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Too little…but not too late?

Posted by on November 29th, 2016 · Cities, Housing supply, Planning reform, urban renewal

by Judy Stubbs, Judith Stubbs Associates

Like most public policy announcements, the Greater Sydney Commission’s recent release of its six Draft District Plans has some good news, and some news that housing researchers and public interest bodies would likely regard as not so good.

GSC District Plans – two steps forward

In many ways, the policy directions flagged in the District Plans represent a ‘first’ for affordable housing in strategic documents of this kind – not only for NSW, but also for Australia. The Plans contain important policy directions long supported by housing researchers and advocates.

Arguably, the elevation of ‘Affordable Rental Housing’ as a vital part of Sydney’s ‘liveability and productivity’ far exceeds the importance given to this policy area in previous NSW metropolitan plans where, historically, vague references to ‘housing affordability’ have been accompanied by exhortations to increase ‘housing diversity’ and speed up approvals (e.g. in the 2005 ‘City of Cities’ strategy). On this, the Plans should be commended.

The setting of ’Affordable Rental Housing Targets’ in each of the District Plans, and putting a ‘number’ on the target (5-10% of additional floor area) is also positive. It acknowledges that there is a city-wide problem, and has the potential to provide a consistent policy framework for councils, and a degree of certainty for the development industry. This is something that developers knowledgeable on these issues are likely to welcome.

Also positive is that the District Plans clearly define ‘Affordable Rental Housing’. Importantly, groups most seriously affected by housing unaffordability in Sydney – very low and low income renters – are prioritised, and specific income and housing cost benchmarks are set out in accordance with the EP&A Act.

Imperatives for government to take the issue seriously are also crucially included in the District Plans. A case in point is the requirement for State and local government to include Affordable Rental Housing Targets in planning proposals and strategic plans as a form of inclusionary zoning for new urban renewal and greenfield areas.

Finally, flagging the potential extension of SEPP 70 – Affordable Housing beyond the very few inner city areas where it currently operates could be a real boon. It has the potential to create the support and the legal architecture that many councils have sought without success since the SEPP was introduced in the early 2000s. The scope for it to operate in tandem with other local government affordable housing initiatives is also positive.

These are some of the more encouraging signs that affordable housing may finally be getting the profile and priority it deserves in the NSW planning system.

GSC District Plans – punches pulled?

In the end, however, the District Plans fall far short of what is urgently needed to make real inroads in tackling Sydney’s growing affordable housing shortage.

First, the Targets are ‘subject to development feasibility at a precinct scale’. This opens them up to horse-trading by developers and dilution by government before a final number is decided. The published targets are likely to become a starting point for negotiation with developers, some of whom will inevitably come with their feasibility analysis to demonstrate that such inclusionary aspirations will stymy development.

The Affordable Rental Housing Targets otherwise take no account of Sydney’s highly differentiated housing markets, in particular the rapidly gentrifying inner and middle ring suburbs. Instead, they set an upper limit of 10%, regardless of the market, remembering that this is taken as a proportion of additional gross floor area (GFA) created through re/up-zoning, and not the total GFA for the development. As noted by others, in reality this could result in low affordable housing yields, especially in areas already zoned for commercial or residential use.

More importantly, the District Plans provide no evidence base for the target range nominated. Analysing development feasibility in advance of setting targets range would have been prudent, and could avoid the risk of targets being significantly watered down later.

Finally, the GSC targets fail to reflect the mounting evidence on feasibility, and disregard the calls from local government, researchers and public interest groups for more ambitious targets. Evidence from other similar jurisdictions is noted, but largely ignored.

The case for higher targets

Crucially, the starting point for what is likely to be the ‘negotiation’ of targets is far too low.

Separate studies conducted recently by this author for the NSW Federation of Housing Associations, the Southern Sydney Region of Councils and the Inner West Council each provide evidence for the setting of considerably higher targets in many local council areas and urban renewal precincts in terms of need, reasonableness and feasibility.

The rapidly gentrifying Inner West (formerly Marrickville, Ashfield and Leichhardt councils) is a case in point. Across this new jurisdiction, massive displacement of low income households has occurred and is continuing. Even for moderate income earners, virtually no housing provided through the market is affordable.

And the situation is worsening. Our research (forthcoming) indicates that virtually nothing created through the market in the future will be affordable to very low or low income renters, or to moderate income families, even if the size of strata dwellings and requirements for parking were to be driven down even further, and smaller dwellings were mandated through ‘housing diversity’ planning requirements.

