Australia: Greater Sydney Commission draft District Plans and the affordable housing challenge - Sydney cannot afford to get it wrong

If the draft District Plans tell us anything, it's that there is no magic wand the Greater Sydney Commission can wave to fix the affordable housing crisis.

The shortage of affordable housing in Sydney is at a crisis level and it threatens to undermine Sydney's competitive position as a global city. The Greater Sydney Commission has set 5 and 20 year housing targets and affordable rental housing targets.

These targets will drive different outcomes for developers, business investors, land owners, councils, affordable housing and community housing stakeholders and residents, so it is vital for all stakeholders to understand them.

The silver medal Sydney doesn't want

Last year Sydney was named the second-most unaffordable city in the world in which to buy a home (after Hong Kong) according to the 13th Annual Demographia International Housing Affordability Survey.

The draft District Plans focus on three themes in relation to each District: productivity, liveability and sustainability [each to link to other RE article in this edition].

These three elements are interlinked in relation to affordable housing. Each draft District Plan states that "the issue of housing is as much about liveability as it is about productivity and sustainability: our planning for jobs is as important to a productive city as it is to a liveable and sustainable city."

Put simply, the Greater Sydney Commission says a city cannot be liveable or be the best global city if people cannot afford to live there.

What does affordable housing mean to the Greater Sydney Commission?

It is important to understand that the draft District Plans use two distinct but interrelated terms in relation to housing.

  1. Housing affordability: a broad term used to describe challenges people across a range of income groups experience in finding affordable housing to rent or own.

More particularly, the Greater Sydney Commission says that if a household is spending more than 30% on housing costs this is likely to put them in "housing stress" and in need of affordable housing options, as their ability to pay for other living costs, such as food, transport, clothing and utilities, will be impacted.

  1. Affordable rental housing: a term used to describe the Greater Sydney Commission's approach to addressing the gap in housing provision for people on low and very low incomes.

How do the draft District Plans tackle housing affordability?

The draft District Plans propose to accelerate housing supply by:

  • the establishment of five year local housing targets for each local government area that maximise the opportunities to grow housing supply and diversity of housing choice;
  • a planning process for the long term that defines objectives and sets goals for housing in each district that will help accelerate housing supply and local housing choice; and
  • district-wide 20 year strategic housing targets which recognise that planning has a central role to play in ensuring sufficient capacity is created to support the need for at least 725,000 additional dwellings across Greater Sydney by 2036.

Council response to increased five and 20 year housing targets

The Greater Sydney Commission proposes to work with local councils, NSW Government, communities and industry to identify new and expanded opportunities for housing capacity close to existing and planned infrastructure. Once identified, these areas can be incorporated as investigation areas within the final District Plans and in the review of "A Plan for Growing Sydney" to be developed in 2017. This process will also assist the Greater Sydney Commission to establish a new and specific 20-year strategic housing target to 2036 for each local government area.

What the draft District Plans don't do is tell the councils how the 5 and 20 year targets can be achieved, other than to acknowledge that many councils have created opportunities to meet these targets in the short term and that:

  • it is important to support the realisation of these opportunities as housing supply via timely decision-making and by aligning these opportunities with infrastructure provision; and
  • the continued strength of the housing market also plays a key role.

Our review of the media and industry press has revealed that some councils have:

  • responded cautiously to the housing targets for the city by the Greater Sydney Commission;
  • referred to the need for the NSW Government to develop a consistent framework which can be applied consistently across the state;
  • indicated that the increased housing targets allocated to particular councils are ambitious and may be unachievable without upfront infrastructure support from the NSW Government; and
  • said that creating that much housing in a short space of time (ie. the five year targets) could prove difficult if the market goes into a downturn in the next two or three years.

As that the draft District Plans do not specify how the housing targets will be achieved, there is an opportunity for councils and other stakeholders to have input into the process to drive better outcomes, which may include adjusting the housing targets or having targets with sliding scales. The quality of the outcomes achieved by the District Plans will be influenced by the level of engagement from stakeholders who make submissions to the Greater Sydney Commission.

Affordable Rental Housing Target

The draft District Plans nominate an Affordable Rental Housing Target of 5% to 10%, subject to viability, in urban renewal and land release areas.

Of interest, the draft District Plans do not provide evidence for the target range nominated.

State and local governments must include Affordable Rental Housing Targets in planning proposals and strategic plans as a form of inclusionary zoning for new urban renewal and greenfield areas.

The Greater Sydney Commission proposes that the Affordable Rental Housing dwellings will be secured by the relevant planning authority and may be passed onto a registered Community Housing Provider to manage.

