City Futures Blog

News and research in housing and urban policy, from Australia’s leading urban policy research centre.

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Sydney needs more boarding houses

Posted by on April 9th, 2018 · Construction, Government, Guest appearance, Housing, Housing conditions, Housing supply, Marginal rental, Planning, Private rental, Sydney

By Matthew Benson, UNSW Built Environment Masters candidate and town planning consultant. Originally published in the Sydney Morning Herald.

I was a town planner at the former City of South Sydney in the mid-nineties when brothels became legal. Brothel operators could apply to legalise brothels that had been operating for decades. I remember someone objecting to a “proposed” brothel in East Sydney, saying it would be a disaster for her neighbourhood if that use was to commence a few doors along. She seemed surprised to learn that it had been operating for several decades. Boarding houses seem to share a similar stigma – they are associated with apparently socially undesirable types deemed by some to be wholly unwelcome in the Hills District or on the Northern Beaches.

It seems a pity to have to explain that the boarding houses built under state affordable housing policies are usually self-contained flatettes with regular folks living in them who happen to form a single person household, or sometimes a couple.

And as with brothels, this type of use has been occurring across Sydney for decades – only not with approval and normally not in a self-contained arrangement. They are known as share-houses. Typically regarded as a bohemian rite-of-passage for students, they proliferate across Sydney. They often involve rooms let out by a non-resident landlord with unauthorised internal modifications. As with illegal brothels, illegal boarding houses can be unhygienic fire traps.

In 2009, the NSW government introduced a state affordable housing policy that freed up restrictions around granny flats and boarding houses along with some other forms of affordable housing.  Under those rules, boarding houses are allowed in low density areas if within 400 metres of a bus stop with frequent services.

The O’Farrell administration introduced the “character test” into the boarding house rules, meaning that a proposed boarding house has to be compatible with the character of its locality. That has prevented boarding houses being grossly out of character with their suburban setting.
I assisted with a boarding house proposal in Cromer that attracted over 800 objections. Many of those objectors expressed horror at the location of the proposed boarding house where children walk past it to go to school. They thought residents would be ex-criminals or other perceived socially undesirable types.

However, the proposal was for a single storey boarding house comprising eight rooms with a generously landscaped front yard and clearly was compatible with the character of its locality.
That boarding house has now been constructed and is operating. The surrounding residents are wondering what they were so worried about. You would hardly know it was there.

It is unfortunate that proper boarding houses are so maligned. Approved boarding houses provide a dignified option for people who don’t want to share their fridge and bathroom with strangers. It provides an option for people that might be in the wrong demographic for the typical share house situation and who suffer repeated rejections.  Approved boarding houses provide compliance with fire regulations and provide rooms for people with a disability. They also operate under a plan of management that helps keep potential disturbance to a minimum.

The NSW Minister for Planning, Anthony Roberts, has now announced an intention to increase parking rates for approved boarding houses to 0.5 parking spaces per boarding room. The current rate per room in an accessible area is 0.2 spaces per boarding room.

The proposed parking rates will effectively prohibit small-scale boarding houses in suburban areas. The only viable proposals will be on large, more isolated sites and will be large scale proposals. All that this will achieve will be to encourage illegal operators.

Sydney needs more single person accommodation that is properly built, including access for people with a disability and fire safety measures. It should be located in areas within a short walk of frequently operating public transport. Let’s hope the minister rethinks this matter.

Wealthy landlords and more sharehousing: how the rental sector is changing

Posted by on April 5th, 2018 · Demographics, Finance, Government, Housing, Housing conditions, Marginal rental, Private rental, Tenancy, Uncategorized

By Chris Martin. This article was originally published on The Conversation. Read the original article.

More people are becoming heavily indebted by buying rental properties and shared accommodation is flourishing, as third party tech platforms help people find a place without a real estate agent.

A new report from the Australian Housing and Urban Research Institute explains how the private rental market is changing over time for both landlords and tenants. The report analyses data from the 2016 Census, the 2013-14 Survey of Income and Housing and the 2014 Household, Income and Labour Dynamics in Australia (HILDA) Survey. It also draws on interviews conducted with 42 people involved in all aspects of the private rental sector: financing, provision, access and management.

Over the 10 years to 2016, the number of renters grew 38% – twice the rate of household growth. More renters now are couples, or couples with children, so it seems the sector is shaking its image of unstable housing or perhaps these people are left with few other options.

PRS households by type, 2006 and 2016

Rental property ownership also grew. We found the number of households with an interest in a rental property grew and the number that own multiple properties grew slightly as well.

But the typical landlord is still the conventional “mum and dad” investor. Two-thirds of rental investor households have two incomes, and 39% have children.

However they are also mostly high-income and high-wealth households: 60% are in both the highest income and highest wealth bracket. Interestingly, about one in eight landlords is themselves a private renter.

The biggest change in ownership is in finances: owners of rental properties are relying more heavily on debt.

Housing finance ($A), 2000 – 2016


Financing rental properties

The people we interviewed highlighted the Australian Prudential Regulation Authorities’ (APRA) guidance to lenders on loan serviceability calculations as having the greatest impact on overall investment levels and investor decisions.

Adding to the complexity is the proliferation of intermediaries, such as mortgage brokers and wealth advisers. These advisers are telling borrowers what lenders and loan products to use to maximise their borrowing power and negotiate lender and regulator requirements.

Houses are the most commonly rented in Australia, but everywhere rental markets are moving away from this and towards dwellings like apartments.

There’s now more diversity in rental properties too. For example the building of high-rise student accommodation, “new generation boarding houses” and granny flats.

These allow landlords to house more people in the one building, increasing revenue and making management more efficient.

The informal sector of shared accommodation appears to be flourishing, like improvising shared rooms and lodging-style accommodation in apartments and houses.

Finding a rental

People have moved from finding rentals in real estate agents’ high street offices and onto online platforms. New third-parties like apps and other digital platforms offer non-cash alternative bond products, schedule property inspections, collect rents, and organise repairs.

Even though these technological innovations avoid agents, they have in fact increased their share of private rental sector management. Agents themselves are use these platforms to change their businesses, and the structure of their industry.

Our research found that revenue from an agency’s property management business (its “rent roll”) has become increasingly important. Some players in the industry are consolidating their businesses around it, to make higher profits from tech-enabled efficiencies.

However, the real estate business still depends on building personal relationships, particularly in high-end markets.

The new tech platforms of the private rental sector raise issues for tenants too, particularly in terms of the personal information they collect. For example, one of the online platform operators told us they looked forward to using applicants’ information to score or rank applicants. Another one of the new alternative bond providers uses automatic “trust scoring” of personal information to price its product.

These innovations may be convenient to use, and may give some tenants an advantage in accessing housing – but at the expense of others who are already disadvantaged.

Rental properties meeting demand?

