below provides a general guide to key features associated with the project. Manningham City Council Vacant/underutilised sites ÊÚ < Sovereign Crest Ring Road Shoppingtown ÊÚ ÊÚ A Doncaster Hill Study area Sites under construction Approveddevelopment applications A Municipal Offices ÊÚ N W E S 6

10 The current low level of amenity along Doncaster Road and Manningham Road, suggests that continuance of a no strategy approach is unlikely to result in net community benefit. The Manningham City Council is now faced with resolving a number of issues: The expansion of Westfield Shoppingtown which is currently moving into detailed planning stages The significant reduction in traffic in the precinct due to the expansion of the eastern freeway Responding to a development applications for a high rise residential building with commercial uses at street level Providing certainty for residents and businesses located in and proximate to Doncaster Hill. 1.2 OUR OPPORTUNITY The community of Manningham has the opportunity to become a key stakeholder in the development of Australia s first sustainable and smart urban village. This opportunity is available because of: Significant community need and demand for a more diverse range of housing Relatively high levels of housing affordability which makes redevelopment in this middle ring location possible The Doncaster Hill land form which provides some of the best views in Melbourne. 1.3 DEVELOPMENT O UTCOMES The development will achieve outcomes for the Doncaster including a unique neighbourhood character and housing types that complement the existing residential areas in the precinct environmentally friendly design and construction with the adoption of sustainable development in principals building heights that are sympathetic to the local environment and existing development maintain economic viability of local business and create new employment opportunities high level of accessibility to public transport reduced traffic generation reduced noise levels from traffic movements through road improvements in the precinct improved local amenity for residents through improved work, cultural, educational, health and shopping facilities 7

11 2.0 DEVELOPMENT SUMMARY An Integrated Environment, Doncaster Hill is to be consolidated as a regional focus for a diversity of residential living, commercial, office, community and entertainment activities. It is to be developed as a vibrant self-contained urban village. An environment where people can live work and interact in close proximity. A mixed use urban centre with medium to high density housing, shops, workplaces and entertainment facilities with direct access to public transport and proximate car parking. The urban village provides safe attractive streets, access to a diverse range of public open space and opportunities for recreation. The design, through its economies of movement and space, promotes energy efficiency, pedestrian activity and social interaction. The development scenarios proposed are designed to meet many of the demands of a modern city with changing needs, a mixed-use urban centre where people can live, work and meet their everyday shopping and lifestyle needs. The key features include: a range of housing choices to accommodate changing lifestyles, good access to public transport, safe streets to encourage walking and cycling (reducing the need for carbased travel), greater energy efficiency compared with conventional suburban developments and increased support for local businesses and local jobs. The Doncaster Activity Centre Demand Supply Analysis (MacroPlan May 2001) notes that demographic analysis indicates there will be a shortage in higher density housing stock in the near future within the eastern suburbs due to the effect of the population ageing. Currently the largest age group in Melbourne are those people aged between 25 and 34 years, however over the next 25 years the dominant age bracket will shift to the late to middle age group ( 50 to 70 years ) - the bracket generally referred to as babyboomers. This demographic change combined with decreases in household sizes, creates significant changes in housing needs. As personal circumstances change over a lifetime, peoples housing preferences and choices change. In general, empty nesters and retirees do not require large household blocks in fringe locations. With increased wealth and disposable income, baby boomers are identifying property with higher amenity (a potentially differentiated product ), generally close to city locations where there is greater access to work and social services. These people trading size for location, product quality and product fit. This development is also proposed to include a substantial office and retail component. While most development often mitigates against small commercial and office development, it is precisely these functions that can most increase the sustainability of residential areas. The economic and social integration of uses in a neighbourhood can help support a more time and energy efficient lifestyle and can create more vital and diverse places to live. The development includes a number of public buildings including various health and medical facilities, a new library, performing arts building and adult learning centre. 8

