AGENDA R

 

 

 

 

 

 

 

 

 

 

 

Council Meeting

 

TUESDAY 28 MARCH 2017

 

6:30pm

 

 

 

 


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Council Meeting

28 March 2017

 

 

 

SUMMARY OF ITEMS

 

 

The following provides a summary of the items to be considered at the meeting.

 

  

 

Administrator's Minutes

Nil at the time of printing.

 

Staff Reports

ITEM                                                                                                                                    PAGE #

C0317 Item 1      WestConnex Stage 1 (M4 East) draft addendum to Urban Design & Landscape Plan    11

C0317 Item 2      Minutes of the IAG Meeting held 9 March 2017 and Minutes of the LRAC Meeting held 14 March 2017                                                                                                 17

C0317 Item 3      ADOPTION OF AFFORDABLE HOUSING POLICY FOLLOWING PUBLIC EXHIBITION                                                                                               23

C0317 Item 4      Addressing Domestic and Family Violence in the Inner West                  224

C0317 Item 5      Council response to Draft Central District Plan                                        233

C0317 Item 6      Planning Proposal Request - 183 & 203 New Canterbury Road, Lewisham 242

C0317 Item 7      Draft State Environmental Planning Policy (SEPP) for Educational Establishments and Child Care Facilities                                                                                  393

C0317 Item 8      Proposed amendments to Environmental Planning & Assessment Act 1979       475

C0317 Item 9      Statement of Vision and Priorities                                                             484

C0317 Item 10    Homelessness Policy                                                                                508

C0317 Item 11    Proposed name of the new Marrickville Library site                                528

C0317 Item 12    Local Traffic Committee Meeting held on 2 March 2017                         533

C0317 Item 13    Inner West Council Investments as at 28 February 2017                         556

 

Reports with Confidential Information

ITEM                                                                                                                                    PAGE #

C0317 Item 14    Trial extension of the current swimming season at Fanny Durack Aquatic Centre.   


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Council Meeting

28 March 2017

 

 

 

INDEX

 

 

1          Acknowledgement of Country

 

2          Period of Silence for Prayer, Pledge or Contemplation

 

3          Present

 

4          Apologies  

 

5          Disclosures of Interest (Section 451 of the Local Government Act
and Council’s Code of Conduct)

 

6          Confirmation of Minutes                                                                                         Page

Minutes of 28 February 2017 Council Meeting                                                                4

 

7          Administrator's Minutes

 

 

 

8          Staff Reports

 

 

 

9          Reports with Confidential Information

 

Reports appearing in this section of the Business Paper are confidential in their entirety or contain confidential information in attachments.

 

The confidential information has been circulated separately.

 

  


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Council Meeting

28 March 2017

 

 

Minutes of Ordinary Council Meeting

held at Ashfield Service Centre on 28 February 2017

 

 

Meeting commenced at 6:30pm

 

 

Present:

Richard Pearson

Administrator

Rik Hart

Interim General Manager

Peter Gainsford

Deputy General Manager Assets and Environment

John Warburton

Deputy General Manager Community and Engagement

Michael Tzimoulas

Deputy General Manager Chief Financial and Administration Officer

Wal Petschler

Group Manager Footpaths, Roads, Traffic and Stormwater

Tanya Whitmarsh

Group Manager Governance

Gill Dawson

Acting Group Manager Strategic Planning

Popy Mourgelas

Manager Corporate Governance, Ashfield

Ian Naylor

Manager Governance & Administration, Leichhardt

Katerina Maros

Governance Officer, Leichhardt (Minute Taker)

 

Public Speakers: see last two pages of these minutes.

1. Acknowledgement of Country by Chairperson

·                     “I acknowledge the Gadigal and Wangal people of the Eora nation on whose country we are meeting today, and their elders past and present.”

 

2. Notice of Live Streaming of Council Meeting

 

The Administrator advised that the Council meeting was being streamed live on Council's website and members of the public must ensure their speech to the Council is respectful and use appropriate language.

 

3. Disclosures of Interests

 

The Administrator declared that he had no declarable interests in any matter listed on the business paper.


4. Confirmation of Minutes

 

 

The Administrator determined that the Minutes of the Council Meeting held on Tuesday, 6 December 2016 be confirmed.

 

 

 

C0217 Item 17    Administrator's Minute: WestConnex Stage 3 (M4-M5 Link) construction dive-site options

 

The Administrator determined that Council:

 

1.       Calls on the NSW Government not to proceed with any further consideration of either of the mid-tunnel construction dive sites under consideration at 7 Darley Road and 29 Derbyshire Road, Leichhardt; 

2.       Calls on the Government to discontinue the process of seeking to establish a dive site in the densely populated Leichhardt/Lilyfield area;

3.       Requests Council officers to further consider the suitability of the site at the western end of the Rozelle Rail Yards as a possible mid-tunnel construction dive site and report back to Council;

4.       Calls on the State Government to ensure that the community and Council is fully consulted on any further consideration of dive site options in the Leichhardt area by the State Government; and

5.       Calls on Sydney Motorway Corporation to immediately release information regarding the proposed Camperdown dive site and conduct an immediate Community Consultation Campaign.   

 

 

C0217 Item 1      WestConnex Update Report

 

The Administrator determined that Council:

 

 

1.       Receives and notes the report; 

2.       Expresses concern about the demolition of Heritage Houses in Campbell Road (Bradfield Terrace listed on the State Heritage Register 2004) and 82 Campbell Street (Brickworker’s Cottage State Heritage Listing 2009);

3.       Acknowledges the considerable disruption to residents’ lives by Sydney Motorway Corporation (SMC) works, road closures and use of local streets for parking and vehicle access; and

4.       Informs local residents around Simpson Park about the future of the fig trees in Simpson Park which border onto the proposed Campbell Street widening.

 

 

C0217 Item 2      Post Exhibition Report: Marrickville Heritage Review

The Administrator determined that Council defer report for further consideration of issues raised and report back to March 2017 Council Meeting.

 

 

 

 

C0217 Item 3      Planning Proposal - 168 Norton Street, Leichhardt

The Administrator determined that:

1.       The attached Planning Proposal be forwarded to the Minister for Planning for a Gateway determination in accordance with Section 56 of the Environmental Planning & Assessment Act 1979;

2.       The Department of Planning and Environment be requested to delegate the plan making functions, in relation to the subject Planning Proposal, to Council;

3.       Following receipt of a Gateway determination, and compliance with any conditions and following the required changes being made by the Proponent, the Planning Proposal and supporting documentation be placed on public exhibition for a minimum of 28 days and public authorities be consulted on the Planning Proposal in accordance with the Gateway determination; and

4.       A report be presented to Council at the completion of the public exhibition period detailing submissions received and the outcome of consultation with public authorities.

 

 

C0217 Item 4      Annandale Conservation Area Extension

The Administrator determined that:

 

1.       The attached Planning Proposal be forwarded to the Minister for Planning for a Gateway Determination in accordance with Section 56 of the Environmental Planning & Assessment Act 1979;

2.       The Department of Planning and Environment be requested to delegate the plan making functions, in relation to the subject Planning Proposal, to Council;

3.       Following receipt of a Gateway Determination, and compliance with any conditions, the Planning Proposal and supporting documentation be placed on public exhibition for a minimum of 28 days and public authorities be consulted on the Planning Proposal in accordance with the Gateway Determination; and

4.       A report be presented to Council at the completion of the public exhibition period detailing submissions received and the outcome of consultation with public authorities. 

 

 

C0217 Item 5      Draft Marrickville Local Environmental Plan 2011 (Amendment No. X) - Change to the Land Use Table for the B7 Business Park Zone

The Administrator determined that:

1.       The report be received and noted;

2.       Council resolves to prepare a Planning Proposal to amend MLEP 2011 to delete “shop top housing” as a permissible use within the B7 Business Park zone and nominate itself as the Relevant Planning Authority;

3.       Council submits the draft Planning Proposal to the Department of Planning and Environment for Gateway determination; and

4.       Council resolves to publicly exhibit the draft Planning Proposal.

 

 

C0217 Item 6      Marrickville Golf Course Lands and Dibble Avenue Waterhole - Plan of Management

The Administrator determined that the preparation of a Plan of Management for the Marrickville golf course lands and Dibble Avenue Waterhole be prioritised and brought forward to commence in 2017.

 

 

C0217 Item 7      Minutes of the IAG Meeting held 9 February 2017 and LRAC Meeting held 14 February 2017

The Administrator determined that:

 

1.       The Minutes of the IAG Meeting held on 9 February 2017 be noted.

2.       The Minutes of the LRAC Meeting held on 14 February 2017 be noted.

 

 

C0217 Item 8      Local Traffic Committee Meeting held on 1 December 2016 and 2 February 2017

The Administrator determined that:

1.   The Minutes of the Local Traffic Committee Meeting held on 1 December 2016 be received and noted.

2.   The Minutes of the Local Traffic Committee Meeting held on 2nd February, 2017 be received and noted.

 

 

C0217 Item 9      ADDRESSING DOMESTIC AND FAMILY VIOLENCE IN THE INNER WEST

The Administrator determined that Council defer report for further consideration of appropriate funding levels and report back to March 2017 Council Meeting. 

 

 

C0217 Item 10    Quarter 2 Progress Report - IWC Operational Plan

The Administrator determined that the report be received and noted.

 

 

C0217 Item 11    Flood Management Advisory Committee meeting held 1 February 2017

The Administrator determined that the minutes of the Inner West Council Flood Management Advisory Committee held on 1 February 2017 be received and the recommendations be adopted.

 

 

C0217 Item 12    Review of Planning Proposal Fees and Charges

The Administrator determined that:

 

1.       Under the provisions of the Local Government Act, Council amend the current Ashfield, Marrickville and Leichhardt fees for planning proposals and introduce an integrated Inner West Council planning proposal fee structure; and

2.         Council exhibit the proposed fees and charges and receive a report on submissions received.

 

Procedural Motion

The Administrator determined that Items 13 and 16 be considered in conjunction.

 

 

C0217 Item 13    Quarterly Budget Review Statement for the period ended 30 September 2016

The Administrator determined that:

 

1.         The report be received and noted; and

2.         Council approves the budget adjustments required.

 

 

C0217 Item 16    Quarterly Budget Review Statement for the period ended 31 December 2016

The Administrator determined that:

 

1.         The report be received and noted; and

2.         Council approves the budget adjustments required.

 

 

 

 

C0217 Item 14    Inner West Council Investments as for the periods ending 30 November 2016, 31 December 2016 and 31 January 2017

The Administrator determined that the report be received and noted.

 

 

C0217 Item 15    Disclosures of Interest by Designated Persons

The Administrator determined that the report be received and noted.

 

 

 

 

 

Meeting closed at 9:52pm.

 

 


 

Public Speakers

Item 1:

Frank Breen, Leichhardt LRAC

Balmain

 

Frank Smith

St Peters

 

Chris Woods, Marrickville LRAC

Marrickville                            

 

John Stamolis, Leichhardt LRAC

Balmain

 

Linda Kelly, Leichhardt LRAC

Leichhardt

 

 

 

Item 2:

Joseph Bell

Ashfield

 

Bruce Woolf

Sydney

 

Van Luan Nguyen

Tempe

 

Adam Sives

Marrickville

 

Kevin Lam

St Peters

 

James Cartwright

Rhodes

 

Victor Macri, Marrickville LRAC

Marrickville

 

Peter Tanvakeras

Marrickville

 

 

 

Item 3:

Linda Kelly, Leichhardt LRAC

Leichhardt

 

Darcy Byrne, Leichhardt LRAC

Leichhardt

 

 

 

Item 6:

Mark Krupinski

Marrickville

 

Justine Langford

Marrickville

 

James Gilronan

Dulwich Hill

 

 

 

Item 7:

John Stamolis, Leichhardt LRAC 

Balmain

 

 

 

Item 8:

John Caley

Newtown

 

Justin Hillis

Marrickville

 

James Gilronan

Dulwich Hill

 

Alex Lofts, Ashfield LRAC 

Summer Hill

 

Renee Holmes

Ashfield

 

 

 

Item 9

Linda Kelly, Leichhardt LRAC

Leichhardt

 

John Stamolis, Leichhardt LRAC 

Balmain

 

Darcy Byrne, Leichhardt LRAC

Leichhardt

 

 

 

Item 11:

Frank Breen, Leichhardt LRAC

Balmain

 

 

 

Item 12:

John Stamolis, Leichhardt LRAC 

Balmain

 

 

 

Item 13:

Mark Drury, Ashfield LRAC 

Ashfield

 

Frank Breen, Leichhardt LRAC

Balmain

 

John Stamolis, Leichhardt LRAC

Balmain

 

Darcy Byrne, Leichhardt LRAC

Leichhardt

 

 

 

Item 14:

Frank Breen, Leichhardt LRAC

Balmain

 

James Gilronan

Dulwich Hill

 

 

 

Item 16:

Mark Drury, Ashfield LRAC 

Ashfield

 

Frank Breen, Leichhardt LRAC

Balmain

 

John Stamolis, Leichhardt LRAC

Balmain

 

Darcy Byrne, Leichhardt LRAC

Leichhardt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 17:

Catherine Gemmell

Leichhardt

 

Christina Valentine

Leichhardt

 

Ted Cassidy, Ashfield LRAC

Haberfield

 

Alex Lofts, Ashfield LRAC

Summer Hill

 

Lesley Treleavan

Camperdown

 

Darcy Byrne, Leichhardt LRAC

Leichhardt

 

John Lozano

Haberfield

 

 


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Council Meeting

28 March 2017

 

Item No:         C0317 Item 1

Subject:         WestConnex Stage 1 (M4 East) draft addendum to Urban Design & Landscape Plan 

File Ref:         1517-01/22610.17        

Prepared By:     Kendall Banfield - Manager WestConnex Unit 

Authorised By:  John Warburton - Deputy General Manager Community and Engagement

 

SUMMARY

WestConnex proponent Sydney Motorway Corporation (SMC) has placed a draft addendum to the M4 East Urban Design and Landscape Plan (UDLP) on public exhibition from 22 February to 22 March 2017.  The draft addendum essentially adds design detail to the proposed ventilation facility and perimeter wall at the M4 East Parramatta Road / Walker Street construction compound.  At the time of finalising this report, Council officers are preparing a submission, to be lodged with SMC by the due date.  Key issues raised in Council’s October 2016 submission on the initial draft M4 East UDLP are summarised in this report, as are key comments to be raised in the forthcoming submission on the draft addendum.  This report recommends that and forwards to SMC any comments additional to those discussed in this report as a late addendum to Council’s submission.