If the private rental sector is going to meet the demand for settled housing, governments will have to intervene. This can’t be left to technological innovation, or higher income renters exercising their consumer power.

Federal or state governments could create public registers of landlords, or licensing requirements, to police landlords who are not “fit and proper” and exclude them from the sector.

There could also be stronger laws around tenancy conditions and protections for tenants against retaliatory action. The Poverty Inquiry in the 1970s set the basic model of our present laws and they haven’t changed much.

Tenants’ personal information also needs to be protected, to properly take account of the rise of the online application platforms; another is the informal sector, which is currently in a regulatory blindspot.

The ConversationThe popular emphasis on “mum and dad” investors diminishes expectations of landlords. Rental property investment should be regarded as a business that requires skill and effort. As for-profit providers of housing services, landlords should be held to standards that ensure the right to a dignified home life.


Housing: New Reapolitik Needs a New Real Economics

Posted by on March 22nd, 2018 · Affordability, Cities, Economy, Government, Housing, Planning, Productivity, Tax

Managing the pressured housing markets of cities such as Sydney and Melbourne poses a major challenge to governments at both state and Federal levels. As has become increasingly clear, such trajectories are wreaking serious damage for younger aspiring homebuyers and for broad swathes of the lower income population. As yet less well-recognised, however, is the wider hit to urban productivity that results from poorly functioning housing systems. Smarter policymaking is eminently possible in this area but will require that Ministers and their advisers resist the lure of simplistic ‘blame the planners’ analyses and adopt cleverer and better-informed approaches to the problem.

The Shaping Housing Futures Group, an international collaboration of academics and housing industry experts, has been reviewing experiences of pressured metropolitan housing markets in Australia, Canada and the UK. Our research on the problematic consequences that can result supports many of the arguments recently put by Ross Gittins about the need for a constructive rethink on entry to home-ownership. But it also argues for expanded affordable rental provision for lower income groups.

The present difficulties of the metropolitan areas covered in the SHFG study, in Australia and the other countries, largely stem from their success in creating and capturing the benefits of agglomeration – the economic gains that arise from co-location of firms and ‘thick’ labour markets. These growth dividends for major cities, and their un-linking from wider regional housing markets, raise two difficulties for housing and other infrastructure policies.

First, at the federal scale, the divergent house price patterns of pressured metropolitan versus other areas weakens the scope for use of monetary/ financial policy instruments in growth management. National governments have been quicker to respond to the financial stability aspects of house price changes than to their productivity consequences. It is worrying that Federal administrations have so little comprehension of how housing and land markets play out in these major chunks of space that provide more than half of national output.

The second concern is that, alongside its benefits, growth also generates congestion costs and shortages. Prolonged scarcity within housing markets arises not just because supply systems are inelastic but because rising prices often tend to boost market demand rather than to suppress it. Housing is, for many, most effectively allocated by market mechanisms. But, rather than resorting to economics 101 explanations, policymakers need a housing economics that identifies where sluggish housing markets fail; a housing economics that can guide a fix for such problems. The key policy failure across the cities and countries involved in SHFG, from Sydney to Vancouver though London and back to Melbourne starts by failing to see housing as essential economic infrastructure within an inherently sticky supply system.

The metropolitan housing markets examined by SHFG (Brisbane, Melbourne, Sydney, Vancouver, Toronto, Halifax, London, Manchester, Edinburgh) appear to have had three common phases to their post-2000 dynamics. Metropolitan economies prospered in the long boom after the mid-1990s. Rising incomes boosted housing demand, not least preferred home-ownership, as Gittins observes. Tax arrangements and political stances reinforced the demands for housing as an asset, not simply to accumulate by steady saving but to shape nations of speculators.  The rising housing wealth gains of the baby boomers, allied to favourable rental investment taxation, then drove increases in rental investor acquisition as a retirement provision, shaping a rental sector that was inefficiently financed and managed. It also sustained the upward drive in metropolitan housing prices. That exacerbated the home ownership exclusion of the 25-40 somethings and, increasingly attracted overseas investors to these ‘safe’ metropolitan places.

The sustained upward shift in prices, as Gittins notes, was shaped by policies and largely nationally driven demand pressures. Overseas investment is a small froth on an increasingly bitter-made brew. Recent research on the London housing market shows overseas investors paying similar prices and purchase behaviours to London locals and Toronto evidence reveals Chinese investor contribution to property market inflation in that city to have been very localised and small in scale. Meanwhile, in Vancouver, two years after restricting overseas demand upward pressures have resumed. It is time for the great cities to focus on policies that will facilitate the economic infrastructure that will forestall rising congestion costs. These costs may now be driving firms and skilled labour away from their most productive long-term locations.

The consequences of housing pressures go well beyond the displacement of younger Australians into rental homes (with the problem of deposit formation masking the persistence of a historically low cost of capital for housing owners). The same pressures have exacerbated homelessness and have imposed acutely high rental payment burdens on lower income households (as the stocks of non-market rental housing have failed to keep pace with population growth).

The increasing concentration of lower income households and a shift of low income housing to the outer suburbs are shaping more difficult housing futures for Australia and Canada. Economic policy interest has been focused on financial stability. Yet the research evidence for Australia and elsewhere is that a range of housing outcomes are hampering productivity growth and attracting the concern not just of poverty lobbyists but business leaders. Small, poor-quality housing and unstable housing tenancies with frequent moves for kids impairs their educational performance. In adulthood, many outer metro workers face long commutes from the ‘affordable edge’. These damage productivity, wellbeing and environmental quality. Chains of connection between poor housing outcomes and reduced human capital capacity can be matched with similar logic chains of how housing outcomes shape small firm formation and growth. More obviously, the restricted consumption that results higher housing payments has a damaging effect on Australian output and productivity (through scale economy effects). Housing outcomes have driven, in Australia, not just the major shifts in wealth and income (after housing costs) highlighted by Thomas Piketty, but they now threaten the Glaeser agglomeration gains.

Gittins is right that policy failure, as much as market failure, is at the heart of these growing difficulties. Policy choices have failed to manage housing change for the Australian economy. Creating the framework for a more flexible and fair housing system for Australia requires some fundamental shifts. Part of the problem is the major vertical fiscal imbalance at the heart of Australian metropolitan growth. Productivity growth is primarily metropolitan, but the tax revenues flowing from that growth and the autonomies to use them lie elsewhere, as metropolitan governance is weak. Australian governance arrangements match neither the geographies of potentials nor problems. Too often the multi-level structure of government is used as an excuse not to fix the problem.