12 The base case with which the development scenarios were compared was a No Strategy scenario that focuses on maintaining the status quo in other words the Council does not adopt a Strategy in regard to the Doncaster Hill precinct. Development applications (and in turn construction) will be assessed on a site-by-site basis. The two development scenarios considered are outlined below. High Density Development - This scenario focuses on the Council adopting a Strategy which supports high density development within the Doncaster Hill precinct (in other words, high rise development controls) with up to 8,300 residents within the next 20 years. Medium Density Development - This scenario focuses on Council adopting a Strategy which supports limited medium and high density development within the Doncaster Hill precinct (buildings ranging between 4 and 5 storeys) with up to 2,040 residents within the next 20 years. A number of reports were utilised in establishing the basis of the development scenarios. These include: Doncaster Activity Centre Demand Supply (MacroPlan May 2001) 1 - This study involved extensive analysis of demand and supply issues associated with concentrating residential development in Doncaster Hill. The scale (population forecasts), development staging and likely catchment of induced residents of the Development scenarios were identified. This study also forms the basis for the timing of the benefits associated with residential (population and apartment takeup), office and retail development. Precinct Design (COX Pty Ltd Architectural drawings) - Development vision and architectural designs were undertaken with strong integration and ecological aims in order to maximise the benefits of smart urban design. Traffic and Parking report (Tuckers Pty Ltd Traffic Analysis) Modeling of traffic and parking capacity was undertaken with identification of trip generation changes and management issues. The following provides an overview of the scenarios by category of use i.e. residential, retail and office. 1 Note: Scenario 1 and 2 in this report are represented by Scenario 2a and 3 respectively in the Doncaster Activity Centre Demand Supply Report 9

13 2.1 RESIDENTIAL A detailed feasibility assessment of the residential sector has been undertaken in the Doncaster Activity Centre Demand Supply Analysis (MacroPlan May 2001) utilising migration patterns and demographic forecasting to develop conservative estimate of the likely population sizes and takeup for each development scenario. Migratory patterns have been identified in a number of publications released by the Department of Infrastructure. The publications, amongst other issues highlight the arrest of population decline in the middle to inner ring suburbs. This stabilisation, and in some cases population increases result in an increased demand for housing stock within close proximity to the Central Business District. Due to decreasing household sizes, this population stability results in real demand for housing stock across metropolitan Melbourne, particularly in inner city areas and the middle ring. At present, the dominant trend in residential lifecycles in Melbourne is the net increase of younger persons and professionals moving to inner city areas, and second and third family homebuyers moving into the middle ring. Generally, as inner city residents become older they move out to middle and fringe locations. This occurrence is particularly dominant in the eastern suburbs. Analysis of migratory patterns indicates that people move within the same region or corridor, mainly due to their familiarity with the area. Therefore, the population in the eastern region will generally move back and forward, from inner to outer areas and visa-versa. Given these migratory patterns, comparable demographic profile and changing lifecycle housing needs, MacroPlan have identified the catchment area as the following municipalities: Manningham; Whitehorse; and Banyule. It is important to note that the City of Maroondah has been excluded from the analysis largely due to the mooted development of a high density node within the municipality, whilst the City of Nillumbik has been excluded largely due to the lack of synergies between the proposed development at Doncaster Hill and existing product within the municipality (such as a dominance of larger allotments and focus on natural vegetation). Nevertheless, exclusion in both instances prevents the potential overstatement of medium and high density demand at Doncaster Hill. The analysis of demand and supply has also indicated that the induced population of the medium density development (scenario 2) would primarily be generated from within the Manningham municipality due to the development type and likely high local demand. However given the scale of the high density development scenario which has a unique high rise market associated, migration from surrounding municipalities was found to be feasible given the latent demand for this development type within the proposed markets. 10

