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Australia struggles to plan for affordable homes

10 April 2018
How zoning could help first home buyers and low income renters
An Australian Housing and Urban Research Institute report, led by the University of Sydney, outlines suggestions for how to leverage the planning system to create more affordable housing.

Requiring developers to including affordable housing when land is rezoned and incentives for projects offering lower rents or sale prices are two ideas outlined in the report.

The research examined how land-use planning mechanisms could help supply affordable housing in Australia, nearly a decade after NSW introduced incentives for developers to produce affordable rental housing. South Australia introduced a 15 percent affordable housing target in 2005, which has been progressively implemented when residential land is zoned.

Recent experience in the UK and US, where inclusionary planning mechanisms for affordable housing are long established, was also examined.

The study found that between 2005 and 2016, the NSW voluntary incentive approach delivered around 1,300 affordable rental dwellings in greater Sydney, which is equivalent to about 0.5-1 percent of total housing output for the period. By contrast, the South Australian model has yielded 2009 affordable homes to date, with a further 3,476 underway. This represents around 17 percent of the state’s output.

“Our research found that, in England and Scotland, the general expectation is for 20 to 40 percent of new housing developments to be affordable to low and moderate income earners to rent or buy,” says lead researcher Professor Nicole Gurran from the University’s School of Architecture Design and Planning.

“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.”

Over time, consistent application of the planning requirements has meant that 83,790 new affordable homes were delivered in the UK between 2005 and 2016.

Under the South Australian model, which is similar to approaches used in the UK and US, affordable homes are set aside for purchase by eligible households or social housing providers. The reduced profit from the affordable component is factored into land values at the time of acquisition, so does not constitute a cost for the whole project.

The planning system should better support affordable and social housing development...but inclusionary planning cannot replace government funding to meet high housing needs.”
Professor Nicole Gurran, Architecture, Design and Planning

In NSW, a voluntary density bonus offers developers increased floorspace in return for affordable rental housing. The affordable units must be rented to eligible households at 20 percent market discount for a minimum of 10 years. The density bonus is one of several voluntary incentives available for affordable housing development in NSW. However, the use of mandatory inclusionary zoning has been limited.

Inclusionary zoning refers to a requirement for development within a particular zone to include a contribution for affordable housing, while density bonuses offer incentives such as additional floorspace in return for the affordable component. Both approaches can operate together, helping developers meet affordability targets without affecting project viability.

The City of San Francisco (USA) combines an inclusionary zoning requirement with density bonus incentives and requires new private housing developments with 10 or more housing units to include affordable housing units or pay a fee in lieu. These inclusionary requirements have delivered around 150–250 affordable units per annum in recent years, representing around 12 per cent of annual new housing supply.

The researchers found that in both the US and UK private developers accept inclusionary requirements when they are known in advance and levied in a consistent way. In addition, government grants, subsidies, planning bonuses and incentives that support or work in conjunction with mandatory inclusionary housing requirements, can increase overall supply and affordability outcomes.

“There is great potential to extend inclusionary planning approaches across Australia,’ said Professor Gurran. “Affordable housing inclusion can be mandated when land is rezoned for residential development, when planning rules are varied for particular projects, or following significant infrastructure investment.”

However, Professor Gurran emphasised that additional subsidy is still needed to fund 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. But inclusionary planning cannot replace government funding to meet high housing needs.”

The report Supporting affordable housing supply: inclusionary planning in new and renewing communities was undertaken by researchers from the University of Sydney, the University of NSW, Curtin University and the University of Glasgow. It can be downloaded here