Viewed from outside Australia, the recent Commonwealth government attempt to encourage better quality and strategic state housing strategies was a sensible measure but it has been frustrated as states cried ‘compromised control’.  Perhaps Australia should move housing support to a ‘housing deals’ format that aligns the strategic and resource interests of different levels of government. State governments need to identify the housing and infrastructure packages (otherwise known as places) that will be home to rising numbers of Australians. Housing infrastructure and transport need to be jointly planned and financed. Within state governments there is a serious need for a major injection of applied housing economic capacities (economics 101 is even more dangerous in the corridors of power than in the press), and some serious evidence building and modelling.

This latter point is well illustrated in the emergent policy debate. Ross Gittins is right, wheels are squeaking, and so are the pips. Housing affordability is looming as a major political issue across the OECD. One line of response from those who take a naively optimistic (and theoretically or ideologically driven) view about the functioning of housing markets is that the essential problem is one of supply and that problem arises from regulation/planning.  We can all agree that the dominant problem is about supply (although demand-side boost from first-owner grants and tax advantages matter too). We do however need a more informed view about what causes supply inelasticity. Inelastic supply can reflect planning decisions and processes but infrastructure shortages may deter developers from using zoned, available land. In Sydney, for instance, there is a substantial stock of land with permissions that remains undeveloped. The development industry, where it owns stocks of land in inflating markets, may have firm management incentives that do not involve maximising the short-term flow of new housing. An efficient Australian housing market cannot be assumed into existence but needs to be shaped by evidence-informed policies.

Other key policy ideas need to be trialled that would make for change. From a productivity standpoint inclusionary zoning is an effective housing policy for producing affordable housing as it produces homes from the ‘scarcity rents’ of already wealthy landowners. It does not reduce productive output. Tax financed grants and subsidies to produce the same housing would, somewhere in the Australian economy, reduce productivity and growth. Naturally a settled policy regime is essential. Involving non-profits in owning houses built (as in London and Vancouver) retains the uplift gains for lower income households into the longer term.

For almost two decades some Australian states have dilly-dallied in the social housing space. Most have resolutely failed to invest in new public housing and they have fashioned non-profit sectors that they have then simply failed to support and grow. There is an almost delusional quality to debate within state governments on this issue. UK experience has shown how such organisations can be client oriented, careful investors with patient capital. They have provided low income rental housing, dealt with special needs, brought together different sectors of interest required to renew communities and they have, with effective regulation and acquired scale, made strong, safe connections to national capital markets. Now they are dealing with market failures and helping create new routes into home ownership and exit from it in later life stages. Some major states have preferred to sit unmoved on their public housing assets leaving a major housing equity unlevered and strategically unused. Transfers could be transformative.

Australia has the ideas and the opportunities to shape a new, better housing system. It need not cost governments more but it will require them to think how housing markets really work and how these outcomes can be improved by strategic policy decisions. Australia needs to move beyond blaming planners and relying on separated chunks of short term policies for homeless and first home buyers to shape efficient market and governance systems for cities, states and the nation.


Shaping Housing Futures has been a knowledge co-production project led by the University of Glasgow and involving UNSW and the University of Toronto working with 21 cities, government departments, non-profits and others to think through better housing futures for Australia, Canada and the UK.

New cities? It’s an idea worth thinking about for Australia

Posted by on March 19th, 2018 · Cities, Demographics, Guest appearance, Planning, Regions, Transport
File 20180309 30969 1dg93hp.jpg?ixlib=rb 1.1
Benjamen Gussen’s proposal for a ‘charter city’ in the Pilbara stimulated this imaginary depiction. Justin Bolleter, Author provided

By Robert Freestone, UNSW; Elizabeth Taylor, RMIT University, and Julian Bolleter, University of Western Australia. This article was originally published on The Conversation. Read the original article.

Is there a case for revisiting the idea of new cities for Australia in the light of recent population projections and resurgent debate about the implications of a big Australia?

By big we’re talking in the order of another 12 million people by mid-century. That’s said to be equivalent to adding a Canberra every year for the next 30 years. But, on business-as-usual projections, three-quarters of that growth will be accommodated in our four biggest cities: Sydney, Melbourne, Brisbane and Perth. According to the Australian Bureau of Statistics, this could mean a Sydney of almost 9 million people and Melbourne of almost 10 million by just after 2050.

The last time the nation seriously confronted the reality of sustained and accelerated population growth was in the early 1970s. And there was a mood to do something decisive. In 1972 an Australian Institute of Urban Studies task force emphatically recommended:

efficient and humane alternatives to overconcentrated growth … A massive new-cities program needs to be started NOW.

The Whitlam government obliged with a national growth centre program. Undertaken jointly with the states, this produced some positive outcomes. These included an expanded Albury-Wodonga and systematic longer-term planning for Campbelltown in southwest Sydney and eventually Joondalup in northwest Perth. Admittedly there were some duds, such as the tri-city Bathurst-Vittoria-Orange and Monarto outside Adelaide, now a free-range zoo.

Funding and enthusiasm trailed off. This more or less reflected trends globally, certainly in the UK, heartland of new town thinking, where the Commission for New Towns was abolished by 1998.

But Paris carried on and even the private sector in the US developed new communities, bringing innovation to the design process. Other nations with high population growth, such as China, maintained engagement. Now even Britain is returning to new-look garden cities as models of sustainable growth.

So what’s going on in Australia?

If Australia had a fair dinkum national urban and population policy, then future patterns of national settlement would be firmly in its sights. But we don’t, and those hopes of a new era under Prime Minister Malcolm Turnbull just haven’t ignited. Instead, we mostly have a scattershot of initiatives, incentives and deals on offer within an overall economistic rhetoric of smartness and value capture.

Infrastructure Australia’s recent report, Future Cities: Planning for our growing population, is not much help. It concentrates on the largest cities only, and reiterates the conventional wisdom of their evolution towards higher-quality, higher-density cities.

It is worth asking why existing – and presumed inevitable – patterns of growth are the equivalent of a new city, but new urban places are not tabled as viable options.

Australia created a new city for its capital and annual population growth is now being equated to ‘new Canberras’, so why not consider more new cities?

There is nothing approaching a coherent vision of national urban system planning. This scale of thinking has largely dropped out of the policy realm. The rise of design-driven planning has brought many benefits in balancing public and private interest, but these are usually played out at the local scale.

Metropolitan planning strategies display more comprehensive thinking but are jurisdictionally constrained. They also inevitably converge on the same suite of aspirations – growth management, housing supply and affordability, employment, density, mixed-use activity centres and transit-oriented development. And, as we see in Melbourne, the progressive liberalisation of urban growth boundaries to allow greater expansion misses opportunities for more radical rethinks.

Metropolitan governance is the order of the day, without doubt, but what spatial framework does that sit in? The Greater Sydney Commission is proving its worth in this direction and organising local authorities into a co-ordinated assemblage. But its strategy has almost nothing to say about the rest of the state.

There is no spatial state plan. Wollongong, Newcastle, the Central Coast (contributing over 200,000 daily return commuter trips into Sydney) and regional areas lie out of view.