14 The following diagram depicts the general migration for the development scenarios with the primary catchment in blue and the secondary catchment in red. The opportunity cost of focusing development to the Doncaster Hill node is the reduction in unit development across the suburbs. This reduction is seen to be significant as the proposed development scenarios are likely to substantially out perform standard unit development absorbing close to 100% of demand. Residential Market Overview Melbourne's population is now increasing at a faster rate than many other capital cities leading to an increase in the demand for housing. Population growth is around 4%, which has resulted in higher rental demand. Melbourne has had a sustained low rental vacancy rate that has put high pressure on rents and driven up rental yields, thus making rental property more valuable. The vacancy rate has been below 3% (the point at which the rental market is considered balanced) for over 4 years This together with other factors including: Interest rates at their lowest level in 20 years - property has become more affordable than any other time in the last 20 years. High returns for investors - Melbourne residential prices are rising from a lower base providing a higher proportionate gain Many leading economic forecasters believing there is an under supply of new housing in Victoria leading to a high level of pent up demand. High consumer confidence leading to more long-term decisions such as purchasing a new home. 11

15 Proposal and Assumptions The residential component comprises a building area of 340,000m 2. This in turn equates to a total of 4,000 apartments and population of up to 8,300 persons (realistically 7,400 after the application of a 10% vacancy rate). This is based on the following assumptions: Building heights ranging between 5 and 9 storeys; A mix of studio, 1, 2, 3 and 4 bedroom apartments 15% of building area designated for access, circulation and external apartments area (balcony); Average internal apartment area of 85m 2 (based on a review of recently released inner city apartment and serviced apartment developments); Average household size of 2.04 persons 2 20 year construction timeframe; An off the plan marketing campaign The Medium density scenario is comprised of 85,000m 2 in residential floorspace, 1,000 apartments and population of up to 2,040 persons (realistically 1,836 after the application of a 10% vacancy rate). This is based upon the same fundamental assumptions except adjustments made to encompass lower building heights and reduced (localised) demand. Residential construction activity is scheduled to commence in 2003 with the completion of all residential development by OFFICE Based on data sourced from the City of Manningham, the estimated office floorspace currently within the Doncaster Hill precinct is 22,050m 2. The majority is corporate with 21,700m 2, with the balance of 350 m 2 being SoHo 3. Over an estimated year timeframe this equates to an annual absorption of between 1,100 1,500 m 2 per annum. Corporate size/ location sites are primarily taken up (and to this extent not available for development) in the Doncaster Hill precinct. However, research by MacroPlan indicates that one large-scale development site in Doncaster Road was recently sold. Consultation with the selling agent (CB Richard Ellis) indicates a potential commercial / office tower development which could comprise between 4,000 and 6,000 m 2 of floorspace. If the development proceeds, it is considered that this would satisfy any immediate corporate demand for office floorspace in the Doncaster Hill precinct. 2 New Inner City Residents Survey, 2000 prepared by BIS Shrapnel 3 SoHo Small Office Home Office 12

16 Office Market Overview Demand for office space throughout Melbourne is strong, with any hidden vacancy now absorbed, the local economy is producing very high levels of take up. The strong takeup has resulted in a dramatic reduction to vacancy, which is currently at 8.1% having dropped from 13.9% over the preceding 12 months. During the recovery, vacancies have improved sequentially starting with the better quality stock and moving down through the quality grades. Premium Grade is now at 1.9% vacancy but was 7% just 12 months ago. A Grade is now down to 5.1% whilst the biggest improvements went to B and C Grades, having dropped to 9.4% and 12.9% respectively from 18.6% and 24.3% just 12 months ago. By geographic sector, the Eastern and Spencer precincts are currently the healthiest at 5.4% and 4.8% respectively. 4 The low vacancy levels in the eastern suburban market have transferred into prime net market rents ranging from $165 to $200 per square metre. Proposal and Assumptions Recent research undertaken by BIS Shrapnel 5 and reported to Melbourne City Council indicates building commencements and vacancy take-up is likely to increase to the level of the 1980 s boom (increases in Central Business District office floor space of around 300,000m 2 ). In addition, Melbourne will experience significant increases in commercial rents with ease of use being a key determinant of who attracts the best commercial tenants. From the information collected, strong demand for commercial office space is expected to continue with maximum absorption over the 20 year timeframe across all sectors (corporate, serviced and SoHo ) and would comprise of 20,000 m 2 (or around 1,000 m 2 per annum). This level of development is assumed to occur under both scenarios considered. 2.3 RETAIL The retail floorspace proposed with the development is to service the requirements of the future residential population within the Doncaster Hill development, persons visiting the area and commercial operations. Given these markets, the role of retailing will be focussed on the delivery of food and beverage while servicing the 'day to day' needs of the future community within the precinct. Given the purpose and function of the proposed retailing activities, likely tenant types will consist of supermarket and specialty stores and a range of fast food, restaurant and support professional and commercial uses. 4 CB Richard Ellis, Dec New Inner City Residents Survey, 2000 prepared by BIS Shrapnel 13

