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There’s a draft NSW State Environmental Planning Policy (draft SEPP) for housing diversity out for discussion and it’s sparked the interest of the property developer lobby group Urban Taskforce. The Fifth Estate welcomes thoughts and contributions from other readers on this topic.

“Doublethink means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them”– George Orwell 1949.

Proposed changes to state government planning laws to encourage cheaper forms of housing in more expensive suburbs have been condemned by the Urban Taskforce as Orwellian “doublethink” that will lead to the very opposite outcome.

The NSW Minister for Planning and Public Spaces, Rob Stokes, has exhibited a new draft state-wide planning policy – the draft Housing Diversity State Environmental Planning Policy (draft SEPP).

Topping the minister’s talking points on the draft SEPP is that it will increase housing diversity and choice so people will have the choice to be able to afford to live in all the suburbs, including the wealthier areas of Sydney.

But instead, the proposed changes in the draft Housing Diversity SEPP will result in increasing costs at the cheaper end of the market, driving cheaper housing out of the market.

It’s an Orwellian “doublethink”. The government is saying, ‘Let’s have more housing diversity!’, but the proposed draft changes do the opposite: the devil is in the detail.

Diversity should be about giving people housing choice for different stages of their life and their household journey – the choice to upsize or downsize, to move to a different suburb – or stay within the same locality with an established network, offering support and security.

The draft SEPP removes incentives for developers to supply lower-cost housing while, at the same time, demands the same kind of standards as the expensive homes, thus driving costs up.

The stated intent of the draft SEPP is welcomed by the Urban Taskforce in so far as it acknowledges new and important housing building types, that within the right planning framework, have the potential to help meet Sydney’s dwelling targets, provide more affordable and flexible housing options, and help support a post COVID-19 economic recovery.

The drive to deliver more affordable housing types is contradicted by the SEPP’s removal of FSR (floor space area) bonuses and the application of some prescriptive minimum standards, which will drive prices up and render many of these affordable housing types unfeasible.

By restricting permissibility (that allows councils to determine where certain housing types will be allowed), the feasibility and ultimately the supply of the different housing typologies included in the SEPP is threatened. Lower supply will drive prices up – that is the key lesson of the NSW Productivity Commission’s review of the planning system in NSW.

NSW Productivity Commissioner Peter Achterstraat has clearly stated that the key driver of housing prices (and therefore unaffordability) in Greater Sydney is the lack of supply. This, according to both the Reserve Bank of Australia and the NSW Productivity Commission (an arm of NSW Treasury) is due, primarily, to over regulation by the NSW Planning system – that is, by the Department of Planning and Councils. [Not all our contributors agree with this, see Don’t blame planning for a supply shortage and rising house prices and Why the RBA is wrong about zoning and housing prices. Again]

Unfortunately, a number of the proposed provisions for the draft SEPP, in particular those relating to co-living, boarding houses and seniors’ housing; add yet another layer of regulation and in some cases effective prohibition.

The taskforce is determined to work with the government to highlight what we believe to be unintended consequences so the proposed changes do not result in the inhibition of supply and further reductions in affordability.

So let’s look at the detail.

Coliving

The draft Housing Diversity SEPP describes the relatively new class of dwellings that can be defined as coliving. However, it does not fully analyse the demand for coliving.

The SEPP appears to assume that the users of coliving are looking for a permanent affordable housing option that is close to work and reliable public transport. While this will be true in some cases, there is in fact a full range people who are seeking a coliving residence on a temporary or medium-term basis.  This is very much the international experience of this housing type.

Coliving is a viable and sought-after option for a range of people, including regionally based workers who are employed in the city during the week; recently separated people; key workers including nurses and emergency workers; people from regional areas temporarily relocated to the city for short term work opportunities or for medical treatments; fly-in fly-out (FIFO) workers from interstate (not all FIFO workers work in remote areas); and those seeking short term accommodation, including people escaping domestic violence environments.

The prescriptive planning and design controls in the draft SEPP do not reflect the requirements of all the possible users of coliving. They appear to have been drafted to reflect a permanent residence scenario of long term rental only. For example, the need to provide private open space to every room (4m2 per room) in addition to the communal open space (minimum 20m², plus 2m² per room above 10 rooms) is excessive.

We believe that the prescription for a minimum parking standard of 0.5 spaces per room is also unnecessary. Our members tell us that this type of coliving development only works when it is located close to public transport. We suggest a sliding scale of parking that starts at zero for sites very close to public transport and rises to a maximum of 0.5 car parks per room when the development is located out of a centre and away from public transport.