Where state planning strategies do exist (such as Western Australia) these tend to be toothless and lacking in vision.

Since mid-2017 some bigger-picture thinking has surfaced in submissions and presentations to the House Standing Committee on Infrastructure, Transport and Cities, which is conducting a timely inquiry into the Australian government’s role in city development. The message is that there are no quick fixes, single solutions or optimum city sizes. There is also an awareness that the path dependency of growth in metropolitan areas will ensure their continuing primacy.

The agglomeration economies favouring non-metropolitan locations are admitedly weaker but a strengthening narrative relates to the links between 21st-century transportation and settlement. High-speed rail is not just an inter-city technological marvel but – done well to an integrated spatial plan – becomes a nation-building instrument for expanding key regional centres.

Think longer term, think big

Long-term thinking compels bigger vision. The 2013 book Made in Australia by Richard Weller and Julian Bolleter attempts this, by daring to imagine a future beyond the conventional wisdom of low-density spread and urban consolidation. Guided by ABS national population projections – 70 million by 2101 – its sights are firmly set on a whole new conception of megaregions and new cities. Northern Australia, in particular, comes into view as a new urban frontier.

There are various scenarios to explore within a new city paradigm:

  • the polycentric city (think: Hunter to the Illawarra in NSW)
  • integrated planning for regional centres and expanded towns (a more targeted Regional Growth Fund)
  • regional satellites (network city regions focused on metropolitan cores)
  • upscaled master plan communities set within a regional vision (Springfield)
  • “new cities in cities” (Western Sydney aerotropolis).

The contemporary new city idea cannot be a tired rerun of town and country planning policies from the past. These elevated post-war welfare-state British new towns as the benchmark and ignored their many shortcomings as urban environments.

The population tap is unlikely to be turned off even if politically leveraged downward. Humanitarian migration is also likely to grow. This means we need to have a debate that is not just about population size but also about its distribution.

The ConversationAustralia is a post-colonial country built largely through relatively new, planned cities. We have a capital city famously built from scratch. Australians should be able to engage with a more nuanced evaluation of the role of new cities in delivering the desired triple bottom line of urban productivity, liveability and sustainability.

Robert Freestone, Professor of Planning, Faculty of Built Environment, UNSW; Elizabeth Taylor, Vice Chancellor’s Post-Doctoral Research Fellow, RMIT University, and Julian Bolleter, Research Fellow, Australian Urban Design Research Centre, University of Western Australia


Affordable housing policy failure still being fuelled by flawed analysis

Posted by on March 15th, 2018 · Affordability, Affordable housing, Construction, Government, Guest appearance, Housing, Housing supply, Planning

By Nicole Gurran, University of Sydney; Bill Randolph, UNSW; Peter Phibbs, University of Sydney; Rachel Ong, Curtin University, and Steven Rowley, Curtin University. This article was originally published on The Conversation. Read the original article.

Australia has a housing affordability problem. There’s no doubt about that. Unfortunately, one of the reasons the problem has become so entrenched is that the policy conversation appears increasingly confused. It’s time to debunk some policy clichés that keep re-emerging.

Is ‘zoning’ to blame?

It can be tempting to frame the housing affordability problem as all about inadequate new supply. According to this argument, the “demand side” drivers – such as low interest rates and tax incentives for property investment – have combined with population growth in the capital cities to fuel house prices, and new housing construction simply hasn’t kept up.

“Zoning” is often blamed. There is little hard evidence, though, to show systematic regulatory constraint.

Supply is at record highs, and in the right places

Australia’s new housing supply per capita is actually very strong by international standards. Over the past decade, supply of new units and apartments has been flowing in job-rich metropolitan areas with dense populations, which are also higher-value locations.

Source: ABS cat no.8731.0.

According to the cliché, this supply response should have cooled prices. Yet dwelling price inflation has surged even in metropolitan areas where new housing supply has exceeded population growth.

The fallacies of ‘filtering’

One of the great hopes underpinning the supply cliché is that new housing stock improves affordability even if these homes are not affordable for lower-income groups. This faith is based on a theory called “filtering” whereby older housing moves down to the affordable end of the market over time.

The empirical data on filtering are thin. Indeed, the academic literature has historically cast doubt on the theory. However, some commentators continue to claim that American rental housing markets provide evidence that “filtering” can occur in practice.

But whatever might happen in the US, in Australia there’s still no evidence to suggest new housing supply has filtered across the housing stock to expand affordable housing opportunities for low-income Australians, or that it will do so any time soon.

Prominent economists continue to produce data that suggest the potential impact of new supply on price is minimal. The shortage of affordable housing opportunities for low-income households in Australia remains persistent. And the evidence indicates that low-income working households in our cities consistently face housing costs well above accepted affordability levels regardless of the quality of the housing they live in.

Sustaining supply in a cooling market?

Some commentators cite cooling house prices as evidence that the supply response is taking effect. Whether or not that is so (above and beyond demand-side factors like higher interest rates for investor loans), expect the pipeline to start slowing down.
Private sector development is driven by profit and risk and, as we have seen over many years, is characterised by speculative booms and busts.

Developers can turn off the new supply tap much more quickly than they can turn it on. Falling prices, weak consumer sentiment and economic uncertainty mean many developers will not follow through on building approvals until the market recovers.

This means that high levels of supply output are rarely sustained. Recent housing data in Western Australia provide a case in point. WA recorded rising completions in 2014, 2015 and 2016. But 2017 completion figures are expected to show a drop of around a third as prices have shaded off since the end of the mining boom.

Put simply, the market on its own will never solve Australia’s housing affordability problem. Expecting developers to keep building in order to reduce house prices is pure fantasy.

Planning reform is not an affordable housing strategy

We’ve written before about the political appeal of calling for planning reform
instead of real solutions to housing affordability pressures. In fact, Australian states have embarked on more than a decade of planning reforms.

They have aimed to: standardise and simplify planning rules; promote mixed use and higher-density housing near train stations; and overcome local political opposition to development through the use of independent expert panels.

Housing targets for both urban infill and new greenfield areas have been a feature of metropolitan plans to drive dwelling approval rates since at least 2000.

These reforms have been effective in overcoming regulatory constraints. The scale of the recent supply response shows clearly that zoning and development assessment processes are not inhibiting residential development approvals in cities like Sydney and Melbourne.

But trying to accommodate Australia’s population growth in towers around railway stations will fail as an affordable housing strategy – even if “zoning” and height rules were completely scrapped.

Rather than narrow deregulation agendas, bigger picture reforms are needed. Aligning infrastructure funding with metropolitan and regional decentralisation is a critical long-term strategy. Reforms to deliver affordable housing in communities supported by new infrastructure are long overdue.

