18 Feb 2021

Build-to-rent: the next step in NSW

By Nikki Robinson, Claire Smith, Keshni Maharaj, Angus Roy, Lauren Smith and David Wong

We predict that there will be greater growth in the build-to-rent sector and that this growth will address the need for more flexible options with greater certainty of tenure for renters in NSW.

On 12 February 2021, State Environmental Planning Policy Amendment (Build-to-rent Housing) 2021 (BTR SEPP) was made bringing further clarity to the Build-to-Rent sector in NSW and with it the potential for accelerated growth. The changes represent one part of a broader planning reform agenda for build-to-rent (BTR), affordable, seniors and social housing publicly exhibited in July to September 2020.

Up until now, BTR as an asset class in NSW has been hampered by barriers (including tax, stamp duty and planning) which have slowed down the growth of this sector, despite BTR being a major player in the residential housing markets internationally (especially in the UK and USA).

As discussed back in July, up until now, developers attempting to enter the sector in NSW have found it difficult for their proposal to stack up financially with enough potential (and planning certainty) to form a business case.

These new amendments to the planning legislation, together with the land tax concessions announced in July 2020 and the clarity provided by the Treasurer's Guidelines published on 12 February 2021 will help encourage developers in NSW to more closely consider BTR as an option in the residential market.

Summary of planning changes

The BTR SEPP inserts new provisions into the State Environmental Planning Policy (Affordable Rental Housing) 2009 that:

  • allow for development of BTR housing anywhere that residential flat buildings are permitted, as well as in the B3 Commercial Core, B4 Mixed Use zones and B8 Metropolitan Centre zones;
  • introduce minimum car parking rates and apply councils’ maximum car parking rates where relevant;
  • apply council height and floor space ratio standards;
  • prevent residential subdivision for 15 years in all zones (except the B3 zone where the BTR housing development cannot be subdivided into separate lots in perpetuity);
  • require a consent authority to be satisfied that a BTR development in the B3 zone will be readily capable of conversion to commercial premises; and
  • support the flexible application of the Apartment Design Guide, requiring consideration of the amenity provided by common spaces and shared facilities.

The BTR SEPP also amends the State Environmental Planning Policy (State and Regional Development) 2011, introducing a State Significant Development (SSD) pathway for BTR housing developments that have a capital investment value (CIV) of more than $100 million for the Greater Sydney Region (except in the City of Sydney) and more than $50 million for development on other land.

Treasurer's Guidelines

The Treasurer has published guidelines which set out conditions which all build to rent buildings must satisfy in order to be eligible for the 50% land tax discount offered pursuant to the changes to Section 9E of Land Tax Management Act 1956, the surcharge purchaser duty exemption pursuant to section 104ZJB of the Duties Act 1997, and the surcharge land tax exemption pursuant to section 5C of the Land Tax Act 1956.

These conditions include:

  • Buildings on a parcel of land must contain at least 50 self-contained dwellings which will be used exclusively for build to rent. These dwellings can be spread across multiple buildings on the same parcel of land;
  • All build to rent properties must comply with any relevant affordable housing policies that may be imposed under the Environmental Planning and Assessment Act 1979;
  • Build to rent dwellings must be made available to the general public;
  • Build to rent dwellings must be owned within a unified ownership structure and must not be held in such a way that the Chief Commissioner considers it a de-facto subdivision;
  • Build to rent dwellings must be managed by a single management entity (which can be a different entity to the owner of the land), with on-site access to management for tenants. However, this requirement does not apply to specific dwellings set aside for affordable or social housing for a period of at least 15 years;
  • Each tenant must be offered a range of lease term choices which must include a genuine option for the tenant to take a fixed term lease of at least 3 years; and
  • Each tenancy must be subject to a Residential Tenancy Agreement under the Residential Tenancies Act 2010.

The guidelines also state that the Chief Commissioner may have regard to other factors that they consider relevant as to whether or not a property is being used for build to rent and eligible for the land tax discount.

Impact of changes

It is too early to predict how quickly this sector will grow, but as BTR was already emerging as a   residential option without these concessions – we predict that there will be greater growth in the sector and that this growth will address the need for more flexible options with greater certainty of tenure for renters in NSW.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.