Affordable Housing

The NSW Department of Planning, Industry and Environment has released an Explanation for Intended Effect (EIE) on a new Housing Diversity State Environmental Planning Policy (SEPP). The Government’s aim for the new SEPP is twofold, namely it seeks to increase the diversity of housing, providing greater affordability, and intends to help the post-COVID economic recovery by increasing residential development.

The new SEPP will consolidate three existing policies:

• State Environmental Planning Policy (Affordable Rental Housing) 2009 (ARHSEPP);
• State Environmental Planning Policy (Housing for Seniors and People with a Disability) 2004 (Seniors SEPP); and
• State Environmental Planning Policy No 70 – Affordable Housing (Revised Schemes) (SEPP 70)

It will also introduce new housing types (build-to-rent, student housing and co-living) and amend boarding house and seniors housing provisions.

Whilst we agree with the concept and intent of the new SEPP, the underlying details require further consideration to achieve the Government’s desire for more diverse and affordable housing. We delve into some of these details below, with a focus on co-living and the proposed amendments to boarding house provisions.

Co-Living

Co-living, formerly known as ‘new generation’ boarding houses, are small, self-contained dwellings, fit for one or two people. They aim to offer short to long term accommodation close to public transport and services.

The new terminology is a positive step as it should allow the housing type to break free of any stigma associated with the term boarding house and invite more development. However, there are a couple of details which may lead to both demand and supply issues.

Part of the definition of co-living is it will “provide tenants with a principal place of residence for three months or more”. The idea presented by the Government is that demand exists due to the rise in single person households and changing preferences towards downsizing in order to live in more desirable locations. This hints at the fact that people are viewing co-living as a more permanent style of accommodation. Whilst this portion of demand will hold true, there is another subsection of the population that seeks co-living arrangements on a more temporary basis, including emergency workers; fly in fly out workers; and people requiring only short-term accommodation, which may be overlooked in new co-living developments.

The new requirement for co-living room sizes to be 30-35m² far exceed the levels of existing co-living buildings. By increasing the minimum room size, developers will not be able to construct as many apartments and projects that were previously viable under the old “new generation” boarding house provisions will become economically unfeasible.

Affordable Housing

The new SEPP aims to address the shortage of affordable housing by introducing a new requirement for affordability of boarding house developments. Under the amended provisions, boarding houses will have to be managed by a Community Housing Provider (CHP) and be rented at affordable rates for a minimum of 10 years.

The introduction of CHP management of boarding houses will create housing that is affordable for very low and low income households. The flipside of this is the adverse impact on profit margins for developers of boarding houses, in what can already be a low profit margin product. Further research should be commissioned to determine the true definition of affordable housing and the ability for private management be maintained.

A large incentive for boarding house development is the Floor Space Ratio (FSR) bonus and the ability to be built in areas where traditional residential development may not be permissible. The new SEPP will make the FSR bonus a flat 20% on top of the FSR permitted under a Local Environmental Plan. Previously the bonus ranged from 20% to 100%. Boarding house development will also not be mandated in the R2 Low Density Residential Zone due to bulk, scale and nature of use. Both measures may disincentivise private investment into boarding houses as they restrict the number of units that can be developed, which in turn impacts the economic viability of the product.

We are a firm supporter in the Government’s goal of addressing the issue of housing diversity in the new SEPP and see growth and opportunity within this asset class. Following a deeper dive into the details, it is evident that further consultation is required between public and private sectors to best understand how to achieve this goal.

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