A bigger affordable housing sector is needed

Australia needs a more realistic assessment of the housing problem. We can clearly generate significant dwelling approvals and dwellings in the right economic circumstances. Yet there is little evidence this new supply improves affordability for lower-income households. Three years after the peak of the WA housing boom, these households are no better off in terms of affordability.

In part, this may reflect that fact that significant numbers of new homes appear not to house anyone at all. A recent CBA report estimated that 17% of dwellings built in the four years to 2016 remained unoccupied.

If we are serious about delivering greater affordability for lower-income Australians, then policy needs to deliver housing supply directly to such households. This will include more affordable supply in the private rental sector, ideally through investment driven by large institutions such as super funds. And for those who cannot afford to rent in this sector, investment in the community housing sector is needed.

The ConversationIn capital city markets, new housing built for sale to either home buyers or landlords is simply not going to deliver affordable housing options unless a portion is reserved for those on low or moderate incomes.

Nicole Gurran, Professor of Urban and Regional Planning, University of Sydney; Bill Randolph, Director, City Futures Research Centre, Faculty of the Built Environment, UNSW; Peter Phibbs, Director, Henry Halloran Trust, University of Sydney; Rachel Ong, Professor of Economics, School of Economics and Finance, Curtin University, and Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University


Pitch it Clever – salient visual clues in way-finding

Posted by on February 22nd, 2018 · Cities, Planning, Public space

By Aida Afrooz, City Futures Research Centre.

Universities Australia’s Pitch it Clever competition challenges researchers to talk about their research in a video of no more than 2 minutes.

Pitching it clever, I narrate my research story in this short video about ‘Salient Visual Clues in Way-finding’. If you don’t know what that is now, watch the video and in 2 minutes you’ll know all about it!

Pitch it Clever is an engaging way for researchers to publicise their research and compete with peers.  As a researcher, so much of our work is about writing, so this is a really good opportunity to talk about our research.

At the same time, it’s very challenging not to use any jargon and transfer your message to the audience in a short time and by telling a story. It’s helped me to look at the research as a whole and think about the concept of my research and why I’m doing it.

Please check it out, and vote!

Six lessons on how to make affordable housing funding work across Australia

Posted by on February 14th, 2018 · Affordable housing, Construction, Finance, Government, Housing supply, Social housing, urban renewal
File 20180212 31377 1mn4n29.jpg?ixlib=rb 1.1
New affordable housing development in Melbourne. Image: Ryan van den Nouwelant

By Laurence TroyBill Randolph, Ryan van den Nouwelant and Vivienne Milligan, City Futures Research Centre. This article was originally published on The Conversation. Read the original article.

A suitable construction funding model is the critical missing ingredient needed to deliver more affordable housing in Australia. Aside from short-lived programs under the Rudd government, we have seen decades of inconsistent and fragmented policies loosely directed at increasing affordable housing. These have failed to generate anything like enough new supply to meet outstanding needs.

Our latest research looked at recently built, larger-scale affordable housing projects in contrasting markets across Australia. We examined each scheme’s cost, funding sources and outcomes. We then developed a housing needs-driven model for understanding the financial and funding requirements to develop affordable housing in the diverse local conditions across the country.

Up to now, the key stumbling block has been the “funding gap” between revenue from rents paid by low-income tenants and the cost of developing and maintaining good-quality housing. The Commonwealth Treasury acknowledged this problem last year. And the problem is greatest in the urban areas where affordable housing is most needed.

What does the new model tell us?

The Affordable Housing Assessment Tool (AHAT) enables the user to calculate cost-effective ways to fund affordable housing to meet specified needs in different markets. It’s a flexible interactive spreadsheet model with an innovative feature: it enables users to embed housing needs as the driver of project and policy, rather than project financial feasibility driving who can be housed.

Affordable housing developments have recently been relatively sparse. However, our research highlighted the varied and bespoke funding arrangements being used.

Despite this variety, too often project outcomes are driven purely by funding opportunities and constraints, rather than by defined housing needs. One notable constraint is the fragmented nature of affordable housing subsidy frameworks both within and across jurisdictions.

Our case study projects generated a diversity of housing outcomes. This can be seen as an unintended positive of the bespoke nature of affordable housing provision as a result of the need to “stitch together” gap funding from multiple sources on a project-by-project basis.

Equally though, the lack of policy coherence and fit-for-purpose funding added cost and complexity to the development process. By implication, this leads to a less-than-optimal outcome for public investment. Despite providers’ best efforts, current approaches are not the most efficient way to deliver much-needed affordable housing.


What are the lessons from this research?

We applied the model to typical housing development scenarios in inner and outer metropolitan areas and regions. By doing so, we identified six key lessons for funding and financing affordable housing delivery.

1) Government help with access to land is central to affordable housing development and enhances long-term project viability.

Especially in high-pressure urban markets, not-for-profit housing developers cannot compete with the private sector for development sites. High land costs, particularly in inner cities where affordable housing demand is most extreme, can render financial viability near impossible. Having access to sites and lower-cost land were two of the most important components of feasible projects.

2) Government equity investment offers considerable potential for delivering feasible projects and net benefit to government.

How governments treat the valuation of public land with potential for affordable housing development must be reviewed. Conventionally, even where affordable housing is the intended use, governments typically insist on a land sale price based on “highest and best use”.

It would be preferable in such cases to treat the below-market value assigned to public land as a transparent subsidy input. This would mean the sale price reflects the housing needs that the development seeks to meet. That is, the land value should be priced as an affordable housing development for a specific needs cohort.

By retaining an equity stake, government could account for its input as an investment that will increase in value over time as land values appreciate.

3) Reducing up-front debt load and lowering finance costs are critical to long-term project viability.

Debt funding imposes a large cost burden over a project’s lifetime. This is ultimately paid down through tenant rents. Reducing both the cost and scale of private financing can have a significant impact on project viability.

The analysis reinforces the rationale for the Australian government’s “bond aggregator” facility for reducing financing costs for affordable housing projects. But this must come in tandem with other measures to reduce up-front debt.


4) Delivery across the range of housing needs helps to meet overall social and tenure mix objectives. This also can help improve project viability through cross-subsidy.

Mixing tenure and tenant profiles can enable affordable housing providers to produce more diverse housing that meets the full range of needs.

Cross-subsidy opportunities arising from mixed-tenure and mixed-use developments can also enhance project feasibility. By improving a provider’s financial position, this helps advance their long-term goal of adding to the stock of affordable housing. And, by providing welcome flexibility, this enables organisations to better manage development risk across different markets and cycles.

5) The financial benefit of planning bonuses is limited

Inclusionary zoning mechanisms impose affordable housing obligations on developers through the planning system. This approach potentially offers a means of securing affordable housing development sites in larger urban renewal or master-planned areas.

However, our research demonstrated that planning bonuses allowing increased dwelling numbers in return for more affordable housing have little beneficial impact on project viability. This is because the additional dwellings allowed generate additional land and/or construction costs but no matching capacity to service a larger debt.

