As part of its COVID-19 response, and broader moves to more build-to-rent housing, the NSW Government has been considering planning reforms to ensure that state planning provisions are fit for purpose to facilitate the construction of affordable and well-designed residential accommodation. The latest proposed reform is a new Housing Diversity SEPP which will change and consolidate state planning provisions for affordable, seniors and social housing. While we haven't seen the actual draft SEPP yet, the NSW Department of Planning, Industry and Environment (DPIE) has released an Explanation of Intended Effect (EIE) for it, and is calling for submissions by 9 September 2020.
Proposed changes will introduce an affordability requirement to boarding house developments. "New generation" boarding houses and student accommodation will no longer be facilitated under broader boarding house provisions and developers will need to meet new design requirements without the same incentives.
Developers should review the changes in detail and consider providing feedback.
Main changes in the Housing Diversity SEPP
The Housing Diversity SEPP will consolidate three State Environmental Planning Policies:
- State Environmental Planning Policy (Affordable Rental Housing) 2009 (ARH SEPP);
- State Environmental Planning Policy (Housing for Seniors and People with a Disability) 2004 (Seniors SEPP); and
- State Environmental Planning Policy – Affordable Housing (Revised Schemes).
In their place, the new SEPP will:
- Introduce "built to-rent housing", "student housing" and "co-living" development types into the Standard Instrument - Principal Local Environmental Plan (Standard Instrument);
- Introduce an affordability requirement to boarding house developments, standardise the Floor Space Ratio (FSR) uplift to 20% and remove boarding house developments from R2 Low Density Residential zones at a state level;
- Amend the existing provisions of the ARH SEPP by:
- introducing an exempt and/or complying development pathway to change an existing dwelling to a group home;
- expanding the ability for Councils to levy monetary contributions on certain developments to offset the loss of low-rental dwellings posed by that development; and
- allowing councils to set the maximum size of secondary dwelling developments in rural zones.
- Amend the existing provisions of the Seniors SEPP to:
- extend the validity of a Site Compatibility Certificate (SCC) from 2 years to 5 years, on the condition that a development application is lodged within 12 months of the SCC issue;
- amend the "location and access to facilities" provisions and update definitions;
- update Schedule 1 which identifies the "environmentally sensitive land" where the Seniors SEPP provisions do not apply;
- clarify provisions regarding existing registered clubs; and
- confirm that development standards in a Local Environmental Plan (LEP) prevail over the state provisions.
- Introduce provisions which will promote the delivery of social housing by NSW Land and Housing Corporation, on government land, including in partnership with the private sector and community housing providers.
Below we have discussed in greater detail the changes specifically to boarding house developments and the introduction of new housing typologies.
Affordability and Boarding House Development
The proposed changes will introduce an affordability requirement to boarding house developments, currently assessed and approved under the ARH SEPP. The ARH SEPP was introduced in 2009 to facilitate growth in affordable rental housing stock. It covers a range of housing typologies, but perhaps the most popular is the boarding house model. The ARH SEPP incentivised the construction of boarding houses through providing an FSR bonus to developers and ensuring that consent authorities could not refuse developments on certain grounds if specific standards were met. There has been a proliferation of new generation boarding house developments as a result but no commensurate growth in affordable housing. It was assumed that the smaller habitable rooms within boarding house developments would be rented out at affordable rates. Instead developers have been able to attract market rents for "micro apartments" in attractive locations, close to the city and public transport. Councils are concerned that these developments don’t meet the demand for low-cost housing but instead provide accommodation for young professionals and students, with no affordability obligation.
DPIE intends to introduce an affordability component by changing the definition of "boarding house." A boarding house will be required to be managed by a registered not-for-profit community housing provider. These providers offer housing for people on very low, low or moderate incomes or to people with additional needs. In order to maintain their registration they must follow national standards for community housing. DPIE is seeking feedback on this proposed definition. Alternatively DPIE has asked for feedback on whether requiring boarding houses be rented out at affordable rents for a ten year period, after which they can revert to market rents, is a more appropriate control.
Another key change proposed for boarding house developments concerns the FSR incentive. Boarding house developments proposed on land where residential flat buildings are permitted and which do not contain a heritage item or certain heritage protections attract an FSR bonus. The FSR control which applies to those developments is the maximum FSR for any form of residential accommodation on that land plus an extra 0.5:1 FSR where the existing maximum FSR is 2.5:1 or less, or an extra 20% of the existing maximum FSR if the FSR control is over 2.5:1. For smaller developments the bonus FSR can be substantial, in some cases nearly doubling the FSR that can be ordinarily applied for residential accommodation in the applicable zone. The proposed controls will scale back the bonus FSR available to a standard 20% uplift.
New development typologies
The new affordability requirement has also led to the introduction of new housing typologies under the Standard Instrument and proposed Housing Diversity SEPP. Developers have used the current boarding house provisions to construct accommodation for occupants such as students, singles and professionals. DPIE considers that there is a need to assess different rental accommodation types under new purpose built provisions.
Build-to-rent housing (BTR Housing) is large scale apartment development offering long term private rentals where the building is in single ownership and management, and on-site management services are provided. The NSW Government hopes to attract institutional investment into this type of accommodation so that stable and long term rental options for residents are increased. BTR Housing will be permissible with development consent in higher density residential, commercial and mixed use zones with the option for Councils to introduce the development into additional zones by amending their LEPs. BTR Housing with a capital investment value of $100 million or more in metropolitan areas (other than the City of Sydney) and $50 million or more in regional areas will be assessed as state significant development.
The Housing Diversity SEPP will incentivise the development of BTR Housing through a favourable minimum car parking space requirement. Otherwise height and FSR standards will be regulated at a local level.
As BTR Housing developments remain in single ownership it is easier for owners to change their use in the future. To secure these developments in the medium to long term the Housing Diversity SEPP will likely prohibit strata subdivision for the first 15 years of the asset’s life, and prohibit strata subdivision in the B3 Commercial Core Zone. DPIE is seeking feedback on how future subdivision of BTR Housing could be managed – for example residents could have the first rights to acquire a unit or a minimum percentage of units could remain as affordable housing.
The Standard Instrument will include a student housing typology which provides accommodation and communal facilities for students enrolled in study at an educational establishment during teaching periods and which may incorporate fully self-contained dwellings. Permissibility, building height and FSR standards will be regulated by LEPs, however the Housing Diversity SEPP may include other development standards and detailed design guidelines may be developed in the future.
New provisions will facilitate "co-living" developments currently termed "new generation" boarding houses. The Standard Instrument will introduce a new definition and the Housing Diversity SEPP will establish development standards and make co-living apartments permissible, with development consent, on land where residential flat buildings are currently permitted.
Existing boarding house provisions have facilitated substantial development since the introduction of the ARH SEPP. There has always been a tension between the incentives provided to developers and concerns about affordability and amenity for occupants. The proposed reforms seek to reset the balance.
Developers will need to look at the proposed development standards for each of the typologies closely. The size of apartments, communal living spaces and private open space are greater for co-living developments compared with existing and proposed boarding house developments. It appears the minimum car parking requirement is the main or only development incentive for these new typologies, compared with the current FSR bonus and development standards in the ARH SEPP. Developers should review the proposed provisions carefully as feedback from the private sector on the viability of proposed standards will be crucial to ensuring that new housing types are delivered.