17 Retail Market Overview The retail sector is the strongest direct property market in Australia, outperforming both office and industrial over the long term (from December 1984), with a total return of 13.4% pa (income and capital growth). The sub categories of Super / Major Regional Retail and Neighbourhood Retail have returned a total of 14.4% and 14.3% pa respectively over the same period to outperform all markets. For the twelve months to September 2000, the Australian Retail market softened on it s long term average, returning 11.5%. Neighbourhood Retail remained strong however, returning 14.6% for the twelve months placing it on top of all national property markets and ranking it second of the total 24 market categories. With the East and South East regions having by far the greatest populations, they also have the highest quantity of gross lettable area of centres in metropolitan Melbourne; 624,277 m 2 and 513,673 m 2 respectively. A comparatively higher quantity of floor area in the Eastern region is occupied by Sub Regional centres (37.9% of the total centre floor space, compared to only 20.5% in the South East region). The Eastern s high number of Sub Regionals is partly explained by the absence of a Super Regional centre, whereas Westfield Shoppingtown Southland dominates the South East region 6. Proposal and Assumptions Analysis undertaken by MacroPlan utilising Australian Bureau of Statistics data (Household Expenditure Survey) indicates that the estimated increase in dwellings in the Doncaster Hill Precinct to 4,080 would sustain an additional 15,091m 2 of retail floor space. Once again the additional floorspace is based on 100% retention of generated expenditure. However, it is considered that only 65% would be retained within the Doncaster Hill precinct, in turn reducing the additional supportable floorspace to around 9,800m 2. The medium density development scenario was found to support approximately 3,699m 2 subsequent to the 65% retention rate. The detailed analysis is located in Appendix 2. 6 CB Richard Ellis, Dec

18 3.0 METHODOLOGY 3.1 INTRODUCTION The City of Manningham has adopted local policies to promote sustainable development as a key facet of development of the community. The two development scenarios considered for Doncaster Hill can be characterised as sustainable options that will meet the needs of the community and maintain the level of welfare over time. Just as economic development is sustainable provided economic capital is nondecreasing, sustainable development requires total capital that is, economic capital, human and social capital, and environmental capital to be non-decreasing. This encompasses a wide spectrum of factors - for example skills and knowledge of the population, and the quality of air and other natural resources. This is depicted in the diagram below: The Sustainable Okotoks Model 7 The philosophy at the heart of sustainable development is based on ensuring a better quality of life for everyone, now and for generations to come. It means considering the long term implications of decisions and meeting three objectives at the same time: social progress which recognises the needs for everyone, effective protection of the environment and prudent use of natural resources, and maintenance of viable economic growth and employment 7 Model implemented as apart of Okotoks Municipal Statement,