Quite simply, reliance on the market is totally unrealistic if we have any intention of housing low income people, and even moderate income households, in most areas of Sydney in the future. Only strong action through the planning system and use of government land remain as viable options – anything else is fiddling around the edges.

The feasibility of higher targets

As for feasibility – or the quantum of Affordable Rental housing that could be mandated without unduly restricting development – our research shows that targets of 10-15% of total GFA would be feasible throughout most of Sydney’s Central and South Districts. This includes many private sites in the renewal precincts of Parramatta Rd Urban Transformation Area, the Sydenham to Bankstown Urban Renewal Corridor and The Bays Precinct. Higher targets should be possible on government-owned land.

In the Inner West, our modelling demonstrates that Affordable Rental Housing Targets of 15% of total GFA would be reasonable without unduly affecting development feasibility in most precincts, including those associated with the government renewal areas. The situation is similar in many other areas of the Central and South Districts.

The calculations underpinning the assessment use a ‘residual land value’ analysis. This estimates the future value of the rezoned land under different development scenarios, referencing the sale price of all new units in surrounding areas over the past 2 years to estimate the value of the completed development, and then subtracts the existing value of the unzoned land, a conservative allowance for development costs (building in a risk margin), and ‘normal’ development profit for the construction industry. The residual land value is then assessed, and the rezoning land value uplift shared equally (50/50) between the developer and the council, with the community’s share used for Affordable Rental Housing in perpetuity.

The preferred position is a single target value across the LGA to avoid horse-trading, and to provide certainty to developers. Such a value, notified at the earliest opportunity, is also the preferred position of responsible developers who recognise the seriousness of the situation and accept that a ‘level playing field’ would provide the fairest development context.

Further analysis by this author indicates that a 15% levy on all GFA is both reasonable and feasible in most development scenarios and contexts across the Inner West Council area. And this feasibility analysis has been carried out in today’s market. If increases in the real value of sales and rents continue at the rates experienced over recent years, the limited number of areas with more marginal development prospects will look at least as favourable before long.

Basically, if we are planning for the future, the progressive renewal of our city will involve the stepwise progress of (re)development as land values make it sufficiently attractive. This is all too apparent when looking at the tsunami of gentrification as it rolls across Sydney and into economically linked regions like the Illawarra. Simply put, if a more robust target delays development in a few areas, the impact is likely to be short-term, and the project is more likely to be marginal in the current market in any case.

What is a ‘reasonable’ target?

It is important to remember that we do not operate in a legal environment of unfettered property rights. The decision by government to rezone one piece of land and not another often results in massive land value uplift in the former, and the status quo or losses in the latter. In the case of the rezoned land, the land owner has done nothing to earn the land value uplift and resulting windfall profit. It is reasonable for the community – who must incur the ‘cost’ of reduced amenity – to share in the benefit that arises from the rezoning. In areas where affordable housing is virtually non-existent and the consequences so great, it is again reasonable that the lion’s share goes to affordable housing.

A recent visit to the UK highlighted the policy disparity between NSW and that country. Renewal schemes in Greater London typically set affordable targets of 35-50% for both private developers and housing associations throughout the City, on both public and private land. Remembering that 60% of households are on a very low, low or moderate income, and would likely be excluded in London as they are in Sydney, this seems sensible and reasonable.

Some difference in the makeup of ‘affordable housing’ in London are relevant – with a mixture of assisted purchase and intermediate rental as well as social housing, although the vast majority of mandated ‘affordable housing’ created in the London context over the past 10-20 years falls into what the Greater Sydney Commission terms ‘Affordable Rental Housing’. Although the inclusion of such housing in renewal projects is often greater than 30%, a mixture of policy levers and funding sources including subsidised land and grant funding have generally been made available in the UK context. Again this signals a much greater political commitment to the creation of affordable housing for those who need it most than we have generally witnessed in NSW. One important conclusion is that, recognising the scale of need for affordable rental housing, governments cannot reasonably place total reliance on meeting all of this need through the planning system – other forms of support must also be provided.

Nevertheless, it would be hard to conclude that, as a planning system contribution to addressing the problem, the GSC’s Affordable Rental Housing Targets are sufficiently ambitious – particularly in gentrifying areas of Sydney with major land value uplift potential. But there may still be time to push for higher figures, based on the evidence. And it will require strong political will.

The District Plans are out for comment, and the Commission says that ‘further research’ will be done. It remains to be seen whether this research will end up supporting a more reasonable position on Affordable Rental Housing Targets for the people of Sydney, and if flexibility will be allowed for councils that propose higher local targets in policies and strategies, based on their evidence.

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