 

 

 

RECOMMENDATION

 

THAT Council:

 

1.    Receives and notes this report; and

 

2.    Forwards to Sydney Motorway Corporation any comments additional to those discussed in this report as a late addendum to Council’s submission.

 

 

BACKGROUND

WestConnex proponent Sydney Motorway Corporation (SMC) - as delegate to Roads & Maritime Services (RMS) - has placed a draft addendum to the M4 East Urban Design & Landscape Plan (UDLP) on public exhibition from 22 February to 22 March 2017.  The draft addendum is an update of Sections 5.3 Ventilation Facility at Underwood Road and 5.7 Ventilation Facility at Parramatta Road of the draft UDLP that was initially exhibited in September and October 2016.  This report only considers the Section 5.7 Parramatta Road, as the Underwood Road section (5.3) relates to Homebush within the Strathfield Local Government Area. The M4 East UDLP has been prepared in accordance with Consent Condition B45, guided by an Urban Design Review Panel established according to Consent Condition B44.  Council staff have participated in Urban Design Review Panel meetings late 2016 and early 2017.  Staff have also participated in meetings for the related M4 East Legacy Projects during this time. The draft addendum is largely concerned with design details for the proposed ventilation facility and perimeter wall at the Parramatta Road / Walker Street construction compound at Haberfield.  Photomontages of these proposed structures, taken from the draft addendum document, are at ATTACHMENT 1

 

At its October 2016 meeting, Council had considered a report, with Council officers’ submission attached, on the draft UDLP.  Council resolved to receive and note the report and to forward to SMC an additional comment about lack of landscaped or other buffering against construction and operational traffic noise for dwellings at 14 to 24 Wattle Street, Haberfield.  This comment was forwarded to SMC soon after the Council meeting, and the Wattle Street matter has been since raised by staff at project meetings. A summary of points raised in Council’s October 2016 submission on the UDLP is as follows:

·     residual open space along the WestConnex corridor should be designed to be place-based and include distinctive elements that relate to the historic character of Haberfield and Ashfield;

·     in order to achieve an appropriate place-based design, it is necessary for SMC to seek input on designs from Council staff, consultants and community groups (such as the Haberfield Association) with expertise on Haberfield’s historic character;

·     there is a lack of design detail in the draft UDLP for the non-roadway parts of the M4 East;

·     the UDLP does not outline how SMC has responded to landscape and urban design issues raised in former Ashfield Council’s October 2015 submission on the M4 East Environmental Impact Statement (EIS);

·     there is a lack of detail on how the prominent structures (mainly the wall and ventilation facility) will be visually integrated into the Haberfield urban fabric;

·     there is no information about how salvaged materials can be integrated into public domain treatments;

·     pedestrian crossing distances across Parramatta Road and Wattle Street are excessive and there is lack of information about integration of bus stops on Parramatta Road; and

·     there is a need for an overall ‘interpretation plan’ and a further public exhibition of design details.

 

At the time of writing, Council officers are preparing a submission on the draft addendum to the M4 East UDLP, to be lodged with SMC by the due date.  Draft advice from Council’s Strategic Planner is at ATTACHMENT 2, with advice from Council’s Heritage Advisor also to be included in the submission.  At this stage, Council officers believe the design details in the draft addendum represent appropriate treatments that address most of the abovelisted issues raised in Council’s October 2016 submission.  Staff however remain concerned about the height, and consequently the visual impact, of the proposed perimeter wall and ventilation facility.  Staff are also concerned that the issue raised previously about lack of landscaped or other buffering against construction and operational traffic noise for dwellings at 14 to 24 Wattle Street, Haberfield has not been resolved.  These matters will be raised in Council’s submission. A summary of Council’s submission will be reported through the WestConnex Weekly Update Report and other information channels.  Through these channels, Council has been encouraging community members to make a submission.  The document and an online submission form are available at: www.westconnex.com.au/provide-feedback-draft-addendum-m4-east-urban-design-and-landscape-plan

 

FINANCIAL IMPLICATIONS

Nil

 

OTHER STAFF COMMENTS

Nil, but Council’s Strategic Project Planner and Heritage Advisor are currently involved in the drafting of Council’s submission, to be lodged by the 22 March 2017 deadline.

 

PUBLIC CONSULTATION

Nil. This report responds to public consultation undertaken by the WestConnex proponent. Council is an external stakeholder and there is no need or requirement for Council to undertake consultation additional to that undertaken by the proponent.

 

 

 

ATTACHMENTS

1.

Photomontages from draft addendum to M4 East UDLP showing proposed Parramatta Road ventilation facility and perimeter wall, Haberfield

2.

Draft comments on draft addendum to M4 East UDLP from Council's Strategic Planner

  


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Council Meeting

28 March 2017

 


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Council Meeting

28 March 2017

 


 


 


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Council Meeting

28 March 2017

 

Item No:         C0317 Item 2

Subject:         Minutes of the IAG Meeting held 9 March 2017 and Minutes of the LRAC Meeting held 14 March 2017  

File Ref:         17/4718/27903.17         

Prepared By:     Katerina Maros - Governance Officer  

Authorised By:  Tanya Whitmarsh - Group Manager Governance

 

SUMMARY

To present the Minutes of the IAG Meeting held on 9 March 2017 and the LRAC meeting held 14 March 2017.

 

 

RECOMMENDATION

 

THAT:

 

1.       The Minutes of the IAG Meeting held on 9 March 2017 be noted.

2.       The Minutes of the LRAC Meeting held on 14 March 2017 be noted.

 

 

 

BACKGROUND

The Implementation Advisory Group Meeting was held on 9 March 2017. The minutes of the meeting are shown as Attachment 1.

 

The Local Representation Advisory Committee Meeting was held on 14 March 2017. The minutes of the meeting are shown as Attachment 2.

 

FINANCIAL IMPLICATIONS

Nil.

 

 

OTHER STAFF COMMENTS

Nil.

 

 

PUBLIC CONSULTATION

Nil.

 

 

CONCLUSION

Nil.

 

 

 

ATTACHMENTS

1.

IAG Minutes - 9 March 2017

2.

LRAC Minutes - 14 March 2017

  


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Council Meeting

28 March 2017

 


 


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Council Meeting

28 March 2017

 


 


 


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Council Meeting

28 March 2017

 

Item No:         C0317 Item 3

Subject:         ADOPTION OF AFFORDABLE HOUSING POLICY FOLLOWING PUBLIC EXHIBITION  

File Ref:         16/5981/27554.17         

Prepared By:     Jon Atkins - Affordable Housing Officer  

Authorised By:  Erla Ronan - Group Manager Community Services and Culture

 

SUMMARY

It is now widely recognised that there is a major shortfall of affordable housing in most cities and many regional and rural communities across Australia. The Inner West Council local government area (LGA) is no exception in this regard. It is also suffering from a shortfall of affordable housing. Research commissioned by Council reveals a large, disproportionate and growing number of local people in housing stress. This research shows that the market is not providing affordable housing for the vast majority of very low, low and moderate income households in the LGA. Nor is the market replacing existing housing stock lost through gentrification and redevelopment that is affordable to these groups.

 

These findings provide clear justification for the Inner West Council to actively seek to increase the supply of affordable housing through its planning instruments and policies. Not only is this in keeping with Council’s legislative obligations e.g. Object 5(a)(viii) of the Environmental Planning and Assessment Act 1979 (NSW) relating to ‘the maintenance and provision of affordable housing’, but it is also in accordance with the former councils’ affordable housing policies and strategies. In order to contribute to the goal of achieving an increase in affordability for the target groups identified in the Policy, the strategy recommends stronger intervention through the planning system in the form of mechanisms to capture an equitable share of land value uplift, together with mandatory contributions or inclusionary zoning in larger development sites within the LGA and in major State redevelopment projects.

 

This report presents the feedback and submissions received by Council during the public exhibition period and recommends that Council adopts the Affordable Housing Policy and the Position Paper: Best Practice in Value Capture as provided in ATTACHMENT 1 and ATTACHMENT 2.

 

RECOMMENDATION

 

THAT Council:

 

1.   Adopts the Affordable Housing Policy and the Position Paper: Best Practice in Value Capture; and

2.   Submits the following recommended notice of motion to the National General Assembly (NGA) of Local Government (18-21 June 2017) to be held in Canberra, namely that the Federal Government give urgent consideration to measures to improve housing affordability in areas effected by high levels of housing stress such as Sydney's Inner West, including taxation and other non-supply side mechanisms that are currently inadequately utilised in initiatives to improve housing affordability.

 

 

BACKGROUND

In early 2016 it was evident that State urban renewal projects, together with major planning proposals within the Inner West LGA, had the capacity to generate affordable housing on a reasonably significant scale through inclusionary zoning measures. Given the development pipeline, combined with the imperative for Council to lobby (a) the State government with respect to proposed urban renewal projects and (b) the Greater Sydney Commission during its preparation of the draft District Plans at the time, it was considered urgent to develop an affordable housing policy based upon a credible evidence base.

 

Consequently Judith Stubbs and Associates were commissioned to prepare an Affordable Housing Policy for Inner West Council. A Background Paper (ATTACHMENT 3) and a Position Paper on Best Practice in Value Capture were produced to provide a land value capture model and evidence base for the Policy. While originally focused on the former LGA of Marrickville, following the amalgamation on 12 May 2016, the research was extended to include data and modelling from the former LGAs of Ashfield and Leichhardt.

 

DISCUSSION

Key findings of the research underpinning the Policy include the following:

 

·      The Inner West LGA has experienced some of the most rapid real increases in housing prices (rental and purchase) over the past decade, with accelerating trends in recent years. Even the lowest priced strata dwellings are no longer affordable to very low and low income households, and are generally affordable only to the upper end of the moderate income band.

 

·      This is leading to serious impacts on the social and economic fabric of the local community:

 

A large, disproportionate and growing number of local people are in housing stress, and sacrificing basic necessities to pay for their housing costs;

There is a considerable displacement of historical populations through ongoing gentrification and non-replacement of affordable and lower cost housing; and

There are very high current and projected levels of unmet need for affordable housing for low income emergency and service sector workers, as well as for more vulnerable groups such as aged pensioners and people with a disability.

 

The socio-economic research strongly indicates that virtually no new housing constructed in the future will be affordable to any very low or low income households, or to moderate income families, without strong intervention through the planning system to capture a reasonable share of land value uplift. Importantly, the economic modelling indicates that there will be significant land value uplift associated with rezoning across the LGA, particularly in larger brownfield sites and State urban renewal projects. Capturing a share of land value uplift before rezoning occurs is reasonable and feasible. It is important to stress that this is not a tax. Rather, it is a mechanism for capturing a reasonable share of the unearned increment in land value uplift created through the planning actions of councils and the State government.