19 The Doncaster Hill Precinct could: Reduce greenhouse emissions and improve air quality at the same time as achieving economic growth Improve access to educational services Increase life expectancy Improve standard of housing Reduce stretches of polluted areas Lower average journey to work, reducing journeys being made by car, reducing congestion and making access to many services less difficult for those without a car. Reduce household waste and increasing the rate of recycling. Maintain species, habitats and landscape features. Reduce crime The triple-bottom line analysis utilised refers to a method of evaluating the level of accountability associated with the development at three levels - social, environmental, and economic. It is a method that is finding increasing and widespread international acceptance and one that is informing and transforming reporting practices. The notion of reporting against the three components (bottom lines) of economic, environmental, and social performance is directly tied to the concept and goal of sustainable development. Triple bottom line reporting provides information that enables the assessment of how sustainable a community s operations are. The principles of triple-bottom line accountability were taken into consideration when quantifying the economic benefits for the Doncaster Hill Benefit Cost assessment. The perspective taken is that for a community to be sustainable (a long run perspective), it must be financially secure (as evidenced through such measures as profitability), it must minimise (or ideally eliminate) its negative environmental impacts and it must act in conformity to improve social cohesion and achieve community aspirations APPLICATION IN BENEFIT COST ANALYSIS The Benefit-cost analysis technique takes consideration, in a world of inherently limited resources, what is gained and what is the quantifiable net social, environmental and economic outcome of making a decision. The basic questions asked in the process of cost-benefit analysis are Do the economic benefits of undergoing this project outweigh the economic costs? Is it worth doing at all? The result has a direct and immediate impact of assisting governments in making decisions about the allocation of scarce recourses. Cost-benefit analysis involves all inputs and outcomes of a proposed alternative being reduced to a common unit of impact (namely dollars) which is then aggregated and compared. If people are willing to pay dollars to have something, presumably it is a benefit; if they would pay to avoid it, it is a cost. 16

20 The analysis includes identifying the stream of benefits and costs over a time period and discounting the values to current monetary terms. This establishes the two main outputs that evaluate economic performance. These are the net benefit (net return) and the benefit to cost ratio (return on investment). The benefit-to-costs ratio, which is the total monetary cost of the benefits or outcomes divided by the total monetary costs of obtaining them A ratio greater than one indicates that the project is delivering a net benefit to society. The extent of this benefit is measured by its variance above the breakeven point of one. The net return, which is basically total benefits minus the total value of costs. It is measured in terms of both financial and economic return. Financial return includes the direct benefits and costs associated with a project, and economic return represents the triple-bottom line of the project encompassing a total array of indirect benefits and cost and including where possible social and environmental indicators THE DISCOUNT RATE Discount rates are used when comparing alternatives that differ in time. The Discount rate takes into account the time value of money - the assumption that a dollar received today is worth more than a dollar to be received a year from now. This assumption requires that, in order to determine the present value of future sums (to make a comparison), a social interest rate must be used to discount these future sums. This differs depending upon the nature of the project. 3.2 THE A NALYSIS P ROCEDURE The following is an outline of the general procedure for conducting a cost and benefit analysis Define the scope of the analysis. Establish the impact assessment boundary (as detailed below), range of benefits to compare and identify the limits of the comparison Obtain estimates of effects. The benefits of a project are obtained from the effectiveness of that project. Estimate the monetary value of all costs and benefits. The central principle of any cost and benefit analysis is the estimation of the monetary value of project effects. Calculate the present value and assess profitability. Account for inflation and the time value of money by discounting the stream of all costs and benefits over time using a social discount rate Describe and incorporate the distribution of costs and benefits. Although the positive net present value tells us that the project was profitable for society as a whole, it reveals nothing about the actual gains or losses. Conduct sensitivity analysis. Estimating the costs and benefits of a project relies upon certain assumptions. Sensitivity analysis alters these assumptions and tests whether or not the project is still cost-beneficial. 17

