Enabling Housing Supply and Delivering Affordable Housing – A Balancing Act

Today, new planning controls were made in the state-led rezoning TOD accelerated precincts of Bankstown, Bella Vista, Kellyville, Hornsby, Crows Nest, Homebush and Macquarie Park.

The NSW Government published the Affordable Housing contribution rates that will apply in the precincts.  

Atlas Economics was privileged to have carried out a program-wide review of Affordable Housing contributions to support NSW Department of Planning, Housing and Infrastructure as it seeks to balance enabling housing supply with contributions to Affordable Housing.

Forever or Fixed – What Housing Term is Best?

In NSW, there are two mechanisms under which a requirement for Affordable Housing can be imposed.

• ‍In perpetuity - the dedication (or gifting) of Affordable Housing to a consent authority¹. This represents a contribution to Affordable Housing that is in perpetuity (forever). An equivalent cash contribution can also be made.
• ‍Fixed term - the delivery of housing (as part of a development) to be used as Affordable Housing for a fixed term (not forever) and managed by a registered community housing provider². As this is designed to facilitate the delivery of affordable housing, cash payment is not available. These are also known as the infill incentive provisions where up to 30% floorspace bonuses are available for up to 15% delivery of Affordable Housing for 15 years.  

For small developments, it may be impractical for a developer to hold one unit for 15 years before realising its value/ sale. However, for sites with sufficient scale, the infill incentives provide an effective pathway to result in a large number of dwellings worth waiting 15 years for. There are already a number of large development applications that seek to leverage these infill incentive provisions.  

The infill incentive provisions have the potential to help create a new class of housing for the private sector to deliver at scale. A rolling supply of Affordable Housing would be a much  needed shot in the arm in desperate times.  

By comparison, where Affordable Housing is dedicated in perpetuity (either cash or completed dwelling), the contributions can be distributed to the community housing sector and pooled to deliver purpose-designed and purpose-built Affordable Housing.

Growing the Community Housing Sector

In NSW, registered community housing providers (CHPs) could be for-profit or not-for-profit (NfP) entities. NfP CHPs are charities whose purpose is the development and/ or management of subsidised housing. They enjoy tax concessional status (Federal and State).  

For-profit CHPs could be real estate agencies who manage affordable housing which they own or through a fee-for-service arrangement on behalf of private sector landlords.

CHPs do not receive regular funding and instead rely on Government capital grants and funding subsidy programs. Developer contributions and concessional land purchases are valuable sources of funds for CHPs. Any assets that sit on a CHP’s balance sheet can be leveraged (with debt) to build more Affordable Housing stock.

The Affordable Housing contribution that could be secured in perpetuity (‘forever’) would be lower than if the contribution was only to be used as Affordable Housing for a fixed term (say 15 years). However, the ‘forever contributions’ provide ‘baseload support’ to building capacity in the CHP sector. They would serve to supplement the infill incentive provisions that suit large sites and scalable developments. There is certainly merit in the two mechanisms working concurrently to deliver a diversity of housing and for varying terms.

Could Contribution Rates be Higher, say 30%?

In theory, land values will adjust downwards if the cost side of the ledger increases. If the cost to deliver apartments increases (due to construction cost and/ or higher statutory fees and charges) but the value of completed apartments does not change, the price that a developer would be willing to pay for the land reduces. In theory, the landowner wears this reduction.

The theory being that, if a developer pays an appropriate price for the land (reflecting the cost of development plus a profit margin), that land would still be feasible to develop. This does not always work in urban areas where existing buildings/ uses are valuable.

Take for example a low-density residential area. If single dwellings are worth $2 million each and 5 dwellings are required for consolidation into a development site, the landowners will expect $2 million plus a premium as payment (to cover stamp duty, relocation costs, etc.). If the price a developer can afford to pay for all 5 dwellings is only $8 million (after accounting for the cost of development and a profit margin), the landowners will not sell, and the properties will remain as single dwellings.

Therefore, there is not unlimited scope for land values to adjust down. Land values will not adjust to be lower than the value of their existing use.

There is generally more scope for land values (in rural, non-urban areas and in urban renewal areas) to adjust downwards compared to urban areas.

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¹ s7.32 of the Environmental Planning and Assessment Act 1979 and clause 15 of the Housing SEPP 2021

² Clause 16 of the Housing SEPP 2021