Further, the minimum room size of 30-35 metres square appears to have been derived from an assumption that the coliving inhabitants will be long term. These standards are far in excess of not just internationally accepted standards (which are closer to an average of 20m²), they are in excess of approved and operating co-living buildings that already exist in Sydney.

Build to Rent

Build to Rent (BTR) housing provides a different model of rental housing with respect to the fact that all the dwellings in the building must be rented, and rented on an ongoing/more permanent basis.

The draft SEPP is proposing to impose more stringent conditions on the owners of BTR rental properties than exist for landlords in the usual rental market. For example, the draft SEPP proposes a minimum tenancy of three years or more. How is this helping those that need affordable housing? There are no such restrictions in the general rental market.

The taskforce acknowledges that this will work for some tenants by giving them certainty, but many tenants would be deterred by locking into a fixed three-year rental agreement. So, the provision will make BTR dwellings harder to rent – therefore reducing their viability in an uncertain economic, rental and property market. There needs to be flexibility for both the tenant and the owner.

The draft SEPP proposes BTR should have a minimum of 50 dwellings. Why? Any minimum number of dwelling requirements will deter the production of BTR on the exact kind of sites that suit this asset class. Well located in terms of transport and employment opportunities, such sites are often smaller, with limited capacity for site consolidation.

The draft Housing Diversity SEPP also mandates that there must be on-site management. Again, why? Most rental properties are managed by real estate agents offsite. Strata body corporate management is also typically offsite. The standards should reflect the current system where the tenants have direct access to a property manager and the body corporate, but these management services do not need to be located on-site.

Urban Taskforce is concerned to ensure that this positive new initiative does not inadvertently disadvantage BTR housing projects compared to existing rental properties. Over-prescriptive planning pushes up costs and reduces feasibility and thus supply. In a nutshell, we are concerned that the draft SEPP tries too hard to create long-term rental housing options and forgets about the need to offer choice to all those in the market.

Boarding houses

Modern or next generation boarding houses are becoming an increasingly attractive option for people because they’re affordable, are increasingly well-designed and are salt-and-peppered in the suburbs so they don’t stand out. The market has delivered these outcomes despite the mismanagement of policy controls in this field.

Under the existing planning regime boarding houses are a borderline feasible option for developers as they can be built on sites where regular apartments might not be allowed, and they also offer bonus floor-space ratios meaning more studios can be built.

However, it’s the old-style boarding houses that people immediately think of as bases for frat parties or people who’ve just been let out of prison, and are regarded with fear and trepidation by neighbours. Unfortunately, this deep seeded NIMBYism seems to be driving policy development in terms of the draft Housing Diversity SEPP.

It is clear that the draft Housing Diversity SEPP has been framed to disincentivise the private development and operation of Boarding Houses. It does this by defining a “boarding house” as meeting “affordability” rules in terms of its rental, requiring it to be managed by a not-for-profit community housing provider and removing any incentives to build a product that has traditionally been delivered to market with comparatively low profit margins.

The current planning regime and incentives for boarding houses — including its provisions for floor space ratio bonuses — will be denied to most commercial boarding house developments.

Boarding houses generally benefit from a bonus of between 20 to 100 per cent on top of the floor space ratio permitted under a Local Environment Plan. Currently boarding house development applications cannot be refused on the grounds of density and scale if they comply with the maximum floor space ratio for any form of residential accommodation on the site (plus the bonus, if any). These provisions protect boarding house developments from being penalised relative to other forms of residential development. No such protection is offered under the draft SEPP.

If the Minister is serious about delivering affordable and diverse housing types, why discourage private sector investment in a housing type that has been providing an affordable housing option for many, often vulnerable people for many decades?

Seniors housing

The government appears to be sending a clear signal that providing a range of affordable and diverse housing for seniors is not a priority by straight out amending the Seniors Housing SEPP to exclude any land covered by the Metropolitan Rural Lands overlay. No consultation with industry. No consultation with seniors groups.

The amendment means that seniors housing will no longer be allowable across the entire Blue Mountains LGA, 70 per cent of the Hills Shire LGA as well as swathes of land across another 11 council areas including the electorate of Pittwater. There is enormous unmet demand for seniors housing in many of these council areas. Why force elderly people out of the communities they have lived in all their lives just because some don’t like the built form?