 

The Policy contends that such value can be captured through voluntary planning agreements negotiated prior to rezoning (voluntary contributions) or through State Government allowing Council to be included under the provisions of State Environmental Policy No 70 (Affordable Housing) (mandatory contributions). Each of these mechanisms is addressed in the Policy. Feasible levels of benefit capture in relation to variations to height and floor space ratio (FSR) are also included in the Policy. The Policy also acknowledges that proposals to amend or exceed planning controls under a planning agreement will need to demonstrate that they have merit in their own right, prior to considering any contribution for a public purpose including affordable housing. As well, the evidence base for the Policy indicates that the implementation of value capture through the method of calculation recommended will not adversely impact on development feasibility and takes into account normal development profit margins.

 

AFFORDABLE HOUSING TARGETS

It is important to emphasise that a primary objective of the Policy is to determine feasible affordable housing contributions in relation to redevelopment costs across the local government area. Recommending certain density levels by postcode was not part of the Policy’s purpose. Rather it is Council’s existing LEPs associated with the former councils of Ashfield, Marrickville and Leichhardt that set out both the aims of local environmental planning provisions for land as well as the kinds of redevelopment and densities permitted within the LGA. In addition, variations to existing planning controls is a matter for Council to determine in keeping with local environmental planning provisions and identified local heritage values.

 

In keeping with this primary objective, the Policy establishes that Mandatory Affordable Housing Contributions will apply in the case of a proposed rezoning or amendment to planning controls that Council determines will allow for additional density within a site or precinct. Mandatory contributions will apply to all new release areas, brownfield and infill sites, and major private and public redevelopments, including on State government land and in State urban renewal precincts, including zones within the Parramatta Road Urban Transformation Strategy and the Sydenham to Bankstown Urban Renewal Corridor that fall within Council’s boundaries. With respect to Mandatory Affordable Housing Contributions, Council’s share of land value uplift will be taken as 15% of Gross Floor Area, both residential and commercial, of the development for development projects with a Gross Floor Area of 1,700sqm or greater, or where a development results in 20 or more dwellings. The rate of contributions reflects the relatively high land value uplift associated with inner city renewal areas amid rapid gentrification.

 

In addition, Council has determined that the Bays Precinct will be subject to a 30% Affordable Housing Contribution, subject to further feasibility analysis. (Refer to pages 11, 12, 17 and 18 of the Policy).

 

EXHIBITION PERIOD AND PUBLIC SUBMISSIONS

The exhibition period for the Affordable Housing Policy started on 11 December 2016 and ended on 13 February 2017. A total of 29 submissions were received during the exhibition period. An additional four submissions were received up until 14 March 2017. Of all 33 submissions received, 79% supported the Policy while 21% did not support the Policy.

 

Council thanks all individuals, groups and stakeholders who lodged submissions on the Policy. A wide range of constructive views, queries and recommendations were received and these have been considered during the preparation of the Policy’s final draft.

 

RESPONSES TO PUBLIC SUBMISSIONS

The document Report on Public Submissions (ATTACHMENT 4) provides responses to observations, concerns and recommendations contained in the 33 submissions. Separate submissions and attachments submitted to Council are at ATTACHMENT 5. Below is a sample of these key observations, concerns and recommendations:

 


 

Supportive of the Policy (79%)

Not Supportive of the Policy (21%)

“This is an essential policy for Council.”

“There needs to be a clearer definition and evidence of hardship”

“There is a need for diversity in a healthy, ethical and vibrant community.”

By “mentioning 6 and 14 storeys … in the Haberfield, it is an acknowledgement that such (developments) might be permitted”.

The Policy “is highly relevant for the rapid price escalations taking place in both the housing purchase and rental markets across the inner west.”

“The real issue is declining home ownership rates which this policy fails to address.”

“I support the affordable housing targets but would like to see them even higher.”

“The council’s proposed affordable housing targets should be reduced and not exceed the recommended 5-10 percent target.”

“Council needs a commitment to provide affordable housing. Notably to single parents who work in the local area.”

The Policy “considers Redfern-type 14-storey towers for places like Dulwich Hill which is entirely out of character and inappropriate.”

The policy “is too narrow in that adopts no position on the taxation system” e.g “capital  gains taxation and the removal of subsidies such as negative gearing.”

“If Council is to truly represent the views of residents, consultation on issues of such importance must be authentic.”

“(W)ell designed affordable housing and plenty of green space is essential if our community is to thrive.”

“Council should be lobbying the State and Federal governments to undertake other measures to ensure affordable housing and discourage the speculative property investment which is leading to unchecked population growth.”

The Policy contributes “to a socially richer and more diverse community, as well as maintaining housing opportunities for vulnerable groups and workers in essential/community sectors.”

“If the 15% target is adopted, then by the council's own words, there is only one known urban form outcome for the suburb - 14 storey towers in current low density streets. We consider any affordable housing benefits gained from this outcome to be significantly outweighed by the permanent destruction of the area's history, character and community.”

The Policy “should apply for medium and small developments also.”

“(T)he council could lobby government to extend its powers and the scope of this policy in regard to existing housing.”

“I support, but am also conscious of young families like my own, who desire to remain in the area, but not in a unit, rather a home.”

“Overall, the draft policy adopts only supply-side policies to support housing affordability, but not policies to reduce demand or change broader policy settings.”

“We need options and affordable decent places to keep this area vibrant and liveable and retain sense of community.”

The “policy will be counterproductive in the supply of affordable housing. It will be a burden on developers and land owners for the reasons stated and will inevitably lead to a loss of employment generating land.”

The Policy requires “a clearer outline of its affordable housing targets.”

 

“The Federation is pleased to see that the IWC focus on measures to increase the supply of affordable rental housing, have recognised the need to include essential workers on moderate incomes in the households who should be assisted and have underpinned their policy by sound research.”

 

 


 

SUPPLEMENTARY STRATEGIES AND ACTIONS

On 6 December 2016, Council passed a resolution endorsing the draft Affordable Housing Policy and the Position Paper: Best Practice in Value Capture. Item 7 of this resolution commits Council to preparing a “5-10 year housing action plan to implement the Affordable Housing Policy (AHP) based on the Policy’s background data and Best Practice in Value Capture position paper, and drawing on existing Council research and plans.” Leichhardt Council’s Housing Action Plan 2016 -2025 forms an essential part of existing research and plans.  ATTACHMENT 6 Supplementary Strategies and Actions provides an assessment of all actions contained in former Leichhardt Council’s Housing Action Plan.

 

FINANCIAL IMPLICATIONS

(1)  The current Affordable Housing Officer (AHO) was employed on a temporary basis by Marrickville Council for two days a week for a two year period.  The amalgamation has resulted in a considerable expansion of this officer’s workload as the position’s responsibilities for policy and program development related to affordable housing, boarding houses, management of Council’s affordable housing units and homelessness now covers the Inner West Council LGA. Likewise the proposed 5-10 year Housing Action Plan will require extra resources to implement. The AHO is responsible for the management of Council’s Affordable Rental Housing Program, which will expand in the future. 

(2)  On 6 December, 2016 Council adopted the following resolution (item 11):

That Council “allocates funds to undertake an integrated communication strategy to promote the Affordable Housing Policy, including the organisation of a community forum in 2017”.  The allocation of funds for this strategy has yet to be determined.

 

OTHER STAFF COMMENTS

The development of this Policy has involved ongoing consultation and input from a range of staff across the Inner West Council.

 

PUBLIC CONSULTATION

The public were invited to make submissions on the Policy via Council’s online submissions form during the public exhibition period.  Along with this form, access to the three documents comprising the Policy as well as an outline of the Policy’s rationale were made available on Council’s ‘Have Your Say’ webpage. During the exhibition period, the webpage received a total of 676 visits while document downloads totalled 300.  A media release about the Policy being on public exhibition was issued on 16 December 2016. Council also advertised the exhibition period in its eNews editions between December 2016 and February 2017. A presentation on the Policy was made by consultant, Dr Judith Stubbs, to a Joint Local Representation Advisory Committee (LRAC) meeting on 20 September 2016. Various inquiries about the Policy from residents, developers and stakeholders were also responded to by the Affordable Housing Officer and Council’s Consultant during and after the public exhibition period.

 

CONCLUSION

As indicated above, the substantial evidence showing a growing number of local people in housing stress together with current and projected levels of unmet need for affordable housing, provides a significant evidence base to justify Council actively seeking an increase in the supply of affordable housing. The Affordable Housing Policy’s support for stronger interventions in the form of value capture, inclusionary zoning and development partnerships, offers Council the best means of increasing housing affordability for very low to moderate income households in the community.

 

 

 

ATTACHMENTS

1.

Attachment 1 Inner West Council Affordable Housing Policy 16032017

2.

Attachment 2 Best Practice in Value Capture 20161125

3.

Attachment 3  Background Paper Affordable Housing Policy 20161125

4.

Attachment 4 Report on Public Submissions

5.

Attachment 5 Attachments to Public Submissions Received

6.

Attachment 6 Supplementary Strategies and Actions

  


Header Logo

Council Meeting

28 March 2017

 

 

 

 

 

 

 

Affordable Housing Policy

 

 

 

 

 

 

 

 

 

March 2017



Header Logo

Council Meeting

28 March 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepared for Inner West Council by Judith Stubbs and Associates

 

Published by Inner West Council

Email: council@innerwest.nsw.gov.au

http://www.innerwest.nsw.gov.au/

 

Copyright © Inner West Council 2017

 

ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior consent of the publishers.


 

 

Table of Contents

 

Contents

1..... PART A: Rationale for Use of Strong Planning Intervention to Create Affordable Housing  4

1.1        Overview   4

1.2..... What is Affordable Housing?  4

1.3..... Why does affordable housing matter?  5

1.4..... Gentrification and Social Exclusion  6

1.5..... Current Lack of Affordable Housing  7

1.6..... Likely Future Lack of Housing Affordability  8

1.7..... Rationale for Capturing Land Value Increment through Relevant Planning Mechanisms  9

1.8..... Key Considerations in Land Value Capture  10

1.9..... Council’s Obligations, Opportunities and Constraints under Relevant Legislation  11

1.10... Reasonableness and Feasibility of Mechanisms  12

2..... PART B: HOUSING POLICY   14

2.1        Housing Goal 14

2.2..... Affordable Housing Definition  14

2.3        Target Groups  15

2.4        Priority Strategies  15

2.5..... Pursue Planning Controls that Support Existing and New Supplies of Affordable Housing  16

2.6..... Partnerships to Increase Affordable Housing  20

2.7..... SEPP Affordable Rental Housing  20

2.8..... Research and Monitoring  21

2.9..... Key Performance Indicators  21

2.10     Administration  23

Appendix A: Marginal Uplift from Increased Height and/or Density  24

Overview   24

Modelling (Additional Saleable Floor Area) 24

 

 

 

 

 

1        PART A: Rationale for Use of Strong Planning Intervention to Create Affordable Housing

1.1  Overview

Part A of this document sets out background information that provides a context to Council’s Affordable Housing Policy, set out in Part B below.  It sets out a definition and benchmarks for affordable housing in accordance with relevant legislation, and summarises research and analysis from JSA’s (2016) Affordable Housing Background Paper, which provide a clear rationale for this policy. The reader is also referred to JSA’s (2016) Position Paper: Best Practice in Value Capture for further rational. The Policy is also informed by the former Marrickville Council’s (2015) Marrickville Housing Profile, and the former Leichhardt Council’s (2011) Affordable Housing Strategy, and Strategic Action Plan.

The evidence indicates that there is clear justification for Inner West Council to actively seek to increase the supply of affordable housing through its planning instruments and policies. This is related to the large, disproportionate and growing number of local people in housing stress; the displacement of historical populations through ongoing gentrification and non-replacement of affordable housing lost; current and projected levels of unmet need for affordable housing including for key workers and more vulnerable groups; and the amount of unearned land increment (land value uplift) created through the operation of Council’s planning and approvals processes, some of which may reasonably be contributed to affordable housing as key infrastructure or a public purpose under a voluntary planning agreement or other legal mechanism.

Due to the failure of the market to provide affordable housing for very low and low income households, and for many moderate income households, this Policy principally focuses on strong interventions through the planning system and the direct creation of affordable housing on public land through development and management partnerships as these are virtually the only way to create affordable housing in most areas of Inner West Council area.

Council notes that proposals to amend or exceed planning controls under a planning agreement will need to demonstrate that they have merit in their own right, prior to considering any contribution for a public purpose including affordable housing.

1.2  What is Affordable Housing?

Housing is generally considered to be ‘affordable’ when households that are renting or purchasing are able to meet their housing costs and still have sufficient income to pay for other basic needs such as food, clothing, transport, medical care and education.

‘Affordable housing’ has a statutory definition under the NSW Environmental Planning and Assessment Act 1979 (NSW), being housing for very low, low or moderate income households, where ‘very low-income’ households as those on less than 50% of median household income; ‘low-income’ households’ as those on 50-80% of median household income, and ‘moderate-income’ households as those on 80-120% of median household income for Sydney SD.[1] 

As a commonly used rule of thumb, housing is considered to be affordable where households pay no more than 30% of their gross household income on their rent or mortgage payments. This is often regarded as the point at which such households are at risk of having insufficient income to meet other living costs, and deemed to be in ‘housing stress’. Those paying more than 50% of gross income are regarded as being in ‘severe housing stress’. 