However, planning bonuses can be useful as part of a cross-subsidy approach. In this case, they may support project viability, without necessarily resulting in any additional affordable dwellings.

6) Increasing the scale of not-for-profit provision offers financial benefits that help ensure the long-term delivery of affordable housing.

Our analysis supports the case for targeting public subsidy to not-for-profit developers (government or non-government) to maximise long-term social benefit. Investing in permanently affordable housing ensures the social dividend of affordable housing can be continued into the future.

Comparable subsidies are not preserved when allocated to private owners. They will seek to trade out at some stage, capitalising the subsidy into privatised gain.

The results of our case study analyses and modelling highlight the need to develop comprehensive funding and subsidy arrangements that account for different costs in different locations. These arrangements also must be integrated nationally to support affordable housing delivery at scale.

The ConversationThis study reiterates the common finding of research over the last decade: both Commonwealth and state/territory governments need to develop a coherent and long-term policy framework to provide housing across the full spectrum of need.


Geodesign and the difficulty of working (planning) together

Posted by on February 8th, 2018 · Cities, Data, Planning

By Carmela Ticzon, City Futures Research Centre.

Sustainable Urban Development (SUD) recognises that places and spaces are complex and multilayered. Cities are systems composed of interlinking environmental, social, and economic dimensions, and the interdependencies of their subsystems make it impossible to make changes in one without causing flow-on effects on the others.

It makes sense, then, for agencies tasked with delivering urban infrastructure to work together and coordinate their activities—to collaborate. However, in practice collaboration all too often appears elusive, even chimerical. Significant institutional and technical barriers undercut the effectiveness of collaborative efforts:

  • Institutional lock-in – Incompatibility in the way institutions do business may be a significant roadblock to inter-agency collaboration, especially in cases where agencies have had a historic tendency to work in silos. The conventions of how an institution operates, including legislative mandates, formal contracts and procurement processes, organisational culture and protocols develop over time (Foxon 2002). While these conventions are in place to help the institution optimise its own operation, their inertia can hamper an agency’s ability to adapt when collaborative processes call for flexibility and change.
  • Language barrier – Similar to institutional conventions, specialised technical terms and semantics are often employed to help professionals within the same discipline or agency communicate efficiently. But these can hinder effective communication when the experts from different disciplines come together to discuss a common issue.
  • Uncertainty – the flow-on effects of infrastructure interventions to an urban system are impossible to fully predict. Cities continuously evolve in complexity, and so there will always be geographical data and knowledge that are unknown to planners and decision-makers.

In parallel, agencies also operate in incomplete information with regards to the preferences and values of other stakeholders. These uncertainties make collaborative efforts politically uncomfortable, particularly if the outcomes cannot be easily predicted nor guaranteed.

While Geodesign is not a catchall solution to these challenges, undertaking the process can help agencies and stakeholders unpack the complexities of their planning context and map out resolutions. But what is Geodesign and how does it work?

What is Geodesign?

Geodesign is a thought process for strategic planning that is driven by stakeholder interaction. In a Geodesign exercise, participants share their own knowledge of the study area, acknowledge different stakeholder values and interests, and take into account available geo-information to inform their assessment of the study area’s current state and options for future interventions.

Carl Steinitz, who pioneered Geodesign with his colleagues at Harvard Graduate School of Design, uses this diagram in his book A Framework for Geodesign to summarise the reiteration of participants’ thought process through six guiding questions that contextualise the study area.

How does it work?

Geodesign exercises are typically executed through intensive two-day workshops. Participants are driven to negotiate with each other with the instruction to reach a consensus design for the study area by the end of the workshop.

Geographic data and participant knowledge that would contextualise the current state and issues of the study area communicated through simple maps and diagrams. These maps and diagrams serve as a ‘common language’ for the participants to operate in during the exercise. A GIS application is used to capture the maps and diagrams drawn by the participants, and record subsequent versions produced as the workshop progresses.

Participants negotiating designs with mapping tools at first Geodesign Workshop in Sydney organised by CFRC.

So what?

Whether or not participants are successful in reaching a consensus design for the study area’s future, going through the Geodesign process will identify where there is conflict or commonality of interest within the study area. These discussions may serve as a basis for reasoning out the viability of some intervention options over others. By negotiating with each other, each participant will ideally gain deeper insight into the political, social, environmental, financial, and temporal considerations that are tied to proposed intervention projects.

Furthermore, the process can help identify where there are gaps in knowledge about the study area—what geographical data and technologies could be called into service to better inform future planning. And finally, the exercise presents participants with an opportunity to substantiate the need for inter-agency cooperation going forward.

The utility of Geodesign can be seen in the structure it lends to facilitating stakeholder negotiations during strategic planning. However, the value of Geodesign is in its capacity to uncover the specifics behind the barriers to inter-agency collaboration, yield outlines for potential resolutions, and hopefully lay a foundation for effective collaborative planning.

Click here to learn more about the first Geodesign workshop in Sydney and other projects at City Futures Research Centre.


What Australia can learn from overseas about the future of rental housing

Posted by on January 24th, 2018 · Affordable housing, Demographics, Finance, Government, Housing, Housing conditions, International, Law, Private rental, Tax, Tenancy
File 20180121 110100 1w96ivd.jpg?ixlib=rb 1.1
Image: AAP/David Crosling

By Chris Martin. This article was originally published on The Conversation. Read the original article.

When we talk about rental housing in Australia, we often make comparisons with renting overseas. Faced with insecure tenancies and unaffordable home ownership, we sometimes try to envisage European-style tenancies being imported here.

And, over the past year, there has been a surge of enthusiasm for developing a sector of large-scale institutional landlords, modelled on the UK’s build-to-rent sector or “multi-family” housing in the US.

Our review of the private rental sectors of ten countries in Australasia, Europe and North America identified innovations in rental housing policies and markets Australia might try to emulate – and avoid. International comparisons also give a different perspective on aspects of Australia’s own rental housing institutions that might otherwise be taken for granted.

Not everyone in Europe rents

In nine of the ten countries we reviewed, private rental is the second-largest tenure after owner-occupation. Only in Germany do more households rent privately than own their housing. Most of the European countries we reviewed have higher rates of home ownership than Australia.

In most of the European and North American countries in our study, single people and lower-income households and apartments are heavily represented in the private rental sector. Higher-income households, families with kids, and detached houses are represented much more in owner-occupation. It’s less uneven in Australia: more houses, kids and higher-income households are in private rental.

Two key potential implications follow from this.

First, it suggests a high degree of integration between the Australian private rental and owner-occupier sectors, and that policy settings and market conditions applying to one will be transmitted readily to the other.

So, policies that give preferential treatment to owner-occupied housing will also induce purchase of housing for rental, and rental housing investor activity will directly affect prices and accessibility in the owner-occupied sector.

