New build-to-rent (BTR) planning controls for NSW - Construction & Planning

The first stage of the NSW Government's attempts to streamline State planning policy relating to housing has been released, with long-awaited planning controls for build-to-rent (BTR) developments announced by NSW Treasurer, Dominic Perrottet (Treasurer) and Minister for Planning and Public Spaces, Rob Stokes (Minister) on 12 February 2021 coming into immediate effect.

The new State Environmental Planning Policy Amendment (Build-to-rent Housing) (Amending SEPP) will not only establish a definition for BTR for the first time in NSW but mandate minimum lifespans for BTR developments, allow BTR developments to be assessed as State significant development (SSD) in certain circumstances, relax the stringent requirements of the Apartment Design Guide and establish planning controls and design standards for the new development type.

While the Government had previously indicated that its BTR reforms would be just one part of its wider plan to consolidate several planning instruments into a single new Housing Diversity State Environmental Planning Policy (Housing Diversity SEPP), this recent announcement sees BTR take centre stage, with the Minister announcing the Housing Diversity SEPP will be finalised "in the coming months".

The Amending SEPP makes amendments to three existing instruments:

State Environmental Planning Policy (State and Regional Development) 2011 (SRD SEPP);
State Environmental Planning Policy No 65-Design Quality of Residential Apartment Development (SEPP 65); and
State Environmental Planning Policy (Affordable Rental Housing) (ARH SEPP).

In addition to the Amending SEPP, the Treasurer also announced new guidelines under which BTR developments can achieve significant land tax concessions (Treasurer's Guidelines). The BTR reforms also feature several minor housekeeping amendments to the Environmental Planning and Assessment Regulation 2000 (EPA Regulation).

A definition for BTR

The Amending SEPP establishes a consistent definition of BTR for use across government, intended to ensure these developments are not subject to ad hoc or inconsistent regulation by different departments and agencies. The definition has also been incorporated into the EPA Regulation in the form of prescribed conditions for development consent for BTR housing and applies not just to new buildings but also to conversions of existing buildings to BTR housing.

Under the Amended SEPP, BTR is the umbrella term used for development for the purposes of multi dwelling housing, residential flat buildings or shop top housing where the proposed development:

is to be built on land zoned B3 Commercial Core, B4 Mixed Use or B8 Metropolitan Centre (or in any other zone in which development for the purposes of residential flat buildings is permissible); and
will contain at least 50 dwellings occupied, or intended to be occupied, by individuals under residential tenancy agreements, with all buildings containing these dwellings located on the same lot of land.

Restrictions around subdivision of BTR developments will also apply. Before consent is granted for the construction or use of a building for the purpose of BTR, the consent authority must be satisfied that no part of the BTR development occupied under a residential tenancy agreement (Tenanted Component) will be subdivided. In all zones other than Zone B3 Commercial Core the non-Tenanted Components of a BTR development may still be subdivided.

Finally, the Tenanted Components of a BTR development are required to be held in single ownership and operated by a single managing agent who provides on-site management of the dwellings.

In order to take advantage of the specific controls the Amending SEPP establishes for BTR developments, the above criteria must be met for a minimum of 15 years. Developments in Zone B3 Commercial Core will need to satisfy these criteria indefinitely.

The Amending SEPP clarifies that any requirement to dedicate land or pay a monetary affordable housing contribution that would apply to a 'build-to-sell' development on the same land will also apply to a BTR development.

Curiously, there are several subtle differences in the definitional criteria for BTR between the Amending SEPP and in the Treasurer's Guidelines. Of particular note, the Treasurer's Guidelines provide that a BTR development:

must offer minimum three-year tenancies; and
is not required to be held in single ownership or operated under single management where dwellings are made available for use as affordable housing or social housing for a continuous period of 15 years.

The Amending SEPP does not impose the minimum tenancy criteria and it is not a requirement for planning consent. The exemption from ownership and management requirements for social or affordable housing is also absent from the Amending SEPP.

While the minimum tenancy obligation has no bearing on planning consent, the inconsistency regarding ownership and management requirements and the manner in which social and affordable housing will factor into BTR developments will require clarification.

State significant development pathway

Another positive move for the sector will see larger BTR developments gain the benefit of SSD designation under amendments to the SRD SEPP.

Under the amendments, a development for the purpose of BTR will be automatically declared SSD where it has:

a capital investment value (CIV) of at least $100 million in the Greater Sydney Region (excluding the City of Sydney); or
a CIV of at least $50 million in other areas of the state.

In addition to the overall CIV requirement, SSD designation will require the Tenanted Component of a proposed BTR development to account for at least 60 per cent of the total CIV of the development.

The SRD SEPP amendments also stipulate that proposed developments for the purpose of BTR cannot involve development that is prohibited under an environmental planning instrument applying to the land, other than where the proposed development is within Zone B3 and where development for the purposes of multi dwelling housing, residential flat buildings or shop top housing is otherwise prohibited.

Proposed BTR developments in the City of Sydney will not be subject to SSD provisions and will continue to be assessed and approved by the City of Sydney.

Development standards generally

In order to prevent local consent authorities imposing onerous controls on BTR and rendering these developments unviable, the Amending SEPP establishes a set of 'non-discretionary development standards'.

These standards include:

aligning building height and floor space ratio controls with the maximum permissible for the land under another environmental planning instrument, such as a Council's LEP; and
requiring the development to provide the minimum amount of car spaces required of a residential flat building under the relevant development control plan or local environmental plan or, in the City of Sydney, 0.5 car spaces for each dwelling, whichever is less.

These controls will ensure that BTR development receives the same planning treatment as any other residential development type, and proponents will not be required to reduce scale and bulk or provide parking spaces over and above what would be required of a 'build to sell' development.

Proposed BTR developments located in business zones will also be required to provide active street frontages by ensuring the ground floor of the development does not contain any residential accommodation or car parking.

Application of the Apartment Design Guide

Critical to the viability of the BTR model is a flexible application of the Apartment Design Guide (ADG) under SEPP 65.

The Amending SEPP addresses this industry concern directly and stipulates that the design criteria under Part 4 of the ADG should be applied flexibly in the assessment of proposed BTR developments, especially in relation to Items 4E, 4G and 4K, concerning private open space and balconies, storage and apartment mix, respectively.

In order to achieve this flexible approach, consent authorities assessing a proposed BTR development against Part 4 of the ADG will be required to give additional consideration to:

the amenities proposed to be provided to tenants residing in the development through common spaces and shared facilities and services;
whether the configuration and variety of dwellings in the development will provide adequate options to prospective tenants in relation to the size and layout of the dwellings; and
whether tenants residing in the development will be able to relocate to other dwellings in the development that will better accommodate their housing requirements if those requirements change.

Conclusion

The focus on BTR in the first stage of reforms to support housing diversity is perhaps unsurprising, given a recent State Government announcement that BTR developments would benefit from new land tax concessions.

With a consolidated Housing Diversity SEPP due in the coming months, BTR is likely to be a rapidly evolving product. While there appears to be some inconsistency between the Amending SEPP and the Treasurer's Guidelines on definitional issues, the BTR reforms will facilitate the growth of this type of development in NSW.

A copy of the Amending SEPP is available here, and a copy of the amendments to the EPA Regulation is available here. The Treasurer's Guidelines in relation to land tax concessions are available here.

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