And it seems that the Draft SEPP will make things even worse for seniors housing supply. The Seniors Housing SEPP has, to date, allowed seniors housing developments to be carried out “despite the provisions of any other environmental planning instrument” (Ie. a local environmental plan or LEP). The government is now proposing to reverse this so that “development standards in an LEP prevail to the extent of any inconsistency”. That just opens the door to exclude seniors from their communities.

The Draft SEPP, if “made”, would fundamentally change the relationship between the state-level seniors housing controls and local controls, with many onerous local development standards being made available to local authorities who have made it clear they fundamentally oppose this type of development – the means to refuse.

The change belies the rationale for encouraging Seniors Living in the first place – that was – the planning system had failed to deliver enough supply (sound familiar??). That under supply is still there and with the aging of the population, it is getting worse.

“Loss of affordable rental housing” levies

The draft SEPP increases the quantum of “affordable housing” levies that are imposed when development applications are lodged in relation to “low-rental residential buildings” for their demolition or upgrade. This levy is additional to any other affordable housing levies that are routinely charged by councils.

While the impact of the existing regime is limited by the fact that it only applies to buildings that were “low-rental residential buildings” as of 28 January 2000, the scheme does not presently apply to any building that becomes a low-rental residential building after that date. This is crucial as it means that any building that’s quality has degraded in the last 20 years (such that it recovers rental at or below the “median” level) is not subject to this existing levy regime on re-development. The draft SEPP will remove this date restriction. This effectively means that the levy regime will be extended to apply to the re-development of existing buildings that were previously exempt, by reason that their deterioration post-dated the year 2000.

The proposed change to determination of ‘’loss of affordable housing levies will increase costs and reduce feasibility.  This new regime, as proposed, represents a tax of any upgrade. The new Draft Housing Diversity SEPP (if made) will create a perverse incentive for some landlords to take active steps to ensure that their buildings do not rent out at or below median market rents (even at the expense of bringing forward minor upgrades to make rents more expensive).  This ill-considered amendment may actually reduce the availability of affordable housing. Worse – it is a tax on economic activity, or jobs and on housing supply.

Conclusion

While the intent of the draft Housing Diversity SEPP is supported by the Urban Taskforce, as always, the devil is in the detail. We do not doubt the Minister’s motives in proposing the changes foreshadowed in the draft SEPP. However, the practical outcome from the draft SEPP is the addition of prescriptive controls and extra costs that will reduce the relative feasibility of delivering a range of housing types to market.  Ultimately, this will have the effect of limiting both supply and affordability.

Urban Taskforce supports the simple economic maxim. If the NSW government is serious about making housing affordable, use the powers currently available to speed up the planning system, reduce duplication, reduce complexity, reduce opportunities for delay arising from distant organised community groups, properly resource the independent panels, reward councils for supporting economic growth through housing approvals above their forecasts and do everything he can to drive more housing supply through the system.

Ultimately, additional regulation will mean reduced choice. Handing powers to councils protects the interests of current occupants but rarely (if ever) leads to meeting the public demand for more affordable housing or the needs of future populations who are essential to our economic growth.

Prescriptive controls for each category of housing simply reduces viability and feasibility.

We welcome the policy intent of the draft Housing Diversity SEPP and we are determined to work with the government to ensure that the positive intent is realised and that the “Doublethink” is removed!

Tom Forrest is the chief executive officer of the Urban Taskforce.

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2 Comments

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  1. The academic in me finds the lack of evidence to most of the assertions in this article more than distressing. It seems that Urban Taskforce is just another lobby group in search of power through rhetoric. Sad really.

  2. I adore the use of an Orwellian reference here, it has just clarified how often I have recently related to the protagonist of 1984, continuously led to believe that planning is the problem – suspicious that perhaps something else is at play. However, unlike Winston I hope to not give-in to the pressure.

    Indeed in many of our ‘wealthier areas,’ the older flats that are hot development properties, are the cheapest places one can find to live. By providing bonus density as an incentive, and not having a way to “tax” the loss of these actually-below-market-rate dwellings, the existing Affordable Rental Housing SEPP has resulted in the loss of many affordable dwellings since its inception (how’s that for doublethink). The proposed changes will hopefully go a long way to deterring the redevelopment of places that are currently affordable (and add character to an area too).
    And heaven forbid a land lord is incentivised to actually upkeep the standard of their property, so that tenants can enjoy a good quality of living.

    But perhaps like Winston, I too am a slow learner.

    “How can I help it? How can I help but see what is in front of my eyes? Two and two are four.”
    “Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.”
    ? George Orwell, 1984