It also heightens the prospect of investment in both sectors falling simultaneously, with little established institutional capacity for countercyclical investment that makes necessary increases in ongoing supply.

A second implication relates to equality. Australian households of similar composition and similar incomes differ in their housing tenure – and, considering the traditional value placed on owner-occupation, this may not be by choice.

This suggests housing tenure may figure strongly in the subjective experience of inequality. It raises the question of whether housing is a primary driver of inequality, and not the outcome of difference or inequality in other aspects of life.

The rise of large corporate landlords

In almost all of the countries we reviewed, the ownership of private rental housing is dominated by individuals with relatively small holdings. Only in Sweden are housing companies the dominant type of landlord.

However, most countries also have a sector of large corporate landlords. In some countries, these landlords are very large. For example, America’s five largest corporate landlords own about 420,000 properties in total. Germany’s largest landlord, Vonovia, has more than 330,000 properties alone.

These landlords’ origins vary. Germany’s arose from massive sell-offs of municipal housing and industry-related housing in the early 2000s.

In the US, multi-family (apartment) landlords have been around for decades. And in the aftermath of the global financial crisis, they have been joined by a new sector of single-family (detached house) landlords that have rapidly acquired large portfolios from bulk purchases of foreclosed, formerly owner-occupied homes.

In these countries and elsewhere, the rise of largest corporate landlords has been controversial. Germany’s have a poor record of relations with tenants – to the extent of being the subject of popular protests in the 2000s – and their practice of characterising repairs as improvements to justify rent increases.

American housing advocates have voiced concern about “the rise of the corporate landlord” – especially in the single-family sector, where there’s some evidence that they more readily terminate tenancies.

These landlords also don’t build much housing. They are most active in renovating (for higher rents), merging with one another, and – especially in the US – developing innovative financial instruments such as “rental-backed securities”.

“Institutional landlords” are now a standing item on the Australian housing policy agenda. Considering the activities of large corporate landlords internationally, we should get specific about the sort of institutional landlords we really want, how we will get them, and how we will ensure they deliver desired housing outcomes.

Policymakers and housing advocates have, for years, looked to the community housing sector as the prime candidate for this role. They envisage its transformation into an affordable housing industry that works across the sector toward a wide range of policy outcomes in housing supply, affordability, security, social housing renewal and community development.

With interest in the prospect of build-to-rent and multifamily housing rising in the property development and finance sectors, there is a risk that affordable housing policy may be colonised by for-profit interests.

The development of a for-profit large corporate landlord sector may be desirable for greater professionalisation and efficiencies in the management of tenancies and properties. However, this should not come at the expense of a mission-oriented affordable housing industry that makes a distinctive contribution to housing outcomes.

Bringing it home

Looking at the policy settings in the ten countries, we found some surprising results and strange bedfellows.

For example, Germany – which has had a remarkably long period of stable house prices – has negative gearing provisions and tax exemptions for capital gains, much like Australia. But, in Australia, these policies are blamed for driving speculation and booming prices.

And while the UK taxes landlords more heavily than most other countries, it has the fastest-growing private rental sector of the countries we reviewed.

However, these challenging findings should not be taken to diminish the explanatory power or effectiveness of these settings in each country’s housing policy. Rather, they show the necessity of considering taxation and other policy settings in interaction with each other and in wider systemic contexts.

So, for example, Germany’s conservative housing finance practices, and regulation of rents, may mean the speculative potential of negative gearing and tax-free capital gains isn’t activated there.

The ConversationStrategy in Australia for its private rental sector should join consideration of finance, taxation, supply and demand-side subsidies and regulation with the objective of making private rental housing outcomes competitive with other sectors.

Chris Martin, Research Fellow, City Housing, UNSW.


‘Affordable Rental Housing Targets’ – How do the Greater Sydney Commission proposals match up to US practices?

Posted by on January 22nd, 2018 · Affordable housing, Construction, Government, Guest appearance, Housing, Housing supply, Planning, Sydney, urban renewal

By Richard Drdla, Richard Drdla Associates, Toronto, Canada. We asked Richard, an expert on planning for affordable housing in North America, for his views on the Greater Sydney Commission’s recent policy proposals for ‘affordable rental housing targets’ . Richard compares various aspects of the GSC proposals, as set out in its October 2017 ‘Information Note’, with the corresponding ‘inclusionary zoning’ (IZ) practices used in the US.  


The inclusionary zoning practices typically used in the US and the GSC proposals
share the same overall aim – to harness the land-use planning regulations in a
way that requires the private development industry to include at least some
affordable housing in new residential projects. However, while undoubtedly
influenced by US practices, the GSC proposals set out an approach so different
that they cannot be considered to constitute inclusionary zoning as the term is
understood in the US. Indeed, the GSC’s Information Note rightly avoids making
such a claim.

The IZ programs, while recognizably similar across the US, still vary somewhat,
especially region-by-region. Therefore, the comparison that follows is based on
what are considered to be the “best practices” used there.

Targeted incomes
The GSC policy aspires to provide housing affordable to those on ‘very-low and
low incomes’, which are respectively defined as being for 50-80% of the median
income and below 50%. Although such targets are very difficult to compare across
countries or even jurisdictions, the GSC policy and IZ programs seem to
addressing roughly the equivalent income range.

The income band targeted by the IZ programs, however, does vary somewhat
according to housing costs. Across the middle of the US, the target is generally
50-80% of median income. But in the more expensive areas on the west and east
coasts, the upper threshold is generally higher – up possibly to at least 150%, if
not more. In general, cities have higher upper thresholds than nearby suburban
communities and smaller towns. On the other hand, these programs do not
provide housing for those earning below 50%, and possibly not even for those
below 80% in more expensive areas.

Despite these numerical differences, the fundamental purpose of these programs
remains consistently the same across the US. They are all principally
directed at correcting the increasing failure of the market housing system to deliver
a sufficiently broad range of housing, especially in high-growth areas.
These programs are typically designed solely by municipalities, with the clear
intention to operate independently of upper-tier governments, and to serve housing
needs as they want to define them. As such, the programs rely on land-use
planning regulations (which are under their control), and not upon financial
subsidies (which are beyond their resources or could involve conflict with the state
and/or federal governments over priorities).

As a consequence, these programs aim to generate what is widely and commonly
called “below-market” housing. This is housing essentially for households left out
of the private housing market by the rapidly rising prices over the last 20 or more
years. On the other hand, they do not typically provide social housing, nor housing
for those in greater need like the homeless. These groups are considered beyond
the reach of such programs, and dependent on deep subsidies potentially
available only through upper-tier governments.

What does confuse this clear distinction is the many examples of developments
achieving deeper affordability by using federal/state dollars layered on top of the
reduced price or rent achieved by IZ. But overall these remain the exception
rather than the rule. The vast majority of IZ developments in the US still proceed
under the basic or “default” rules to provide “below-market” housing without any
such subsidies.