21 3.3 IMPACT A SSESSMENT BOUNDARY The analysis undertaken has identified the Manningham municipality as the assessment boundary. This is based on the primary objective of the Strategy being to improve sustainability of development within the City of Manningham and: Public expenditure would primarily be sourced to the Manningham City Council Increased employment, business savings and economic generation are likely to occur at a local level due to the business type induced by the development Population is primarily drawn from within the assessment area. Note however that under the high density scenario population is drawn from other adjoining municipalities and is considered as an induced benefit of increased competitiveness. All social, amenity and environmental outcomes will be local. It should be noted that there are some costs and benefits that accrue outside the municipal boundaries to other parties e.g. infrastructure cost savings, which are included in the analysis. 3.4 BENCHMARK DATA The benchmark data used in the benefit cost analysis was gained from the census information, which was used in order to profile the population. The differences identified were used to make assumptions about the locational characteristics of the population within each area. It established basis for assumptions to be made as to the likely characteristics of the induced population and changes in these characteristics based upon locational change. Reference to the statistical sections Manningham, MSD and Doncaster Hill are defined in Appendix 3 - Census statistical section Drawings Generally speaking the areas are defined by the following boundaries: Doncaster Hill section approximately 1 km radius of Williamsons Rd / Doncaster Rd intersection Manningham section City of Manningham Council boundaries MSD section Metropolitan Statistical Division 18

22 4.0 TRIPLE BOTTOM LINE - COST AND BENEFIT ANALYSIS There has been extensive work undertaken by economists in relation to financial costs and benefits of infrastructure projects (particularly transport) due to the significant government investment required. More recently, cost and benefit analysis has extended to a range of other fields in an attempt by public sector bodies to understand the full range of impacts of public works. These fields include the prevention of crime, environmental and energy improvements, urban design and main street programs to name a few. Calibration of the benefits derived from these projects has been considered to be difficult. However, understanding the benefits derived from past examples is providing the knowledge required to undertake cost and benefit analysis. The following attempts to quantify those benefits, however it is important to note that not all benefits - economic, social or environmental - will be justified within the cost and benefit structure, as they must accrue a net benefit to society. 4.1 PROJECT B ENEFITS The project benefits are seen to be wide spread and have been categorised into the three broad areas of economic, environment and society representing the triple bottom line of the project. The triple bottom line approach used has identified a wide range of social and environmental benefits which have not all been quantified. While the major benefits identified are economic, it has been recognised that some of the economic indicators incorporate some environmental outcomes. These include: The savings in resource use - Construction materials, Vehicle Wear and Tear, fuel consumption and tyre use, and Land use benefits - has the affect of reducing sprawl, allowing land to be used for other productive purposes including agriculture and farming This also affects the analysis in weighting the importance of environmental and social costs and benefits i.e. while it is recognised that these costs and benefits exist they have not been valued in a manner which can be readily included in a cost benefit assessment. However this study has attempted to separately identify, in a quantitative way, the full range of social and environmental costs and benefits. A livability matrix was developed which provides an overview of the level of benefit the development scenarios provide to the Doncaster Hill area. This outlines the change associated with each of the scenarios as compared to the base case scenario. It has been established by identifying all of the possible benefits and costs and allocating a weighted valuation to each. 19