The following table provides benchmarks that are used in this policy when referring to ‘affordable housing’, in 2016 dollars, and are consistent with relevant NSW legislation. These vales should be indexed quarterly.

 

·                     Table 1.1: Affordable Housing Income and Cost Benchmarks

 

Very low-income household

Low-income

household

Moderate-income household

Income                     Benchmark

<50% of Gross                   Median H/H Income                            for Greater Sydney

50-80% of Gross                            Median H/H Income                     for Greater Sydney

80%-120% of Gross                  Median H/H Income                       for Greater Sydney

Income Range (2)

<$783                                           per week

$784-$1,253                                per week

$1,253-$1,879                               per week

Affordable Rental Benchmarks (3)

<$235                                            per week

$236-$376                                    per week

$377-$564                                         per week

Affordable Purchase Benchmarks (4)

<$228,000

$228,001-                              $364,000

$364,001-                               $545,000

Source: JSA 2016, based on data from ABS (2011) Census indexed to March Quarter 2016 dollars

(1)    All values reported are in March Quarter 2016 dollars

(2)    Total weekly household income

(3)    Calculated as 30% of total household income

(4)    Calculated using ANZ Loan Repayment Calculator, using 4 January 2016 interest rate (5.37%) and assuming a 20% deposit for a 30 year ANZ Standard Variable Home Loan and 30% of total household income as repayments.

1.3  Why does affordable housing matter?

There is a common misconception that ‘affordable housing’ refers only to social (public or community) housing. However, many current and future residents facing affordability problems in the Inner West Council area are likely to fall outside the eligibility criteria for such housing.

This includes a young person seeking to live near where they grew up, a recently separated or divorced person with children for whom conventional home ownership may no longer be economically viable, households dependent on one (or even two) low or median waged, key worker jobs, or an older person on a reduced retirement income.

Lack of affordable housing not only affects the quality of life of individual families, who may be sacrificing basic necessities to pay for their housing. It also has a serious impact on employment growth and economic development. The loss of young families and workers in lower paid essential service jobs can adversely affect local economies, and is contributing to labour shortages in some areas of metropolitan Sydney.

This can contribute to a lack of labour supply among ‘key workers’ who are essential to various services including childcare, aged services, health care, tourism, hospitality and emergency services, but whose wage increasingly does not allow them to access rental or purchase housing close to where they work. Affordably priced housing is thus an important form of community infrastructure that supports community wellbeing and social and economic sustainability, including a diverse labour market and economy, and strong and inclusive communities. Despite this, the most compelling need for affordable housing remains with very and low income renters.

Finally, the location of affordable housing is a key issue in terms of social equity and sustainability. Providing for a mix of affordable housing for different target groups in well-located areas provides for social mix and reduces the potential stigma that can be associated with such accommodation. Locating such housing close to transport and services also provides for the needs of key groups including those with a disability and the frail aged, reduces car dependency and the cost of transport, which can be a significant impost on very low, low and moderate income households[2] and on the environment.

1.4  Gentrification and Social Exclusion

The ongoing loss and non-replacement of affordable housing through gentrification and redevelopment, and the current and projected degree of unmet housing need in the Inner West Council area provides a strong rationale for intervention in the housing market through the planning system.  

The analysis of key socio-economic indicators provides clear evidence of significant demographic change, rapid gentrification and displacement and exclusion of more disadvantaged and vulnerable people from the Inner West Council area over at least the past decade in the former Marrickville and Ashfield LGAs, and for at least two decades in the case of Leichhardt LGA; and the failure of the market to provide for the needs of very low, low and moderate income key workers and other more vulnerable groups in an increasingly expensive housing market.

The more recent gentrification of areas like Sydenham-Tempe-St Peters, Ashfield and Dulwich Hill-Lewisham, and the longer-term displacement of more disadvantaged people from areas like Newtown, Petersham and Balmain, are particularly evident from the research that supports this Policy. The loss of very low income households in the Inner West LGA was four times greater than that for Greater Sydney from 2001-11, with the former Leichhardt LGA experiencing the greatest proportional losses of lower income households. Overall, the former Marrickville LGA has experienced the most rapid gentrification in recent years, although the former Leichardt is the most ‘gentrified’ in terms of income, education and occupational status of its residents, having experienced major social change over a far longer timeframe. The ongoing loss of lower income and younger key workers is an issue across the LGA.

The very high rate of housing stress among very low and low income households is also a key consideration, in particular the increasing rates of housing stress over the past decade among low and moderate income households in suburbs that were once more affordable. Together with mobility data, which shows the movement of lower income households and lower status workers out of the LGA in search of more affordable housing, the high rate of homelessness and the relatively low rate of social housing (3.5% in the Inner West LGA compared with 5% for Greater Sydney), provides a compelling rationale for intervening in the market to create affordable housing through the planning system.

1.5      Current Lack of Affordable Housing  

The market is not providing affordable housing for the vast majority of very low, low and moderate income households who need it in the Inner West Council area, and is not replacing existing stock of housing that is affordable to these groups as it lost through gentrification and redevelopment. 

Virtually no strata products (the lowest cost form of accommodation) are affordable for purchase through the market for very low, low and moderate income households anywhere in the LGA. At best, some small strata products in cheaper areas may be affordable to the very top of the moderate income band. No houses or two or three bedroom strata dwellings are affordable to any very low, low or moderate income households, so that families with children are entirely excluded from affordable purchase in the LGA.

The vast majority of households needing affordable rental housing in the LGA are also excluded from affordable rental through the market. The only affordable option for very low income households are lower amenity boarding house rooms in a few suburbs; while low income renters can only affordably rent a studio or one bedroom apartment in a few suburbs. Moderate income renters can affordably rent a two bedroom apartment in some suburbs, and so are somewhat better catered for, but again family households with children are excluded from larger housing options.

Given that the cost of new build products are likely to reflect the third quartile of existing products, and that there have been significant increases in housing cost in real terms in recent years, it is likely that housing will become even more unaffordable in the LGA in the future.

The evidence indicates that the vast majority of those needing affordable purchase and rental housing in the LGA are unlikely to have their needs met through the market without strong planning intervention to create affordable housing.

1.6      Likely Future Lack of Housing Affordability 

Section 3.3 of Council’s Affordable Housing Background Report (JSA 2016) provides an analysis of how likely it is that the market could provide affordable housing in the future, and what planning interventions through the market would most likely be effective in this regard. 

Importantly, the analysis indicates that it is unlikely that any separate house will be affordable in the Inner West Council area in the future, and in any case, there are limited development opportunities for such products, with the best predictor of the price of strata dwellings being the strata area from the linear regression analysis (see Table 3.2 in Council’s Affordable Housing Background Report (JSA 2016) for detailed analysis).

However, even under more optimistic scenarios (in particular, reduced strata area, parking and one bathroom), modelling indicates that, even with planning intervention to encourage or mandate such dwellings, all very low income and low income households are likely to be excluded from affordable purchase in the Inner West LGA in the future.  Given recent real increases in rents, and the relationship between rates of return on purchase costs and rents charged, the situation for very low, low and moderate income renters is expected to worsen in the future.

Moderate income households would have somewhat more choice in relation to the affordability of studio and smaller one bedroom apartments, and boarding house accommodation, but again most of this income group including moderate income families would be excluded from affordable purchase in the future.

Nonetheless, specifying a proportion of minimum sized studio, one bedroom and two bedroom apartments without parking in multi dwelling housing and apartment developments is likely to provide affordable purchase accommodation in some suburbs, and will provide lower cost purchase accommodation in other areas.  As around 60% of privately occupied apartments enter the private rental market,[3] such stock is likely to add to the stock of affordable and lower cost rental accommodation.

Stronger intervention through the planning system in the form of mechanisms to capture an equitable share of land value uplift, as well as the direct creation of affordable housing on public land through development partnerships, is likely to be required to achieve affordability for the vast majority of relevant target groups, in particular all very low and low income households, and moderate income family households.

1.7  Rationale for Capturing Land Value Increment through Relevant Planning Mechanisms

 

As noted, there is clear justification for Council to actively seek to increase the supply of affordable housing through its planning powers based on housing need, loss and non-replacement of affordable housing, and the failure of the market to provide such housing in the local housing market context.

Increased competition for land and housing resources through household formation, demographic change and in-migration of wealthier groups will continue to exacerbate affordable housing need in the future. As with the need for other infrastructure and public amenities and services arising from re/development, continued pressure will lead to increased housing stress and displacement of very low, low and moderate income workers and residents in the future. 

An opportunity to create affordable housing exists through the proper use of Council’s planning powers under the NSW Environmental Planning and Assessment Act 1979 (the Act). In particular, the capture of a reasonable and equitable share of land value uplift created through the planning and development approval process is justified in the local housing market context.

A relevant definition of land value capture is provided by Taylor (2016) in the NSW planning context, that is,

In the broadest terms, [land] value capture in relation to urban land development involves a planning authority, such as local council in NSW, capturing for the community benefit some of the land value increase accruing to a parcel of land from planning activities of the authority which increase the development potential of the land and hence its value.[4]

Two broad approaches to land value capture are relevant to this policy, these being, ‘approaches intended to recover the cost of infrastructure investments and broader approaches intended to capture some share of the unearned increment in private land values [emphasis added], with the first exemplified by s94 approaches that seek to internalise the costs or impacts of the development; and the second found in mechanisms such as voluntary planning agreements under s93F of the Act, and variations to controls under clause 4.6 applications, which seek to capture a reasonable share of uplift.

It is important to note that land value capture arising from government planning actions, and in the way in which it is implemented in this policy, is not a form of taxation. Rather, the fundamental purpose of value capture is to clawback, or to gain a reasonable share, of the increased land value on the basis of a legitimate claim by the planning authority to share the ‘unearned increment’ of land value uplift that results from its planning actions for use by the community as a public purpose.[5] Depending on the relative scarcity of land, and considerations of amenity around the land rezoned, the increase in value may be greater or lesser. 

While, in a free market, economics would predict that the profit would be a ‘normal profit’ (generally considered as 10%[6]), the supply of residential land does not operate within a free market. Supply is essentially rationed, firstly, by the planning process, and secondly, by the timed release of land by developers to maximise profit.  As a result, the actual profit may be well in excess of normal levels of profit or private benefit, and must be calculated within each local market or submarket context.

1.8  Key Considerations in Land Value Capture

Key considerations for implementing value capture schemes, which could be considered as best practice in the development of this policy,[7] include the following:

·    Justification – where the planning authority has or will increase the value of land through its actions, and the community is entitled to a share of the resulting uplift;

·    Entitlement – the proper objective of which is to identifying the unearned increment in land value uplift resulting from any planning proposal and to decide the community’s legitimate claim to a share of it;

·    Calculation - how the land value increase should be calculated for value capture purposes, noting that a residual land value analysis should generally apply;

·    Development feasibility – that the implementation of value capture should not adversely impact on development feasibility by denying the developer a reasonable share of development profit;

·    Timing - in consideration of reasonableness and equity, the value capture requirement should apply to land acquired for redevelopment after a nominated date related to the implementation of the policy.

1.9      Council’s Obligations, Opportunities and Constraints under Relevant Legislation

Appendix A of Council’s Best Practice in Value Capture Position Paper (JSA 2016) sets out a review of the legislative obligations, opportunities and constraints for local government in the creation of affordable housing through the planning system. 

As noted, Council has an obligation to actively engage with affordable housing, including in accordance with Object 5(a)(viii) of the Environmental Planning and Assessment Act 1979 (NSW) – ‘the maintenance and provision of affordable housing.’

There are two main mechanisms that can legitimately be used to capture a reasonable proportion of uplift from planning actions in the NSW planning context. 

·    Council can legally enter into voluntary planning agreements that include the dedication of land free of cost, the payment of a monetary contribution, or provision of any other material public benefit, or any combination of these, to be used for or applied towards a public purpose, including ‘affordable housing’ under s93F of the Act, noting that nexus requirements do not apply. Such planning agreements can be made, for example, with respect to the capture of a reasonable share of additional land value that has resulted from a proposal to rezone or otherwise vary planning controls that would normally apply to a site or within a precinct under planning proposals and applications for clause 4.6 variations. 

