Determining demand and demonstrating nexus

The power to impose a contribution relies on there being a clear relationship between the development being charged and the demand for the infrastructure being funded. Contributions plans must demonstrate that they are reasonable by showing this relationship.

This module outlines the methods councils can use to determine demand and demonstrate nexus for a section 7.11 plan.

Legislative requirements

Councils can only charge section 7.11 contributions if they are satisfied that the development will or is likely to increase demand for infrastructure. They must demonstrate this in the contributions plan.

Demand and nexus requirements
Legislative requirements	Reference
Councils can only charge a contribution under section 7.11 if they are satisfied that the development will or is likely to increase demand for infrastructure, or in the case of recoupment will benefit from infrastructure already provided.	7.11(1) & (3) EP&A Act
Contributions plans must identify the relationship between the expected types of development and the demand for additional public amenities and services to meet that development.	212(1)(c) EP&A Regulation

Section 7.11 plans must demonstrate nexus and apply apportionment

Nexus is the relationship between the expected types of development in the area and the demonstrated need for infrastructure created by a development. Nexus demonstrates that both the scope of work being funded and the contributions levied are reasonable.

A contributions plan should show how councils identified the infrastructure to be funded by the plan, demonstrate the nexus between this infrastructure and the demand generated by the development, and show how other demand is accounted for, such as demand from existing populations.

Demand for infrastructure can come from areas such as existing population, from new residential, worker and tourist populations, or people outside the catchment or local government area.
Only the demand that is generated by the new development can be recovered through the contributions plan.

Apportioning the demand to new development defines the level of demand for infrastructure created by new development, as a proportion of the overall demand for that infrastructure.

Demand for infrastructure may be apportioned across different catchments or contributions plans, or to between different local government areas.
Only the portion of the cost created by the demand from new development can be charged as a contribution. For example, 60% of the demand may come from the development, while 40% of the demand may come from existing residents. The contributions plan can only charge for the 60% of the cost that is apportioned to development.
Full cost recovery (100% apportionment to new development) would only be appropriate where the infrastructure is provided to meet only the level of demand anticipated by new development, there is no spare infrastructure capacity available in the area, and the infrastructure will not serve an existing unmet demand.

The steps to identifying nexus and apportioning demand are detailed below.

Plans should be supported by publicly available studies and strategies

Councils should support their contributions plans with sufficient evidence at a level of detail that will allow stakeholders to interpret assumptions made in the plan.

Councils can use existing studies, strategies and data sources to support the plan or undertake studies specifically for the contributions plan. Any studies and strategies used to develop a contributions plan should be included in the exhibition of the plan as supporting material.

Useful data sources to support contributions planning

strategic planning documents - councils can use local strategic planning statements, local environmental plans and local housing strategies to gauge where development is likely to occur and what the scale of this development will be
census data and demographic analysis – for example ABS data, can include social plans, demographic analysis and local residential studies
community surveys or studies - user or participation surveys undertaken for various public facilities such as recreation or community facilities
community strategic plans - these plans focus on achieving the long-term social, environmental and economic aspirations of the community. They underpin the work of a council and should be used to inform the contributions plan, including what infrastructure and services the community prioritise
land ownership patterns - this can help inform where development is likely to happen quickly. Large areas of land held in single ownership may be more easily redeveloped
external studies - traffic management, roads or drainage studies may be required where a council does not have sufficiently detailed strategies or information.

Best practice guidance

Appropriate evidence to demonstrate nexus

The type and amount of evidence needed to demonstrate nexus can vary depending on the size and complexity of the plan, and the type of infrastructure identified. The below examples demonstrate the different types of evidence that may be appropriate for different types of infrastructure.

Transport infrastructure

New transport infrastructure is generally identified as part of a broader planning process and is often underpinned by technical studies that consider:

the indicative layout of the new road network
how new infrastructure integrates into the existing transport networks
expected transport volumes and demand.

Transport infrastructure is also made up of many individual items, such as sections of road and different levels of intersections. Supporting documentation needs to establish that all the components for the road network are required.

Councils should show that each item of transport infrastructure in a contributions plan is either:

supported by a technical study with the scope and location of the infrastructure consistent between the contributions plan and the technical study. The infrastructure in the contributions plan should be mapped to the infrastructure in the technical study, and this map should be included in the plan.
supported by satisfactory evidence or explanation when it is not feasible to undertake a technical study (or the proposed infrastructure is not consistent in scope or location with the technical study).

Such evidence should explain its inclusion or deviation, scope and location. This could include:

internal traffic modelling that uses revised or updated population or dwelling forecasts to demonstrate that changes are required to accommodate higher or lower demand on transport infrastructure than previously forecast
other internal analysis such as an options analysis (like a cost-benefit analysis of the alternatives considered) and factors considered.

Stormwater infrastructure

The need for new or upgraded stormwater infrastructure is generally identified as part of a broader planning process and is often underpinned by technical studies. Nexus for stormwater infrastructure can be established for new or upgraded infrastructure that is required to meet the increased demand for stormwater services due to development, consistent with the relevant state and national standards.

