Inclusionary zoning schemes can help with affordable housing crisis
Cameron Jewell | 10 April 2018
While up to 40 per cent of housing is expected to be affordable product in the UK, here in Australia we’re still arguing about how to tackle a growing crisis. Now new research from the Australian Housing and Urban Research Institute (AHURI) says we should be taking lessons from our international peers seriously when developing sustainable models for affordable housing.
“Our research found that, in England and Scotland, the general expectation is for 20 to 40 per cent of new housing developments to be affordable housing across the continuum of needs and options,” which included social housing all the way up to affordable purchase product, lead researcher Professor Nicole Gurran said.
Between 2005-2016 the UK’s policy saw 83,790 new affordable dwellings added, thanks to an inclusionary zoning approach where affordable housing is required on significant residential sites where land has been rezoned or planning rules changed to allow more development.
“Local planning authorities identify the level of unmet housing need and use locally negotiated agreements to obtain contributions from private housing developments to supply affordable housing, with exact requirements determined in relation to site-specific considerations, including financial viability.”
In Australia we’ve been less successful, with the two-longest standing programs in South Australia and NSW delivering only “modest” increases in affordable housing.
The report said that if requirements for affordable housing were known in advance and levied in a consistent way, developers would be able to factor this into the price paid for land. Developers could also be supported with a range of other incentives, including voluntary planning incentives and density bonuses.
In NSW, the Greater Sydney Commission has delivered plans recommending 5-10 per cent of housing on rezoned land be deemed affordable.
Development sector wary
The Property Council’s NSW executive director Jane Fitzgerald said AHURI’s report provided “food for thought” on how the state could provide more affordable housing, adding that the Greater Sydney Commission’s plans targeting 5-10 per cent affordable housing on rezoned land was “a measured response”.
However, she warned against adding more complexity or cost to the planning system.
“Apart from ensuring housing supply is not perversely affected, there should also be only one scheme – a consistent scheme – across Sydney. The target should also be matched with density bonuses and other incentives as has worked well in the UK and US.”
She said transparency was key to any scheme.
“It is really important that any affordable housing targets are clear before land gets rezoned so the amount paid for the land reflects the requirements. If this doesn’t happen, the costs of the scheme will be passed on to average home buyers worsening affordability for them.”
The Urban Taskforce’s Chris Johnson said AHURI’s inclusionary zoning recommendation would force apartment costs up.
“We should be getting other building types like detached houses, commercial and retail developments to contribute to affordable housing rather than add an extra cost to the most affordable dwellings in the city,” he said.
The truth about how developers price their stock
Professor Gurran said arguments that providing affordable housing through an inclusionary zoning approach would push up the market price of housing in a development were not correct.
“In the market, a seller sells at the highest price they possibly can achieve,” she said.
So developers don’t add up all their costs, add a profit margin and then sell for whatever price that comes to. Rather they work backwards from what the expected market price is to work out what they can afford to pay for land while still covering their other development costs and turning a profit.
When inclusionary zoning is part of the equation from the beginning, it reduces what developers are willing to pay for land, rather than adding additional costs to end buyers.
Professor Gurran said, however, you could argue that if you imposed unrealistically high levies, developers would supply less overall product, which could have a flow-on effect on prices.
She said that policies needed to be “pro-supply”, and at a level that didn’t dissuade development.
“You do want to be supporting house building.”
The report also said inclusionary zoning agreements could be targeted to different parts of the affordable housing spectrum, “depending on the availability of other subsidy, the target group, and the market context”.
Professor Gurran said a “system that allows negotiations, sensitive to changes in the market” was important so that affordable housing could still be produced even in a cooling market.
However, she noted that government funding was still required to provide social housing for very low income earners.
“The planning system should better support affordable and social housing development by reducing land costs and ensuring that affordable homes are well located near jobs and services,” she said.
“But inclusionary planning cannot replace government funding to meet high housing needs.”