The use of this mechanism would require a transparent policy including method of calculation, areas to which it applies, collection and accountability mechanisms, etc, and would also likely need to be set out in detail in amendments to Council’s existing Planning Agreements Policy, noting that such proposals would need to demonstrate merit in their own right;

·    Alternately, or in addition, Council can seek State Government approval for Council (or the State Government) to levy a contribution toward affordable housing under s94F of the Act where there is a major up-zoning or rezoning under the LEP, given the demonstrated need for affordable housing in the LGA. The use of this mechanism would require ministerial approval for either:  

An amendment to SEPP 70 (Affordable Housing), as well as relevant amendments to Council’s LEP, which would need to set out the geographic areas of inclusion, the quantum and basis of calculations, etc, like those in City of Sydney and Willoughby LEPs (noting that this has now been supported in the GSC’s Central District Plan); or

The development of a special contributions plan by the State Government like that developed in relation to the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006. This would require legislative support, noting that such support is provided in the case of Redfern Waterloo under s30 of the Redfern-Waterloo Authority Act 2004  (see Appendix A of Council’s Affordable Housing Background Report (JSA 2016) for detail).

1.10    Reasonableness and Feasibility of Mechanisms

The evidence provided in background reports to this Policy indicates that Council is justified in seeking to capture a share of unearned land value uplift arising from the planning and development approvals process in the LGA; and that it is reasonable to do so due to the nature and severity of unmet affordable housing need arising from ongoing gentrification and redevelopment, and the failure of the market to replace such housing or to provide for the needs of most very low, low and moderate income households.

Evidence reported in Section 4 of the Affordable Housing Background Paper (JSA 2016), and Section 7 of the Position Paper: Best Practice in Value Capture (JSA 2016) also indicates that the implementation of value capture through the method of calculation described in this policy will not adversely impact on development feasibility, and takes into account normal development profit. 

The modelling provides evidence of significant value uplift associated with redevelopment of existing industrial land and housing for higher density development throughout the LGA, including value uplift associated with up-zoning of the three relevant precincts within the Sydenham to Bankstown Urban Renewal Corridor and precincts within the Parramatta Road Urban Transformation Area. It also provides evidence of significant uplift associated with variations to planning controls within a number of areas of the LGA.

As such, the Policy provides for a 15% Affordable Housing Contribution within new release areas, brownfield and infill sites, and major private and public redevelopments, including on State Government land and in State urban renewal projects, including precincts within the Parramatta Rd Urban Transformation Area and the Sydenham to Bankstown Urban Renewal Corridor that are within the Inner West Council area. The Policy will apply to such land that is subject to rezoning or amendment to planning controls that provide for increased density. Further, the Policy will apply to proposed developments comprised of 20 or more dwellings or that have a Gross Floor Area of 1,700m2 or greater across the LGA.

Modelling and research indicates that the most likely areas that will experience redevelopment will be older industrial areas and areas of lower quality commercial development, and that developments will generally be able to sustain a 15% levy without adversely affecting redevelopment. However, economic modelling also shows that some types of redevelopment may be adversely affected by a 15% levy, for example, mid-rise development on smaller lots. Therefore, a threshold of 20 units, or 1,700m2 Gross Floor Area[8] has been selected as a development that is of sufficient scale to generally avoid such development disincentives.[9]

Further, although a minority of precincts modelled may face redevelopment constraints currently, the rapid increase in land values in recent years indicates that areas that are not as feasible are likely to become so within a reasonable timeframe.

These findings provide a strong justification for value capture associated with incentive-based or voluntary planning agreement approaches in association with redevelopment, as well as for mandatory contributions or inclusionary zoning across the LGA, including in urban renewal precincts. Further analysis provided at Section 8 of Position Paper: Best Practice in Value Capture (JSA 2016) and Section 5 of the Background Paper (JSA 2016) also indicates that development feasibility will generally not be affected by the implementation of this Policy.

 

 

2       
PART B: HOUSING POLICY

2.1      Housing Goal

The overarching goal of Council’s Affordable Housing Policy is:

To facilitate the provision of affordable housing options within the Inner West Council area to meet the needs of very low, low and moderate income households so as to promote diversity, equity, liveability and sustainability.  

2.2      Affordable Housing Definition

In accordance with the statutory definition under the NSW Environmental Planning and Assessment Act 1979 (NSW), Table 2-1 provides benchmarks that are used in this policy when referring to ‘affordable housing’. These will be indexed quarterly and as Census data becomes available.

·                     Table 2.1: Affordable Housing Income and Cost Benchmarks

 

Very low-income household

Low-income

household

Moderate-income household

Income                     Benchmark

<50% of Gross                   Median H/H Income                            for Greater Sydney

50-80% of Gross                            Median H/H Income                     for Greater Sydney

80%-120% of Gross                  Median H/H Income                       for Greater Sydney

Income Range (2)

<$783                                           per week

$784-$1,253                                per week

$1,253-$1,879                               per week

Affordable Rental Benchmarks (3)

<$235                                            per week

$236-$376                                    per week

$377-$564                                         per week

Affordable Purchase Benchmarks (4)

<$228,000

$228,001-                              $364,000

$364,001-                               $545,000

Source: JSA 2016, based on data from ABS (2011) Census indexed to March Quarter 2016 dollars

(1)    All values reported are in March Quarter 2016 dollars

(2)    Total weekly household income

(3)    Calculated as 30% of total household income

(4)    Calculated using ANZ Loan Repayment Calculator, using 4 January 2016 interest rate (5.37%) and assuming a 20% deposit for a 30 year ANZ Standard Variable Home Loan and 30% of total household income as repayments.

 

2.3      Target Groups

Council is committed to protecting and increasing the supply of housing stock that can be affordably rented or purchased by very low, low, and moderate income households, including target groups identified as having particular housing needs in the Inner West Council area. These include:

·    Very low and low income renting households;

·    Very low, low and moderate income key workers;

·    Asset poor older people, including long-term residents of the LGA;

·    Young people, including those with a social or economic association with the LGA;

·    Lower income families including sole parent families and those totally priced out of the housing market;

·    People with special housing or access needs, including people with a disability, frail aged people, those at risk of homelessness, Aboriginal and Torres Strait Islanders and people from culturally and linguistically diverse communities.

 

2.4      Priority Strategies

Constituent councils of Inner West Council have set out a range of affordable housing priority strategies to ensure that the LGA provides affordable housing options to meet the needs of the community.[10]  Broadly, these include:

1.   To research and develop strategies to increase affordable housing supply;

2.   To encourage the provision of affordable, adaptable and diverse housing for very low, low and moderate income households, including those with special housing and access needs;

3.   To pursue planning controls that support existing and new supplies of affordable housing;

4.   To advocate for, and build partnerships to increase, affordable and liveable housing;

5.   To resist the loss of affordable housing and encourage the retention of existing affordable housing to maintain the socio-economic diversity within the LGA;

6.   To support people living in residential care and boarding houses and ensure boarding houses provide clean and healthy living environments;

7.  To raise awareness of affordable housing needs and issues to facilitate action.

Although each of these priority strategies is important, the focus of this Policy is on Priority Strategies 1 to 4 due to evidence that suggests that these will be by far the most effective strategies in the local housing market context.

 

2.5      Pursue Planning Controls that Support Existing and New Supplies of Affordable Housing

2.5.1      Market Delivery of Affordable Housing

Noting the evidence that the strata area of apartments is a relevant factor in cost, and in affordability for some of the target groups, for developments of ten or more apartments, Council will require 5% of apartments to be delivered as studio apartments with total strata area (including parking) less than 36 square metres, 5% of apartments to be delivered as one bedroom apartments with total strata area (including parking) less than 51 square metres, and 5% of apartments to be delivered as two bedroom apartments with total strata area (including parking) less than 71 square metres, with calculated numbers of apartments rounded up to the nearest whole number.[11]

Council will also facilitate the provision of lower cost and more affordable dwellings through ensuring that its planning controls do not unreasonably constrain the supply of genuinely affordable housing, including through provisions that encourage the development of larger, higher cost dwellings, constraints on lower cost housing types such as appropriately located secondary dwellings and other dwellings that can make a demonstrated contribution to affordable housing.

2.5.2      Sharing Land Value Uplift for Affordable Rental Housing  

Achieving an Equitable Share of Land Value Uplift

Noting the evidence from the research that very little affordable housing will, in reality, be provided through the market in most areas of the LGA, Council will seek to gain an equitable share of the land value uplift resulting from its planning actions, including major development applications, rezonings and variations to planning controls that would otherwise apply to a site or precinct, for the benefit of the community as Affordable Rental Housing.

Council will use mechanisms available to it, including voluntary planning agreements under s93F of the Environmental Planning and Assessment Act 1979 (NSW).

In accordance with key directions in the Greater Sydney Commission’s Central District Plan, Council will seek amendments to SEPP 70 — Affordable Housing (Revised Schemes), and make relevant amendments to its LEP, to enable the levying of Mandatory Development Contributions to create Affordable Rental Housing in perpetuity.[12]

Regardless of the mechanism used, Council will seek to apply equitable, reasonable, transparent and feasible contributions to affordable housing within the local housing market context.

In entering into such land value uplift sharing arrangements, Council will apply the following principles:

·    Justification – where the planning authority has or will increased the value of land through its actions, and the community is entitled to a share of the resulting uplift;

·    Entitlement – the proper objective of which is to identifying the unearned increment in land value uplift resulting from any planning proposal and to decide the community’s legitimate claim to a share of it;

·    Calculation - how the land value increase should be calculated for value capture purposes, noting that a residual land value analysis should generally apply;

·    Development feasibility – that the implementation of value capture should not adversely impact on development feasibility by denying the developer a reasonable share of development profit;

·    Timing - in consideration of reasonableness and equity, the value capture requirement should apply to land acquired for redevelopment after a nominated date related to the implementation of the policy.

 

Voluntary Planning Agreements under 93F of the Act

Proposals to which this Provision Applies 

When considering planning actions that result in an increase in residential and/or commercial floor area, Council will seek an equitable share of the land value uplift through a planning agreement under s93F of the Act. 

Planning agreements will be classified as either:

·    Marginal Planning Agreements, that is, a planning agreement made in relation to variations to existing controls, for example, a proposal for additional height or FSR under clause 4.6 of the LEP or ‘density bonus’ schemes; or

·    Major Planning Agreements, that is, a planning agreement made in the case of a proposed rezoning or amendment to planning controls that will allow for additional density within a site or precinct. Mandatory Contributions will apply to all new release areas, brownfield and infill sites, and major private and public redevelopments, including on State Government land and in State urban renewal projects, including precincts within the Parramatta Rd Urban Transformation Area and the Sydenham to Bankstown Urban Renewal Corridor that are within the Inner West Council area. The Policy will apply to proposed developments comprised of 20 or more dwellings or that have a Gross Floor Area of 1,700m2 or greater.

Method of Calculation

Marginal Planning Agreements

In the case of Marginal Planning Agreements, marginal gross floor area will be taken as the additional gross floor area available to the developer as a result of the planning action, compared to the area available without the planning action. Land is excluded from the calculation as the land value is assumed to be amortised within the existing planning controls.

The Council share of land value uplift will be taken as a share of the marginal gross floor area as shown as LVC% in Table A1 of Appendix A of this Study for the appropriate postcode area (see also Sections 7.2.2 and 8 of Council’s Value Capture Position Paper, and Sections 4.2, 4.3 and 5 of Council’s Affordable Housing Policy: Background Paper for method of calculation and underlying assumptions).

Generally, where a Marginal Planning Agreement results in an increase in saleable floor area, land value capture of 21% to 34% of the additional saleable floor area obtained as a result of the Planning Agreement is warranted with regard to the evidence in the supporting studies.

Major Planning Agreements

In the interest of consistency and transparency, Council will apply a consistent share of land value uplift across the Inner West LGA to create Affordable Rental Housing in perpetuity.

In the case of Major Planning Agreements, the Council share of land value uplift will be taken as 15% of Gross Floor Area of the development for developments with a Gross Floor Area of 1,700m2 or greater, or where a development results in 20 or more dwellings. The rate of contributions reflects the relatively high land value uplift associated with inner city renewal areas amid rapid gentrification.

The rationale for this share of land value uplift is set out in Appendix B to this Policy, supported by assumptions and calculations set out in Section 7.2.2 and Table 7.1 of Council’s Value Capture Position Paper, and Section 4.2 and Table 4.1 of Council’s Affordable Housing Policy Background Paper.

An assessment of likely impact on development feasibility on a precinct by precinct basis is also provided at Section 8 of the Value Capture Paper, and Section 5 of the Background Paper.  

Mandatory Affordable Housing Contributions

In accordance with key directions in the Greater Sydney Commission’s Central District Plan, Council will seek amendments to SEPP 70 — Affordable Housing (Revised Schemes), and make relevant amendments to its LEP, to enable the levying of Mandatory Affordable Housing Contributions to create Affordable Rental Housing in perpetuity.[13]

Mandatory Affordable Housing Contributions will apply in the case of a proposed rezoning or amendment to planning controls that will allow for additional density within a site or precinct. Mandatory Contributions will apply to all new release areas, brownfield and infill sites, and major private and public redevelopments, including on State Government land and in State urban renewal projects, including precincts within the Parramatta Rd Urban Transformation Area and the Sydenham to Bankstown Urban Renewal Corridor that are within the Inner West Council area.