23 4.1.1 ECONOMIC The Economic benefits of concentrating densities in the Doncaster Hill Precinct are brought about by efficiency factors. These economies of scale provide significant savings to the community in terms of the provision of public goods and services (e.g. roads, community facilities) together with no change in the fiscal generation associated with population increase. The economic benefits used in the Cost Benefit analysis were calibrated as follows: Residential Development Travel Savings The project will induce significant travel benefits for the community. The bulk of these travel benefits are associated with travel time savings, vehicle wear and tear savings, and fuel savings induced through relative proximity to the CBD and public transport networks. Studies have found that the doubling of residential population density can reduce annual auto travel per capita by 20% to 30%. There are many variables in the consideration of time and travel savings ranging from business v leisure travel time savings to type of vehicle used in calculating vehicle operating costs and wear and tear. For the purposes of this analysis we have only considered travel to work as a benefit. The net benefit is derived from a travel mode shift created by the development area. This was calibrated by a comparison of travel to work statistics between Melbourne Statistical Division and Doncaster Hill residents. This modal shift is created by the reduced dependence upon private vehicles. Key assumptions from the Doncaster Hill Demand Supply Study are: Population is based upon an occupancy rate of 2.04 per apartment Take-up of apartments is assumed to occur over a 20 year period A constant vacancy rate of 10% has been applied throughout the analysis period To calculate the level of the new population who travel to work. Current labour force levels of 50% of total population were used which characteristic of the area (Doncaster Hill area was found to average 51.12% from ABS Census outputs). Average vehicle usage is 62.57% of the work trips in the MSD. A Modal Shift was applied to Doncaster Hill Residents - 15% reduction in Car travel, 12% increase in Bus travel and 3% increase in Train travel due to increased access and facilities created as apart of the project. Resulting from this 48.87% of work trips are assumed to be by vehicle for new Doncaster Hill residents. 230 working days per annum For MSD residents it is estimated average annual travel is 15,000kms. For new Doncaster Hill residents the reduction in work/leisure/shopping is assumed to equate to a reduction in annual travel to 10,000kms Vehicles run on Petrol at a consumption rate of 12 litres per 100 km 20

24 Travel Time Savings To calculate the value of reduced travel times, vehicle occupancy of 1.7 (weighted average) was assumed (Transport SA) and travel value of $7.60 per occupant (BTE report). Occupancy Peak hrs (7-9,4-6) Business hrs (9-4) Other hrs 13 2 Weighted 1.7 Travel Value per occupant Peak and Business hrs (7-6) Other hrs Weighted 7.6 Value of travel time ($ per vehicle hr) The travel value per vehicle hour - $12.95 The net benefit of travel time savings associated with this development site is not only due to proximity but also the reduced usage of private vehicles. Assuming daily travel times (round trip) of 30 minutes from middle ring locations and approximately 25 minutes from Doncaster Hill, a benefit of 5 minutes per vehicle is derived. Increase in Residents 7,491 Factored to Labour Force (50%) 3,746 Comparison MSD Average MSD Vehicle Usage 62.57% Travel Time daily per vehicle 30 Total Hours per annum 269,509 Doncaster Hill Average Doncaster Hill Vehicle Usage 48.87% Travel Time daily per vehicle 25 Total Hours per annum 175,416 Reduction hours travelled 94,094 Value of travel time ($ per vehicle hr) $12.95 Valuation Travel Time Savings $1,218, Net benefit derived is $1,218,511 per annum. 21

25 Wear and Tear Savings Vehicle wear and tear savings are based on an average of $0.056 per vehicle kilometre (NSW RTA). Increase in Residents 7,491 Factored to Labour Force (50%) 3,746 Comparison MSD Average MSD Vehicle Usage 62.57% Travel km/annum 15,000 Travel km/annum - Total 35,153,390 Doncater Hill Average Doncaster Hill Vehicle Usage 48.87% Travel km/annum 10,000 Travel km/annum - Total 18,304,259 Reduction km travelled 16,849,132 Wear and Tear savings per km $0.056 Valuation Wear and Tear Savings $943, Net benefit derived is $943,551 per annum. Fuel Savings Price of fuel is assumed at $0.90 per litre and fuel consumption is assumed to be 12 litres per 100 km travelled (Fuel Consumption Guide ( ) Australian Greenhouse Office). The consumption rate takes into consideration vehicle age and type. Increase in Residents 7,491 Factored to Labour Force (50%) 3,746 Comparison MSD Average MSD Vehicle Usage 62.57% Fuel Consumption L/100km 12 Travel km/annum 15,000 Annual Fuel Cost $4,218,407 Doncaster Hill Average Doncaster Hill Vehicle Usage 48.87% Fuel Consumption L/100km 12 Travel km/annum 10,000 Annual Fuel Cost $2,196,511 Reduction Fuel Usage 2,021,896 Fuel Cost per Litre $0.90 Valuation of Fuel Savings $1,819,706 Net benefit derived is $1,819,706 per annum. 22