The Affordable Rental Housing Target:

  • will apply to land that is the subject of upzoning (a change of land use to residential or an increase in permissible residential development density);
  • will not be applied retrospectively to rezoning that has already occurred, but only for new areas nominated by the relevant planning authority;
  • must be announced before, or at the time of, rezoning to give the market certainty about the amount of affordable housing to be provided, and so that it can be factored into development feasibilities;
  • will apply to land within new urban renewal or land release areas (both government and private) identified via a local or district housing strategy, or another form of appropriate research that illustrates a current or future need for affordable rental housing; and
  • will be calculated as a proportion of all residential floor space above the base floor space ratio (that is, the residential floor space ratio that was permissible before the upzoning within the nominated area).

The Greater Sydney Commission does not propose a minimum dwelling threshold above which the Affordable Rental Housing Target would apply. They propose to prepare a Guidance Note this year which will investigate whether it would be appropriate for developments of a smaller scale to pay a financial contribution in lieu of providing affordable housing dwellings. They will also investigate whether there are other exceptional circumstances in which an in-lieu contribution might be acceptable, for example, where it would result in an overall improvement in the supply or location of affordable rental housing.

What is the Affordable Rental Housing Target viability test?

The identification of an appropriate Affordable Rental Housing Target will be subject to development feasibility testing across the nominated area to ensure that the Affordable Rental Housing Target will not make continued supply of market housing economically unviable.

Details on what the viability testing assumptions and parameters will be has not been provided yet. A proposed Guidance Note is to be issued by the Greater Sydney Commission this year. This detail will be critical to developers, councils and affordable housing stakeholders alike.

The Greater Sydney Commission states that:

  • it expects viability testing to give due consideration to development feasibility for a reasonable residential development in the nominated area including the reasonable costs of local, and where appropriate, State, contributions;
  • work to determine an appropriate and viable target for a nominated area is to be undertaken by the relevant planning authority responsible for the urban renewal or land release area (i.e. the relevant council, the Department of Planning and Environment or the Commission);
  • any assessment of a viable target must be transparent and robust; and
  • where required, the Commission will independently verify the development feasibility of a recommended target and provide advice to government to determine where exceptions may be granted if it is clear it would financially hinder delivery of a critical or major component of city-making infrastructure.

Is anyone happy with the Affordable Rental Housing Target?

The media and industry commentary since the draft District Plans were issued strongly reveal that developers are concerned about the cost of meeting the Affordable Rental Housing Target. Developers are seeking a model which sees the private sector receiving an appropriate amount of financial support to deliver affordable housing so that the whole industry is encouraged to produce affordable homes.

Conversely, affordable housing stakeholders and advocacy organisations have widely commented that the Affordable Rental Housing Target is inadequate.

Councils are also concerned that if the housing targets are not met (including provision of Affordable Rental Housing dwellings) then there will be limited scope for the jobs targets set by the draft District Plans to be met.

What next?

If the draft District Plans tell us anything, it's that there is no magic wand the Greater Sydney Commission can wave to fix the affordable housing crisis.

It should have come as no surprise that Gladys Berejiklian's three priorities are housing affordability, economic growth and infrastructure delivery. Importantly for the Greater Sydney Commission, these priorities are also the hallmarks of the draft District Plans' three key priorities of productivity, liveability and sustainability.

At her first press conference as Premier of NSW, Gladys Berejiklian said housing affordability is the "biggest issue" people have across the state and that boosting housing supply is "the best way to address housing affordability". It will be interesting to watch how our new premier tackles this challenge.

Once finalised, the District Plans will be critical to housing supply, housing prices, and to the liveability, productivity and sustainability of Greater Sydney. Developers, business investors, land owners, councils, affordable housing and community housing stakeholders and residents all have a stake in how these District Plans address housing affordability and affordable renting housing.

This impacts all of us who live and work in Sydney. It's a multi-faceted problem that requires a richly textured response, including a focus on these key questions:

  • how can affordable housing be delivered more quickly?;
  • how can the planning system drive solutions?;
  • how can delivery of affordable housing create positive outcomes for residents and developers?; and
  • if a district has no affordable housing will business and investment capital follow with jobs, transport, services and place making?

With submissions on the draft District Plans closing on 31 March 2017, it is crucial to understand how the affordable housing requirements of the draft District Plans will affect your land, developments and businesses.

We can help you better understand the impacts or help you prepare formal submissions to the draft District Plans.

RELATED KNOWLEDGE

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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