For the Mandatory Affordable Housing Contributions, Council’s share of land value uplift will be taken as 15% of Gross Floor Area of the development for developments with a Gross Floor Area of 1,700m2 or greater, or where a development results in 20 or more dwellings. The rate of contributions reflects the relatively high land value uplift associated with inner city renewal areas amid rapid gentrification.

The rationale for this share of land value uplift is set out in Appendix B to this Policy, supported by assumptions and calculations set out in Section 7.2.2 and Table 7.1 of Council’s Value Capture Position Paper, and Section 4.2 and Table 4.1 of Council’s Affordable Housing Policy Background Paper, and summarised in Section 1.10 above.

An assessment of likely impact on development feasibility on a precinct by precinct basis is also provided at Section 8 of the Value Capture Paper, and Section 5 of the Affordable Housing Policy Background Paper.  

In addition, Council has determined that The Bays urban renewal precinct will be subject to a 30% Affordable Housing Contribution, subject to further feasibility analysis.

 

Form of contributions

Contributions made under a Planning Agreement or as a Mandatory Affordable Housing Levy may be made in the form of apartments or a cash contributions, or a combination of the two. Council will determine the form of the contribution to be made.

Where the share of land value uplift is provided as apartments, Council will determine the size and number of bedrooms in accordance with its strategic priorities, and seek a mix of dwellings sizes and bedroom numbers. Title to apartments will be transferred to Council in perpetuity.

Where the share of land value uplift is provided as a cash contribution, Council will based the quantum of the contribution on the assessed market value of the floor area using recent sales data or as assessed by a property valuer designated by Council.

The contribution will be used to create Affordable Rental Housing in perpetuity, with the principal target groups being very low and low income renting households whose needs cannot be met through the market.

Review process

Council will review the outcomes of its Affordable Rental Housing mechanisms regularly, with the first review to be undertaken within two years of the Policy’s adoption.

Management

Affordable Rental Housing created will be managed by a registered Community Housing Provider.

2.6  Partnerships to Increase Affordable Housing

Council will seek to enter into affordable housing development and management partnerships with a relevant Community Housing Providers and/or the private sector to ensure:

·      The most effective and efficient use of resources created through planning mechanisms noted above;

·      Opportunities for the efficient use of any resources redeployed by Council (e.g. lots or housing dedicated to affordable housing from Council owned or other public land);

·      Protection of stock in perpetuity for affordable rental housing to meet the needs of the local community, and in particularly those identified as primary target groups for affordable housing in Council’s studies.

Council will ensure the proper management of affordable housing resources created through entering into an MOU or other legal agreement with an appropriate Community Housing Provider (CHP).

2.7  SEPP Affordable Rental Housing

Council will support appropriate applications for infill affordable housing, secondary dwellings and boarding houses under SEPP (Affordable Rental Housing) 2009

With regard to the character test in the SEPP, Council will advise applicants on relevant locational and design considerations to inform appropriate developments so as to facilitate locationally appropriate developments.

Council will develop guidelines to support the development of well-designed, affordable and appropriately designed boarding houses, including related to security of tenure, affordable rents, high quality management and design, and inclusive communities.   

Council will rigorously apply the provisions of the SEPP that seek to protect the remaining supply of affordable housing in the LGA, and implement a social impact assessment process that supports such retention.  

2.8  Research and Monitoring 

Inner West Council is committed to ongoing research into housing needs and issues in its local community, which will continue to form the basis of local housing policy formulation and implementation. 

Council understands the need for ongoing monitoring and evaluation of the effects of its policies on local housing needs and issues, and is committed to ongoing monitoring and evaluation against the KPIs set out below.

Council will regularly update the research that provides the evidence base for this Policy.

2.9      Key Performance Indicators

Council has identified indicators and targets with respect to Affordable Housing in the Inner West Council Area.  These are set out in the table below.

 

·                     Table 2.2: Affordable Housing Indicators and Targets

Indicator

Target

Data Source

Households in the lowest 40% of income distribution[14] in housing stress[15] as a proportion of all households in the lowest 40% of income distribution

10% maximum by 2031

ABS Census data

Rental housing stock that is affordable to very low, low and moderate income households as a proportion of all housing stock in the Inner West Council area

7.5% by 2031

NSW Centre for Affordable Housing. Local Government Housing Kit Database

Purchase housing stock that is affordable to very low, low and moderate income households as a proportion of all housing stock in the Inner West Council area

7.5% by 2031

NSW Centre for Affordable Housing. Local Government Housing Kit Database

Median house rental price

For monitoring

NSW Rent and Sales Report

Median apartment rental price

For monitoring

NSW Rent and Sales Report

Median house purchase price

For monitoring

NSW Rent and Sales Report

Median apartment purchase price

For monitoring

NSW Rent and Sales Report

The supply of social housing stock (public, community, co-operative and Aboriginal housing) as a proportion of all housing stock in the Inner West Council area

7.5% by 2031

NSW Centre for Affordable Housing Local Government Housing Kit Database

Retention of affordable housing stock through implementation of SEPPARH and SIA Policy

Successful actions to retain stock

Council records

The supply of dwellings in the Inner West Council’s affordable housing portfolio

Part of the 7.5% affordable housing target

Council data

Increase in the number of people living in boarding houses in the Inner West Council area

Part of the 7.5% affordable housing target

ABS Census data

Monitoring of the outcomes of the statutory review of the NSW Residential Tenancies Act 2010

Ongoing

NSW Tenants’ Union

Boarding house residents have the same tenure and rights as tenants have under the NSW Residential Tenancies Act 2010

2019

 

Boarding house tenants have adequate standard of accommodation and support

To be determined

 

Decrease in the number of households experiencing homelessness

Nil by 2031

ABS Census data

Source: Derived from (the former) Marrickville Council (2015) Marrickville Housing Profile

 

2.10    Administration

Council will set up a Trust Fund for the purpose of transparent and accountable management of public benefits captured, and will report annually. The Trust Fund will clearly differentiate funds or resources held for Affordable Housing, and account separately for these funds.

Council will develop a Program of Works including priorities for use of resources generated for Affordable Housing Dedications. This will be publicly available, and will also be reported upon annually as part of Council’s reporting requirements.

 

Appendix A: Marginal Uplift from Increased Height and/or Density

Overview

In many cases, developers will offer to enter into a voluntary planning agreement that allows for additional saleable Gross Floor Area through LEP clause 4.6 variations related to height or FSR.  Where such variations are found to have merit in their own right, and so warrant approval, Council may wish to capture some of the associated value uplift.  Assessment may be made on a case by case with value uplift estimated by land valuers and quantity surveyors or can be assessed on a proportional basis using averages.  An assessment on a proportional basis using averages is set out below.

The analysis is conducted on a marginal basis, that is only the additional costs and additional value are considered.  As such the purchase cost of the land, site costs and the like are ignored.

Where a Voluntary Planning Agreement results in an increase in saleable floor area, land value capture of 21% to 34% of the additional saleable floor area obtained as a result of the Voluntary Planning Agreement is warranted.

Modelling (Additional Saleable Floor Area)

The modelling below assesses the marginal value uplift and hence value capture from additional saleable floor area as a proportion of floor area, represented as apartments where value uplift in excess of a normal profit of 10% is shared 50:50 with the developer and a public purpose.  The land value capture is shown as a proportion of saleable floor area to allow for universal application.

The modelling uses assumptions as set out in Section 7.2.2 of Council’s Value Capture Position Paper and Section 4.2 of Council’s Affordable Housing Policy Background Paper.

 

Table A1: Potential Marginal uplift for Selected Post Codes

Marginal uplift ($ ’,000,000)

Suburb

Construction

cost per floor

sale price

Uplift

Uplift %

LVC %

2042 (Enmore/Newtown)

$1.67m

$3.18m

$1.50m

90%

21%

2044 (St Peters/ Sydenham/ Tempe)

$1.67m

$3.48m

$1.81m

108%

24%

2048 (Stanmore)

$1.67m

$3.15m

$1.47m

88%

21%

2049 (Lewisham/Petersham)

$1.67m

$3.53m

$1.85m

111%

24%

2050 (Camperdown)

$1.67m

$3.59m

$1.92m

115%

24%

2203 (Dulwich Hill)

$1.67m

$3.30m

$1.63m

98%

22%

2204 (Marrickville)

$1.67m

$3.20m

$1.53m

92%

21%

2038 (Annandale)

$1.67m

$3.20m

$1.53m

92%

21%

2131 (Ashfield)

$1.67m

$3.66m

$1.99m

119%

25%

2041 (Balmain, Balmain East, Birchgrove)

$1.67m

$3.40m

$1.73m

104%

23%

2132 (Croydon)

$1.67m

$2.99m

$1.32m

79%

19%

2045 (Haberfield)

$1.67m

$3.96m

$2.29m

137%

27%

2040 (Leichhardt, Lilyfield)

$1.67m

$4.29m

$2.62m

157%

29%

2039 (Rozelle)

$1.67m

$5.58m

$3.90m

234%

34%

2130 (Summer Hill)

$1.67m

$3.58m

$1.90m

114%

24%

 

Source: JSA (2016) derived from sources set out in Section 7 of JSA (2016) Position Paper: Best Practice in Value Capture, Inner West Council


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Council Meeting

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Position Paper:

Best Practice in Value Capture

 

 

 

 

 

 

 

 

 

 

 

November 2016

 


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Council Meeting

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Prepared for Inner West Council by Judith Stubbs and Associates

 

Published by Inner West Council

Email: council@innerwest.nsw.gov.au

http://www.innerwest.nsw.gov.au/

 

Copyright © Inner West Council 2016

 

ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior consent of the publishers.


 

Table of Contents

1..... Purpose of Position Paper  4

1.1..... Summary of Findings  4

1.1.1.......... What is Land Value Capture  4

1.1.2.......... Key Considerations in Land Value Capture  5

1.2..... Council’s Obligations, Opportunities and Constraints under Relevant Legislation  5

1.3..... Estimating Land Value Uplift 6

1.3.1.......... Relevant methods  6

1.3.2.......... JSA’s method of calculation  7

1.4..... The Model Applied to Inner West LGA   9

2..... Housing Affordability Context 10

3..... Overview of Land Value Capture  11

3.1..... What is Land Value Capture?  11

3.2..... Key Considerations in Land Value Capture  13

3.3..... Implications for Council’s Policy  14

4..... Approaches to Land Value Capture  15

4.1        Overview   15

4.2..... General Review of Approaches to LVC   15

4.2.1.......... ‘Cost Recovery’ Approaches in the NSW Context 15

4.2.2.......... Capturing a Share of ‘Unearned Land Increment’ in the NSW Context 16

4.3..... Examples of Land Value Capture in Practice in NSW and Other Jurisdictions  17

4.3.1              Overview   17

4.3.2.......... Examples of Cost Recovery Mechanisms  17

4.3.3.......... Capturing a Share of Uplift in the NSW Context 18

5..... Overview of Council’s Obligations, Opportunities and Constraints under Relevant Legislation  22

6..... Estimating Land Value Uplift 24

6.1        Overview   24

6.2..... Methods Used in Calculations  24

6.2.1.......... Waverley Case Study  24

6.2.2.......... Parramatta City Council Case Study  24

6.2.3.......... Leichhardt Council Case Study  25

6.2.4.......... Byron Shire Council Case Study  25

6.3..... The JSA Value Capture Model 26

7..... Assessment of Value Uplift and Land Value Capture in Inner West LGA   30

7.1        Overview   30

7.2..... Change of planning controls related to permissibility, height and FSR   30

7.2.1              Overview   30

7.2.2.......... Modelling (Redevelopment) 33

7.3..... Marginal uplift from increased height and/or density  40

7.3.1              Overview   40

7.3.2.......... Modelling (Additional Saleable Floor Area) 40

8..... Testing the Feasibility of Contribution Rates  42

8.1..... Rationale and considerations in setting a contribution rate  42

8.2..... Effect of levy on viability  42

8.2.1.......... Overview of Findings  42

8.2.2.......... Likely impact on development of 15% target 43

8.2.3.......... Likely impact on development of 5% target 45

8.3        Conclusion  46

Appendix A: Opportunities and Constraints of Principal Legislation and Related Policies  47

 


 

1        Purpose of Position Paper

This Position Paper: Best Practice in Land Value Capture has been developed to support the development of an evidence-based policy by Inner West Council toward the application of value capture approaches related to redevelopment in existing urban areas, or within the six major urban renewal precincts in the Sydenham to Bankstown Urban Renewal Corridor and in the Parramatta Road Transformation Corridor.

In particular, it seeks to explore the issue of land value capture with a practical focus on mechanisms that would be most applicable to the LGA in the NSW planning context.

