A summary of the Housing Diversity SEPP

Introduction

The NSW Government has been working at great pace to deliver a range of new planning reforms to remove complexity, improve certainty and reduce approval timeframes for new development projects, particularly those that deliver social and economic benefits for the community.

Despite the recent acceleration in planning reform packages to encourage increased jobs and investment in response to the COVID-19 economic downturn, many of the proposed reforms are consistent with long-standing input from key stakeholders on ways to improve the planning system. This is certainly the case for the recently-released Expression of Intended Effect (EIE) for the proposed State Environmental Planning Policy Housing Diversity (Housing Diversity SEPP), which reflects many issues raised by local communities, peak bodies, councils and industry representatives in relation to planning controls impacting the provision of diverse and affordable housing types across NSW. The EIE is open for consultation until early September.

Key changes

The proposed SEPP will, amongst other things, introduce new land use definitions and planning provisions for Build-to-Rent (BTR), student housing and co-living development, as well as amend the existing definition and planning controls for boarding houses under State Environmental Planning Policy (Affordable Rental Housing) 2009 (Affordable Housing SEPP). Notably, boarding houses will now be required to be provided as ‘affordable housing’ and managed by community housing providers (CHPs). The NSW Government has specifically asked for feedback from key stakeholders on whether the affordable housing restriction for new boarding houses should remain in place in perpetuity or be limited to a 10-year period only. The floor space ratio (FSR) bonus for boarding houses in zones in which residential flat buildings (RFBs) are permitted will be set at a flat rate of 20%. In addition, boarding houses will no longer be a mandatory permissible use in the R2 Low Density Residential zone.

The following tenure and tenant requirements proposed to apply to the new housing types:

Table 1 Tenure and tenant requirements

 

Build-to-rent

The EIE describes BTR housing as ‘purpose-built rental housing, held in single ownership and professionally managed’ which is generally located in accessible, high density areas. The EIE states that BTR housing has the potential to provide long lasting community benefits, with greater housing choice for tenants who would have access to high-quality dwellings, in a stable rental environment. There are numerous examples of international BTR models, which provide long-term rental accommodation for residents allowing them to form connections with their local community under secure tenure arrangements.

There are currently no impediments in the NSW planning system to the development of new housing for rental purposes. However, given the potential social and economic benefits of expanding the local BTR industry, the NSW Government is seeking to provide more certainty for this type of development with a proposed new definition and specific planning provisions. Consistent with this approach, the NSW Government is proposing to apply a 50% discount on land tax to developers investing in BTR schemes.

The combination of specific planning and tax provisions is likely to provide a powerful incentive for delivery of this type of development, particularly for institutional investors.

Student housing

Under the current planning framework, student housing does not have a separate definition and the boarding house provisions in the Affordable Housing SEPP have been used to develop student housing. The introduction of the new student housing definition and planning controls will respond to the demand for a specific student accommodation definition and specialised planning controls from industry providers.

Co-living

As with student housing, the boarding house provisions in the Affordable Housing SEPP are currently being used to develop co-living developments, otherwise known as ‘new generation’ boarding houses. Co-living developments typically provide self-contained dwellings with private bathroom and kitchenette facilities, as well as access to communal areas with good amenity. They are generally located in close proximity to public transport and services.

The proposed introduction of an affordability requirement for boarding house development would mean that this type of housing is no longer facilitated by the planning system. To address this gap, the NSW Government is proposing to introduce a new land use definition and planning provisions for co-living development. Like BTR, there are a number of international and some local examples of this type of product.

Hmlet conversions Starcity co-living

 

Proposed planning controls for new housing types

The current proposed definitions and planning controls for the new housing types are set out below.

Table 2 Key planning controls for new housing types

Key planning controls for housing types

Preliminary review of the proposed SEPP

The proposed amendments as set out in the SEPP are welcomed. They respond to multiple issues that have consistently been raised by key stakeholders to support the delivery of diverse housing types across NSW. After considering the EIE, there are some initial questions that are raised by the proposed legislation which may guide further review. These include the following:

How will affordability and eligibility be defined for boarding houses?

Affordable housing is currently defined under the Affordable Housing SEPP as housing for very low-income to moderate income households. As per the Department of Community and Justice (DCJ) guidelines, rents for affordable housing are set in one of two ways. The first is to set the rent as a discount of the current market rent; usually between 20% and 25% below the market rent. The second is to set the rent as a proportion of a household’s before tax income. Where rent is set this way, households may be charged between 25% and 30% of their before tax income for rent.

At present, DCJ does not publish a quarterly market rent report for boarding house rooms in the same way it does for studio to four-bedroom apartments in each local government area. In addition, there are no specific eligibility criteria that apply to boarding house accommodation. These criteria and market rents may need to be established.

What zones will co-living and student housing development be permitted in?

The EIE does not seek to mandate zones in which student housing and co-living developments will be permissible. This may result in ad-hoc arrangements between different local council areas and some guidance on permissibility requirements may be useful.

What impact will BTR have on B3 Commercial Core zones?

Many councils do not permit any type of residential accommodation in its commercial core to reduce land use conflicts and limit the reduction of employment-generating floor space in its commercial cores. Will mandating BTR as a permissible use in the B3 zone have potential adverse economic and land use impacts, and will the prohibition on subdivision mitigate against potential impacts?

Are the proposed parking controls reasonable?

The Affordable Housing SEPP currently applies a non-discretionary parking requirement of 0.5 spaces per boarding house room or 0.2 space per room where the boarding house is delivered by a social housing provider. No changes are currently proposed to these rates. If boarding houses are required to be managed by a CHP, could a flat parking rate of 0.2 spaces per boarding house room be applied?

In addition, is it reasonable to set the co-living parking requirement at a minimum of 0.5 spaces per room, particularly for highly accessible areas or where the local council applies maximum parking rates to residential development? Should bicycle and motorcycle parking requirements be applied to co-living development?

What incentives will there be for co-living development?

The EIE acknowledges the important function that ‘new generation’ boarding houses have played in delivering a certain class of more affordable accommodation to meet the needs of the NSW population. Due to the existing floor space bonus available under the Affordable Housing SEPP, a large number of boarding houses have been delivered in NSW which has resulted in some of the land use conflicts that the proposed Housing Diversity SEPP now seeks to address. However, will the proposed co-living controls provide enough of an incentive to encourage the continued delivery of this important type of accommodation?

Will there be additional tax incentives for CHP delivery of BTR housing?

CHPs have been delivering BTR housing in NSW for many years. However, as CHPs are not-for-profit organisations, they are exempt from land tax. Therefore, the proposed land tax reduction for new BTR housing in NSW will not benefit CHPs. Should additional planning or tax incentives be implemented for CHP deliver of BTR housing?

Conclusion

There are numerous benefits gained in considering multiple viewpoints in preparing and implementing any new policy, particularly one that impacts housing supply. The more stakeholders that provide feedback on the proposed SEPP, the better the outcomes that are likely to be realised. Elton Consulting would welcome the opportunity to provide further insights into affordable housing in NSW. Please get in touch with us if you would like to discuss how the proposed SEPP impacts your work.

Author: Kim Samuel