26 Prevented Accidents Due to reduced car usage there is the benefit of reduced vehicle accidents (not to be confused with road improvements). The cost of accidents in terms of km travelled was calculated by: Multiplying total vehicle ownership in the MSD of 1.6 million (Census estimate) by 15,000 km to get a total 27.8 million kms traveled Total reported accidents in the MSD of 13,325 ( Crashstats VicRoads) was then used to find 5.34 reported accidents per 10,000,000 kms traveled. A cost per accident of $24,000 was then applied (Bureau of Transport Economics 2000) Calculation of Vehicles in MSD Use of C-Data Vehicle Ownership by Household Households No. of Vehicles 416, , , , , ,705 37, ,592 Total Vehicles 1,652, Calculation of Unit Cost Assume: 15,000 km p.a per vehicle Kms per car 15,000 Total kms 24,791,100,000 Reported Accidents 13,325 Accidents per km Cost per Accident 00 $24, Accident cost/km $ An accident cost of $ per km travelled Increase in Residents 7,491 Factored to Labour Force (50%) 3,746 Comparison MSD Average MSD Vehicle Usage 62.57% Travel km/annum 15,000 Travel km/annum - Total 35,153,390 Doncaster Hill Average Doncaster Hill Vehicle Usage 48.87% Travel km/annum 10,000 Travel km/annum - Total 18,304,259 Reduction km travelled 16,849,132 Accident savings per km $0.009 Valuation Accidents Prevented $144, Net benefit derived is $144,161 per annum. 23

27 Reduced Vehicle Ownership Reduced car dependency would to some extent result in reduced car ownership. This has not been quantified due to a lack of research done on car ownership levels associated with high-density development. From the research undertaken, benefits from this reduction could include: A reduction in car spaces needed at a State level. With six to seven parking spaces are required for each new car 8 and the market value per car space between $20,000 to $30,000, considerable economic savings would result. A reduction in annual transportation costs of $10,000 per vehicle. This would have a substantial affect. For example, it could increase a household s ability to devote a larger percentage of their income toward a home mortgage. Thus, high-density designs can translate into the opportunity to own a home similar in quality, but lower in cost to finance as compared to residences in low-density neighborhoods. Shrinking of streets resulting in increased land availability and amenity Infrastructure Infrastructure represents the capital goods usually provided by the public sector for the use of citizens and firms. For the focus of this report the following represents the supporting residential infrastructure water drainage, roads, service connections, electricity, storm water drainage and building foundations. This cost also encompasses highways, bridges, transport systems, waste-water treatment facilities, water systems, airports etc for the purposes of the analysis. It is assumed that existing infrastructure within Doncaster Hill precinct requires little additional capital expenditures to provide services to new residents. The implication is that the costs of providing public services are substantially small compared to the revenue generated by the new residents. Another characteristic of the population increase is the impact on the costs of providing public services. All else equal, the per capita costs of servicing a population that is more dispersed (vs. concentrated) will be higher because more miles of streets and public utilities will be required to reach them. Finally, new residential development may lead to increases in property values, which will have benefits for both the local government and current residents. This is because the supply of total land within a given community is fixed so that, as population and demand for housing increase, the price of residential land will also increase. In addition, if the quantity and quality of services improves with increases in population, land values may increase due to a capitalisation effect. Because land is a fixed asset, many (and potentially all) costs and benefits associated with a land parcel in a particular use will be capitalised into the value of that land. For this reason, additional benefits to residents in the form of increased public services will be reflected in higher residential property values. 8 Nelessen, Visions for an American Dream 24