The Paper first provides a definition of and framework within which to consider land value capture relevant to the NSW planning context, and outlines relevant approaches and a range of local and international examples of the way in which land value mechanisms have been implemented.

Drawing on this framework, as well as the review of relevant NSW legislation in Appendix A, the Paper then provides an overview of mechanisms most relevant in the Inner West development context. This is followed by examples of broad methods of calculation by other inner city and regional NSW Councils, and sets out JSA’s preferred method of calculation with reference to best practice considerations.

Finally, this approach and method of calculation is applied to precincts or areas within Inner West LGA, with this section reproduced from the Affordable Housing Policy Background Paper (JSA 2016).

This Position Paper should be read in conjunction with Council’s Affordable Housing Policy: Background Report (JSA 2016 c), and the former Marrickville Council’s (2015) Housing Profile.

1.1      Summary of Findings

1.1.1      What is Land Value Capture

Land value capture is talked about in various ways by different authors in various jurisdictions.

In the NSW planning context, Taylor (2016) provides a useful working definition, noting that,

In the broadest terms, value capture in relation to urban land development involves a planning authority, such as local council in NSW, capturing for the community benefit some of the land value increase accruing to a parcel of land from planning activities of the authority which increase the development potential of the land and hence its value.[16]

Walters usefully identifies two broad approaches to LVC, these being, ‘approaches intended to recover the cost of infrastructure investments and broader approaches intended to capture some share of the unearned increment in private land values [emphasis added], with the first exemplified by s94 approaches that seek to internalise the costs or impacts of the development; and the second found in mechanisms such as voluntary planning agreements under s93F of the Act.

Taylor (2016) goes on to distinguish land value capture arising from government planning actions from taxation in the following way:

In contrast, the fundamental purpose of value capture is not internalisation or taxation but rather ‘clawback’, that is, to capture increased land value for the community on the basis of a legitimate claim by the planning authority to share what is commonly referred to as ‘unearned increment’ of land value uplift. [17]

1.1.2      Key Considerations in Land Value Capture

Taylor (2016) also sets out some key considerations when implementing value capture schemes, which could be considered as best practice in the development of related policy. [18] These include the following:

·    Justification – where the planning authority has or will increased the value of land through its actions, and the community is entitled to a share of the resulting uplift;

·    Entitlement – the proper objective of which is to identifying the unearned increment in land value uplift resulting from any planning proposal and to decide the community’s legitimate claim to a share of it;

·    Calculation - how the land value increase should be calculated for value capture purposes, noting that a residual land value analysis should generally apply;

·    Development feasibility – that the implementation of value capture should not adversely impact on development feasibility by denying the developer a reasonable share of development profit;

·    Timing - in consideration of reasonableness and equity, the value capture requirement should apply to land acquired for redevelopment after a nominated date related to the implementation of the policy.

1.2      Council’s Obligations, Opportunities and Constraints under Relevant Legislation

Appendix A sets out a review of the legislative obligations, opportunities and constraints for local government in the creation of affordable housing through the planning system, with a particular focus on land value capture mechanisms that either seek ‘cost recovery or internalisation of costs’ (principally under s94 of the Act), or through ‘capturing or sharing a reasonable proportion of unearned increment’ of uplift created through the planning system (principally under s93F, and also through s94F). 

In accordance with the review of NSW legislation and policy set out in Appendix A to this Paper, there are two main mechanisms through which Council can legitimately capture a reasonable proportion of uplift from planning actions, with these most likely to apply to large redevelopment sites, including those precincts within the Sydenham to Bankstown Urban Renewal Corridor and Parramatta Road Urban Transformation Area. 

 

·    Council has the opportunity to enter into voluntary planning agreements that include the dedication of land free of cost, the payment of a monetary contribution, or provision of any other material public benefit, or any combination of them, to be used for or applied towards a public purpose, including ‘affordable housing’ under s93F of the Act, noting that nexus requirements do not apply;

 

·    As an alternative to the use of planning agreements, Council could levy for a contribution toward affordable housing under s94F of the Act where there is a demonstrated need for affordable housing and another requirement of the section is met, including where the development is likely to reduce availability of affordable housing, create a need for affordable housing, etc.

 

However, Councils is currently constrained in the use of this provision as it is not included within SEPP 70. An opportunity exists to advocate to State Government for inclusion within this provision, given the level of need and nexus described in the Background Paper (JSA 2016) and Housing Profile (Marrickville Council 2015). This also would involve relevant amendments to the LEP, which would need to set out areas of inclusion, the quantum and basis of calculations, etc, like those in City of Sydney and Willoughby.

 

·    Alternately, a separate contributions plan could be developed and/or approved by the State Government in relation to a major redevelopment precinct under s94F of the Act, most likely within the Sydenham to Bankstown Urban Renewal Corridor or Parramatta Road Urban Transformation Area, like that developed in relation to the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006. However, this would require legislative support like that which supported the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006 (s30 of the Redfern-Waterloo Authority Act 2004 (see Appendix A for detail)).

1.3      Estimating Land Value Uplift

1.3.1      Relevant methods

The contributions plans made under s94F of the Environmental Planning and Assessment Act 1979 and s30 of the Redfern Waterloo Authority Act 2004 do not appear to be explicit with regard to the rationale or calculations used as a basis for the contributions levied. Also, the levies are quite low by the standards in other inter-state and overseas jurisdictions.

Likewise, many voluntary planning agreements made under s93F of the Act are quite general with regard to contributions that may be required, and do not appear to set out a consistent method of calculation, or are unclear with regard to their rationale or other best practice considerations. Where such calculations are explicit in examples provided, JSA’s method of calculation is reasonably consistent and also builds in best practice considerations including those set out by Taylor above.

1.3.2      JSA’s method of calculation

The JSA value capture model estimates the likely value of a planning change to a land owner based on changes in property values as a result of the development, taking into consideration the costs of development and a normal level of profit to the developer, and assumes that value uplift is shared equally with the community and with the landowner or developer.

The JSA model also embeds best practice considerations from Taylor (2016) above, including justification or entitlement regarding the creation of an unearned land increment through planning actions, a residual land value analysis,[19] equity and impacts upon development feasibility.

The model estimates the value uplift as:

·    The value of the developed land, estimated using likely yield in apartments for the land multiplied by the market price of apartments based on recent sales data; less

·    The cost of construction of the apartments, estimated using cost planning data from Rawlinson’s Australian Construction Handbook; less

·    The cost of purchase of the land, estimated using recent sales data; less

·    A normal profit or return on investment of 10%.

Expressed another way, residual land value = value of completed development less development costs less [normal] profit; whilst uplift (or unearned land increment) = the difference between the residual land value and the market price of the land under the existing planning regime.

This is described in more detail in Section 6.3 below.


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1.4      The Model Applied to Inner West LGA

Section 7 of this Paper provides an economic analysis of the likely value uplift associated with redevelopment in various areas within the LGA, and with rezoning in key urban renewal precincts; and with additional Gross Floor Area that may be negotiated through Voluntary Planning Agreements. This provides a rationale for strong intervention through the planning system.

The findings provide evidence for significant value uplift associated with redevelopment of existing industrial land and housing for higher density development throughout the LGA, including value uplift associated with up-zoning of the three relevant precincts within the Sydenham to Bankstown Urban Renewal Corridor and within Parramatta Road Urban Transformation Area.

Land Value Capture as a proportion of saleable floor area is shown in Table 7-1.  Values are calculated for each of the fifteen post codes within Inner West LGA; for up-zoned land consisting of separate houses, three storey walk-up apartments and industrial land; and for height and FSR allowing three, six, eight and 14 storey construction.  Land Value Capture varies markedly across these variables, ranging from Nil to 23% depending on the particular scenario.

Similarly, there is significant value uplift associated with increases in Gross Floor Area that may be negotiated through Voluntary Planning Agreements.

Land Value Capture as a proportion of additional saleable floor area is shown in Table 7-2; varying between 19% and 29% of additional saleable floor area. 

These findings provide a strong justification for value capture associated with incentive-based or voluntary planning agreement approaches in association with redevelopment, as well as for mandatory contributions or inclusionary zoning within the Urban Renewal Corridor and the Parramatta Road Urban Transformation Area.

The Background Paper (JSA 2016) and Council’s Housing Profile also provide a strong rationale related to affordable housing need and nexus related to the capture of unearned land increment arising from planning actions if mechanisms through s94F are pursued. 

 

 

 

 

 

 

 

 


 

 

2        Housing Affordability Context

It is widely acknowledged that there is a major shortfall in affordable housing in most cities and many regional and rural communities across Australia.[20] The most severe and lasting impacts are experienced by very low and low income households in unaffordable private rental accommodation, who do not gain the benefits that accrue to home purchasers, including long-term capital gains and a decreasing debt to household income ratio over time,[21] and for whom social rental is increasingly inaccessible. [22]

The Affordable Housing Background Paper (JSA 2016) indicates that there are particularly serious and worsening affordability issues for key target groups in Inner West LGA, including significant gentrification, displacement of lower income historical populations and an inability to accommodate low income key workers.

Some people achieve ‘affordable’ purchase or rental through moving to outer suburbs far from employment, or to an increasingly remote urban fringe or regional areas, but such locations can increase costs to households, socially or economically, through increased travel time, transport costs,[23] and decreased access to services and employment.[24] However, even these areas are increasingly unaffordable, particularly with regard to rent for key target groups.[25]

Amid increasing housing costs, decreasing affordability and stagnating expenditure on social housing, addressing the growing need for affordable housing through the planning system becomes increasingly important. In particular, there is an increasing focus on land value capture as a way of meeting the growing need for affordable housing in an increasingly expensive housing market where gentrification and ongoing displacement of lower income households and workers is occurring.

The following section sets out a working definition and key considerations of land value capture, with a particular focus on its relevance to NSW. This is followed by a review of the NSW planning context and the legal opportunities currently available in this jurisdiction.

3        Overview of Land Value Capture

3.1      What is Land Value Capture?

Land value capture is talked about in various ways by different authors in various jurisdictions. This section focuses on the definitions and considerations put forward by several authors that appear to be more relevant to the NSW planning context, described later.

Looking first at some relevant definitions or frameworks within which to consider land value capture in the NSW context, Walters notes that,

In the fields of urban public finance and international development, the concept of land value capture (LVC) has become a standard argument for implementing or reforming taxes based on land. Often the value of privately held land increases as a result of public investments in infrastructure, publicly approved changes in land use, or broader changes in the community such as population growth. Proponents of LVC argue that governments should use taxes and fees to collect some share of this increase in value for public purposes, including funding infrastructure and service improvements.[26]

Walters then goes on to identify two approaches to LVC.  These are:

…approaches intended to recover the cost of infrastructure investments and broader approaches intended to capture some share of the unearned increment in private land values [emphasis added].

Reflecting on the latter (unearned increment in private land values), Johnston (2014) reflects that the idea of value capture is a ‘simple one’, that is, 

… if the value of a piece of land increases as a result of an action initiated by someone other than the landowner, then the value of that increase should not necessarily all go to the landowner. In urban policy, examples given are along the lines of: if a railway station is built near your land or if the development controls are changed to allow for denser development on it, or if marginal farming land on the city fringe is rezoned to residential, all these changes being initiated or implemented by government, then some of the increase in value of the land should be shared between the landowner (who can sell their land at a higher price) and the government (whose action enabled the increased value).[27]

Johnston notes that this sort of argument ‘has a consistent history in classical economics, as developed in the eighteenth and nineteenth centuries in Europe and America’. [28]

In this way, the author notes that, rather than conceptualising the mechanisms that seek a proportion of the uplift created through the provision of infrastructure or the rezoning of land to higher uses as ‘capture’, it can be more reasonably be thought of as a ‘share’ of the increased land value arising from government actions between the developer and the community. This also helps to distinguishes between the ‘tax like’ connotations of such mechanisms and what is more accurately considered as being ‘mutually beneficial’.[29] As discussed later, considerations of ‘nexus’ (links between, or direct and indirect costs arising from, a development) also support such a distinction. 

Aspects of Walters’ ‘cost recovery’ aspect of value capture (or share) is also evident, noting that the provision of infrastructure adds value, as well as being part of a cost recovery or recoupment regime.

In the NSW planning context, Taylor (2016) notes that,

In the broadest terms, value capture in relation to urban land development involves a planning authority, such as local council in NSW, capturing for the community benefit some of the land value increase accruing to a parcel of land from planning activities of the authority which increase the development potential of the land and hence its value.[30]

He notes that value capture contributions need are typically used to fund public infrastructure and other community benefits, but need to be ‘distinguished conceptually’ from other the more traditional forms of developer contributions under s94 and s94A (fixed development consent levies) under the Environmental Planning and Assessment Act 1979 (NSW).