The proposed GSC policies will apply only to developments on newly upzoned
sites. In most US programs, by contrast, the affordable housing mandate applies to
all developments seeking approval. That includes, not only sites subject to
rezoning, but also those proceeding under the existing or “as-of-right” zoning. The
only exceptions to this are the dozen or so big city programs, where the mandate
in most (but not all) cases is applied only to rezonings.

As a general rule, the mandate in the US is applied as widely as possible to
maximize affordable housing production. Limiting IZ to rezonings in the big cities,
nevertheless, can be generally justified because nearly all st developments there
need a rezoning. On the other hand, imposing this limitation in communities where
rezoning is less prevalent would have substantially reduced the affordable housing

The US experience, however, clearly shows that even “as-of-right” developments
are able to provide affordable housing without imposing an undue burden on the
private developers. What is important is that the rules and obligations are
reasonable, and that they are fixed ahead of time so the housing market as a
whole has time to adjust to the demands.

Rental housing
The GSC policy is directed at providing exclusively affordable rental housing. In
contrast, IZ programs in the US typically do not specify the tenure of the housing to
be provided. Most US programs simply take a percentage of whatever the
developers have decided to build. This means that the housing predominantly
provided in most markets is affordable ownership because the developers
predominantly are building ownership housing. But it also means that where
market developers are building rental housing (what would be termed in Australia
‘build to rent’), they are expected to provide a percentage as affordable rental, and
then continue to own and operate them at an affordable rent.

Some programs do allow for designated rental operators to purchase some of the
affordable units at the prescribed reduced price. Because most are incapable of
raising the financial resources on their own, they must rely to a large extent on
government funding to do so . In practice, this funding has never been enough to
acquire much more than a small part of the affordable units generated by IZ.

Proffered provision
The GSC policy will require the developers to provide the affordable units at no
cost to qualified rental operators. Under IZ, in contrast, the developers are
required to deliver the units at a reduced price that is typically something like 20-
50% less than their market value. (That figure varies widely according to the
targetted incomes of IZ beneficiaries in each jurisdiction and the market prices of
each project.) The developers recover the remaining value by selling the units at
the prescribed “below-market” price to individual owners or qualified rental
operators, or continue to rent out the units at a comparable “below-market” level.
The gifting of the affordable units will fundamentally affect the financial calculus
behind these provisions. Most notably, it can be expected to lower significantly the
maximum setaside that can be reasonably imposed on the developers (see

Subject areas
The GSC policy will allow for different obligations and rules to be used in different
areas. In the US, the IZ programs typically apply the same obligation and rules
universally across the entire jurisdiction. The main exceptions are the more
demanding requirements used in some cities in areas near new major transit
facilities, and on public lands sold by government for market housing.

Maximum setasides
The GSC policy will limit the affordable housing to a maximum of 5-10% of the
additional floorspace resulting from rezoning in any subject development.

Similar maximum setasides are used across the US, where 20% represents the
common best practice, while most fall between 10% and 25%. This applies to the
total floorspace of the entire development, and not just the additional floorspace
consequent on rezoning.

Nevertheless, there is one relevant distinction between the GSC policy from the
US practices. As noted earlier, the GSC will require that the affordable units be
gifted at no cost, while those in IZ are offered for sale at a substantial writedown or
held by the developers and rented out at below-market rates. This will almost
certainly mean that the 20% setaside used in the US cannot be simply accepted as
possible under the GSC policy.

Viability testing
The application of GSC policy will be subject to viability testing. It is understood
that this will be done area-by-area, not project-by-project, whenever different
affordable housing obligations and income targets are applied. According to the
Information Note, this is considered necessary in order “to ensure that the Target
does not impede the economic viability of the projects delivering the housing.”
Viability tests like this are not used in IZ programs in the US, and there is no
evidence that they are needed. The affordable housing requirements have not
been shown to hinder development. After all, developers can protect themselves
by simply not building when the economics do not suit them. But two authoritative
studies show that developers in municipalities with IZ continue to build at virtually
the same rate as those in nearby municipalities without IZ.

Many of these programs have addressed the issue of viability in a different way –
namely, by offering regulatory concessions (but not financial incentives) to
developers. These concessions are offered on a fixed and standard basis for all IZ
developments across the entire municipality. As such, the concessions are clearly
not intended to ensure the viability of any particular development, nor make the
developers “whole” again.

There probably is a residual cost burden in these programs even after these
concessions have been granted, but the developers are not expected to absorb
this cost. Rather, it is now generally accepted that the developers will “pass it back
to the land” by the paying less for development sites. The market can adjust in this
way, provided the affordable housing obligations are reasonable and set out ahead
of time.

The GSC Information Note acknowledges this potential, when it states the
obligations should be fixed in advance “so that it can be factored into [the]
underlying land prices”. What the note does not do is take this statement to its
logical conclusion – namely, that viability tests are not needed because market
forces on their own will adjust land prices in a way that will sustain the economic
vitality of the development industry.

The only known examples of financial testing at all similar to the GSC approach
are found in the inclusionary practices used in NYC and Vancouver. These
practices remain exceptional, and strictly speaking the latter is really not
inclusionary zoning. Both are exceptional in that they rely on ‘pre-zoning’, in which
all of the key zoning parameters – including, most notably, development density –
are determined and pre-approved ahead of time on an area-by-area basis. These
are fixed in advance after a formal process that includes area-specific planning
and financial studies as well as local public consultations. In contrast, IZ typically
fixes only the key affordable housing requirements in advance, and then uniformly
across the entire jurisdiction, while typically leaving density to be determined siteby-
site at the development approval stage.

There is a fundamental difference here. Pre-zoning attempts to anticipate the
market, and then sets the affordable housing requirements accordingly. IZ
standard practice sets the affordable housing requirements, and then expects that
the market to adjust to these needs.

The GSC proposal does not fully address the use of fees-in-lieu, but the
information note indicates that this aspect might still be considered.

Fees-in-lieu are widely used in IZ programs. They enable municipalities to deliver
special needs and other housing not directly provided under the IZ programs. They
also provide a way of engaging smaller developments that otherwise might have
difficulty in providing the actual units. The latter is important for maximizing output,
as well as treating all developers more or less equitably.

On the other hand, fees-in-lieu are often not used in the most effective and
appropriate way. The prescribed fees often fall short of reflecting the current value
of the foregone affordable units, and the developers are also often given the right
to choose when they can be used. Under these conditions, the developers will
invariably pay cash rather than produce affordable housing because it is far easier
(and possibly less expensive) to do so.

The best practices generally allow for use of fees-in-lieu, but only where the
municipality has the authority to decide when they can be used, and then only
when they will produce demonstrably greater value than the developer constructed