In greenfield developments, there is a significant increase in impervious surfaces due to roofs, driveways, roads and carparks. This increases runoff and causes flooding in low lying areas that would not have occurred prior to development. Given that all new development in a greenfield site contributes to the stormwater impact in the area, it is fair and reasonable that all development contributes to the cost of stormwater management.

In infill developments, sites are often already impervious. The redevelopment may bring little or no increase in impervious area but may result in changes to water quality and quantity. Therefore, councils must demonstrate a different relationship between the development and the need for additional stormwater infrastructure.

Councils should demonstrate that each item of stormwater infrastructure in a contributions plan is either:

supported by a technical study with the scope and location of the infrastructure consistent between the contributions plan and the technical study. The infrastructure in the contributions plan should be mapped to the infrastructure in the technical study, and this map should be included in the plan
supported by satisfactory evidence or explanation when it is not feasible to undertake a technical study (or the proposed infrastructure is not consistent in scope or location with the technical study). Such evidence should explain its inclusion or deviation, scope and location.

Open space and community facilities

When establishing nexus for open space and community facilities, councils generally need to demonstrate that the open space land and embellishment included in a contributions plan meets the needs of the anticipated new population of the development. This includes the:

amount of land for open space and recreation purposes
number and types of facilities for active and passive recreation
targets that the council is trying to achieve and their basis.

Councils should demonstrate that plan is consistent with:

recommendations in any technical studies or needs assessment studies prepared to inform planning for the relevant area such as a technical study outlining the expected demographics of the incoming population and the additional facilities required to meet their needs
the council’s recreation policies and strategies that will generally contain benchmarks for open space and community facility provision in the council (or reference State benchmarks such as population-based benchmarks released by the NSW Office of Sport).

Councils should consider ways to increase efficiencies when providing infrastructure

Councils should consider if they could address some of the demands from their communities in innovative ways. This might include:

co-location of facilities - public facilities sharing a location with private facilities or negotiating agreements for the community to use infrastructure available at schools and other publicly funded facilities
multi-use facilities - designing infrastructure that can allow for multiple uses of the one facility such as sports fields that can be adapted to accommodate multiple sports
examining the capacity of existing facilities - identifying where there may be excess capacity that can accommodate additional demand, or the opportunity to manage existing facilities in a more efficient and creative manner to satisfy present and potential demand. Councils should also consider ways in which existing facilities may be upgraded to cater for additional demand rather than providing new facilities, such as upgrading lighting or irrigation to increase the carrying capacity of a sports field.

Worker populations can result in demand for infrastructure

Worker populations can increase demand for infrastructure. Workers generally have different usage patterns than residents and create demand for infrastructure at different times. Councils should consider these differences in their contributions planning. For example, demand from workers might be more likely to generate morning and evening peak activity and lunchtime usage of plazas and town squares.

The extent to which employees and workers create additional demand depends on the specific circumstances of the development. In some situations, a worker may also live in the area and is likely to have already been counted as part of the residential demand for infrastructure. A section 7.12 plan may be more appropriate in situations where it is difficult to accurately apportion between residential and worker populations.

Procedure and process

Steps to identifying nexus and apportioning demand

Identify the level of growth in the area that is occurring because of the development and the likely demographics of these populations.

This should include an assessment of:

the overall population change forecast for their local government area
changes to zoning and development controls that may create additional population
changes in demographics, such as trends in the size and makeup of households or shifts in population age groups
changes in the way people use and occupy housing such as changes to household formation rates and occupancy rates
developable land capacity, whether this land is likely to be developed or redeveloped, how much development this will yield and what type of development will result
changes to employment or business areas that could lead to a larger or smaller workforce using the local area.

Calculate how much demand for infrastructure that will be generated by the growth.

This calculation cannot be exact as the new population is only theoretical. However, councils can make predictions using historical data, demographic analysis or by doing formal needs assessments for these populations. This information should be used to develop a picture of the impact of development on existing infrastructure and identify an expected gaps in provision. Councils should consider the:

anticipated characteristics, needs and preferences of the forecast population
participation rates and usage trends for various activities expected for the forecast population.

Identify the specific infrastructure that is required to meet this demand.

Identifying the specific infrastructure needed to meet the demand involves detailed options analysis. This should identify the preferred option for infrastructure that best meets the demand and while also considering the upfront and overall cost. This should consider:

if some of the demand can be catered for by using existing facilities, either as they are or through upgrades to the facilities
the types and extent of infrastructure that will be required to address that demand
when infrastructure would be required to meet the demand generated by the development.

Once the council has identified the infrastructure needed to address the demand created by the new population, it should be used to develop a works schedule and mapping for the contributions plan.

Apportion the cost of this infrastructure across the different demand.

This involves a detailed analysis of the demand being generated by the new development, against the demand that the infrastructure will serve. This should consider:

what proportion of the demand for infrastructure is coming from within the catchment, and what proportion is coming from different catchments or areas, or even from different local government areas
what proportion of the demand within the catchment is from new residential, worker and tourist populations, and what proportion is from existing populations

Councils must detail where the demand is coming from, and how much of this demand is being generated by the new development that will be charged under the plan. Only the demand that is generated by the new development can be recovered through the contributions plan.

Apportionment can be calculated as a percentage and applied to the contributions rates through an apportionment factor. The module calculating contribution rates has more information on calculating and using an apportionment factor.

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