In contrast to Walters, cited above, Taylor distinguishes the ‘cost internalisation’ mechanism of s94 (ensuring that the cost of infrastructure, for example, is not borne by the community at large) from the ‘claw back’ mechanism that underpins value capture mechanism enacted under s93F of the Act (voluntary planning agreements). He further distinguishes s94 as being more ‘akin to a development tax’ with the purpose again being to ensure that costs are properly ascribed (similar to the Community Infrastructure Levy that is used in the UK).

Taylor goes on to distinguish land value capture in the following way:

In contrast, the fundamental purpose of value capture is not internalisation or taxation but rather ‘clawback’, that is, to capture increased land value for the community on the basis of a legitimate claim by the planning authority to share what is commonly referred to as ‘unearned increment’ of land value uplift. [31]

Clarifying the legal basis or legitimacy of this approach amid the general presumption of property rights in western democratic systems, Taylor notes,

…the legislation of the EPA Act involves confiscation of the development rights of landowners under the general law and the reallocation of such rights, usually conditionally, under and in accordance with the applicable legislation…[32]

Taylor notes that the reallocation aspect of is important as ‘planning legislation typically re-orders development rights to achieve maximum community welfare’ and thus creates ‘distributional inequities’ - significantly decreasingly the value of land for some, and creating ‘windfall profits’ for others. As such,

Where land values increase through planning activities (as districts from the enterprise of landowners), a land value subsidy in the form of unearned increment can be said to exist and it is this which provides the focus for value capture. [33]

The author notes that, in NSW, value capture typically occurs through voluntary planning agreements under s93F of the Act in association with planning proposals, where a land owner seeks to vary the planning controls applying to a particular lot or precinct, thus increasing its development potential. If approved, the Minister will generally make a local environmental plan varying the planning controls. As discussed later, no specific nexus is required for agreements made under this section of the Act.

3.2      Key Considerations in Land Value Capture

A second paper by Taylor is useful in setting out some key considerations when implementing value capture schemes. [34]

The first consideration relates to justification. Reflecting the above discussion, he notes that the basic justification for value capture is that the planning authority has or will increase the value of land through its actions, and the community is entitled to a share of the resulting uplift. This is reflected in the NSW Department of Infrastructure, Planning and Natural Resources (2005) Practice Note on Planning Agreements, which states that,

The provision of planning benefits to the wider community through planning agreements necessarily involves capturing part of the development profit for that purpose. The value of the planning benefit should always be restricted to a reasonable share of development profit.[35]

A second consideration in that of entitlement. This relates to the extent of the planning authority’s value capture in any particular case, and fundamentally, the proper objective of ‘identifying the unearned increment in land value uplift resulting from any planning proposal and to decide the community’s legitimate claim to a share of it’ [emphasis added].[36]  Related considerations include property market conditions, land values, existing and future proposed planning controls, and the redevelopment scheme proposed.

A third consideration relates to calculation, that is, how the land value increase should be calculated for value capture purposes, noting the author’s view that ‘a residual land value analysis should generally apply’.[37] Such an analysis is generally performed prior to rezoning to understand the implications of land use regulation and/or development potential. Clearly, for re/development to occur, the residual land value under a redevelopment scheme will be higher than the market value of land in its current state.

A fourth consideration is that of development feasibility. As noted by Taylor, ‘the implementation of value capture should not adversely impact on development feasibility by denying the developer a reasonable share of development profit. In other words, the policy should be ‘fair and reasonable’ in the individual circumstances.  As such, any value capture policy should ‘make provision for testing development feasibility’.[38]

A final consideration is that of timing. In terms of reasonableness and equity, a satisfactory policy approach is for the value capture requirement to apply to land acquired for redevelopment after a nominated date related to the implementation of the policy. [39]  

Taylor reviews a number of planning agreement policies currently in force in NSW, and finds them lacking with regard to several of these elements that he regards as best practice.

3.3      Implications for Council’s Policy

JSA’s approach to the development of relevant value capture policy seeks to ensure legality within the NSW legislative framework, discussed below and in more detail at Appendix A, as well as engage with best practice issues related to justification, entitlement, calculation and development feasibility, outlined above.

This is discussed further later in this paper.

 

 

 


 

4        Approaches to Land Value Capture

4.1      Overview

In accordance with the definitions and conceptual framework set out above, this section first provides examples of approaches to land value capture in general terms. It then provides a range of examples of land value capture mechanisms used in NSW, with a particular focus on affordable housing.

4.2      General Review of Approaches to LVC

4.2.1      ‘Cost Recovery’ Approaches in the NSW Context

The first approach related to cost recovery is commonly seen in NSW in s94 contribution plans, whereby local government provides a range of public amenities or public services and recovers that cost from developers, who in turn offset the cost through improvements in the value of the land; or where developers provide required services or amenities in lieu of contributions. As noted, the concept of ‘nexus’ is a key consideration in the application of such cost recovery mechanisms, with the direct cost and cost apportionment related to the need or demand likely to be generated by a development factored into the s94 levy payable for a wide range of services and amenities.

Importantly, the broad provisions of s94 does not provide for affordable housing contributions, although this has been addressed in subsequently amendments. In relation to s94F, under which three NSW councils are permitted to levy specifically for affordable housing, such nexus considerations include that the development is likely to reduce availability of affordable housing, or to create a need for affordable housing.[40]

Whilst the direct cost of the need generated is thus considered, implicitly these considerations also include externalities associated with the loss and non-replacement and/or failure to provide affordable housing, or the indirect costs to the whole of the community. As such, contributions under s94F may also be considered as an offset to such externalities, for example, the cost to the whole community of homelessness or economic loss associated with inability to house key workers, including in an incremental or cumulative sense from the non-replacement of lower cost housing in a gentrifying housing market.

4.2.2      Capturing a Share of ‘Unearned Land Increment’ in the NSW Context

Overview

The second approach, which seeks to capture a share of the unearned increase in the value of land created through rezoning or other planning actions, is reflected in both market (optional) and non-market (or mandatory) approaches in the NSW context.

Market Approaches

Market approaches allow for negotiation between the consent authority and a developer. The advantage of such approaches is that they are economically efficient and they are discretionary, with the developer deciding whether to opt in or opt out.

There are a number of mechanisms used worldwide for market approaches to land value capture. For example, in some South American jurisdictions, development rights are auctioned as a way of capturing land value uplift. Such approaches are said to be quite successful, with some mixed results.[41] 

In NSW, as noted, there are a number of planning mechanisms available for market approaches to land value capture.

Division 1 of SEPP (Affordable Rental Housing) provides a mechanism for a developer to obtain additional floor space ratio in selected areas in return for providing a proportion of the development as affordable housing (as defined in the SEPP) for a period of ten years. 

The market approach is also reflected in NSW in the development of voluntary planning agreements under s93F of the Act, where a developer offers a cash or in-kind contribution for use as a public purpose, which can include affordable housing, in exchange for something of value (increased development rights through up-zoning, variations to planning controls, density bonuses, etc). When combined with SEPP 1 Development Standards, there is an opportunity for developers and planning authorities to negotiate an outcome acceptable to both parties.

As noted above, this is a legal mechanism in NSW for all councils, without the need to demonstrate nexus.

Non-Market (or Mandatory) Approaches

A non-market or mandatory approach to the capture of land value uplift has been operationalised in NSW under s94F of the Act using SEPP 70 and individual contributions schemes such as that relating to Redfern Waterloo, described above and in Appendix A. In NSW this is generally supported by a requirement to demonstrate the need for affordable housing in an area, and nexus between a development and a reduction in the availability of affordable housing or creation of a need for affordable housing within the area,[42] including in a cumulative sense.

Other Australian and overseas jurisdictions also refer to such approaches as ‘inclusionary zoning’,[43] with some authors citing gentrification and displacement of low income households as a rationale for inclusionary zoning.[44] Again, economically, displacement can be seen as an externality of gentrification, and inclusionary zoning can be seen as a way of internalising that externality to the development itself, thus creating a nexus between this mechanism and affordable housing created.

Authors such as Padilla[45] also identify a number of arguments in support of land value capture as a funding strategy for affordable housing including equity, viability, reduced commuting, preservation of a component of affordable housing in an area, and other social outcomes. Many of the costs identified are thus related to externalities created by the development, and again seek to offset or internalise these real costs to the community.

Examples of the way in which approaches have been implemented in NSW and other jurisdictions is discussed below.

4.3      Examples of Land Value Capture in Practice in NSW and Other Jurisdictions

4.3.1      Overview

This section applies the above framework for considering ways of capturing an increase in land values or uplift, either through cost recovery mechanisms or through capturing a share of unearned land value increment or uplift.

4.3.2      Examples of Cost Recovery Mechanisms

All NSW councils have a s94 Contributions Plan which levies development for a range of services and facilities.  Marrickville Council Section 94 Contributions Plan 2004 levies contributions for Open Space, Park Infrastructure and Sports Facilities, Public Libraries and Community Recreation Facilities, Traffic Management, Road Works and Plan Administration.

Western Sydney Growth areas have a contribution plan under s94ED collecting contributions for a range of services and facilities including Roads, Bus, Education, Health, Emergency, Open Space and Conservation and Planning and Delivery [46]

4.3.3      Capturing a Share of Uplift in the NSW Context

Examples of Market (Opt In-Opt Out) Mechanisms

As noted above, market approaches to the provision of affordable housing (or any other public purpose) allow for negotiation between the consent authority and a developer.

In NSW, voluntary planning agreements under s93F of the Act are a common mechanism for capturing an agreed proportion of land value uplift, where a developer offers a cash or in-kind contribution for use as a public purpose in exchange for something of value to them, generally in the form of increased development rights through up-zoning, variations to planning controls, density bonuses, etc. The establishment of nexus is not necessary.

Just under half of the 27 NSW councils reviewed by Johnstone (2014) included ‘affordable housing’ as a public purpose for which a contribution may be sought in their voluntary planning agreement. However, a minority had actually entered into an agreement that included affordable housing.  Examples include:

·    Waverley Council operated a ‘density bonus’ scheme from the mid-1980s, where additional FSR was provided in exchange for a contribution toward affordable housing in perpetuity which is understood to have yielded around 150 dwellings of affordable housing over this period. Waverley Council currently has a planning agreement policy under s93F of the Act, with the contribution determined via a valuation of the marginal uplift in value from the additional floor space granted.

·    Canada Bay Council reported 5 such agreements and a total of 24 dwellings offered (data to 18 April 2013).

·    Marrickville Council currently uses such approaches, with a recent example being a development consent for 78-90 Old Canterbury Road Lewisham where the voluntary planning agreement delivered a range of public purposes including four affordable housing units and bicycle and pedestrian connectivity. Other items were also delivered under the VPA but as an offset to s94 contributions.

Johnstone (2014) notes a number of reasons why local government planning agreements have often not involved affordable housing contributions, including that:

·    the mechanism is more suited to large developments;

·    the mechanism was introduced at a time when State Government was more hostile to councils taking local action on affordable housing (in marked contrast to the late 1990s);

·    there was a period from mid-2009 to mid-2011 when the State Environmental Planning Policy (Affordable Rental Housing) 2009 provided an alternative mechanism for developers to obtain development concessions for housing developments; and

·    local councils have generally given a higher priority to economic infrastructure in such agreements.[47]

The State Government has also been involved in a number of voluntary planning agreements that have an affordable housing contribution as a component, although many have been made with respect to a range of other public purposes.[48] These are all in Sydney, including at:

·    Barangaroo: 2.3% of the residential developable gross floor area in the South Precinct is to be provided as ‘key worker’ housing;

·    The former Carlton United Brewery site, Chippendale: a monetary contribution equivalent to 2.7–3.1% of total project costs (valued at about $32 million) is to be given for affordable rental housing provided offsite;

·    Rouse Hill: 3% of residential lots (about 39) will be given for the purposes of development of affordable housing;

·    Sydney Olympic Park: 3% of dwelling units will be given to the Land and Housing Corporation;

·    The former ADI site, St Marys: 3% of residential lots (about 150) will be given for the purposes of development of affordable rental housing.

State Environmental Planning Policy (Affordable Rental Housing) and State Environmental Planning Policy (Housing for Seniors or People with a Disability) both provide mechanisms whereby variations to planning controls are available for the provision of particular types of housing or provision of housing to particular groups such as older people or lower income households.

Examples of Non Market (Mandatory) Mechanisms

NSW Examples

As noted, in NSW there is an opportunity for a consent authority to impose a mandatory levy for affordable housing under s94F of the Act, or under s94ED of the Act.

In the case of the former, there are four mandatory contributions schemes in NSW. Three local authorities are permitted to impose an affordable housing levy under s94F of the Act and in accordance with SEPP 70. Each of the three local councils has operationalised this mechanism in different ways.

·    City of Sydney (incorporating  the former South Sydney LGA) identifies three areas in c7.13 of Sydney LEP 2012.  Contributions are 3% of residential area and 1% of non-residential area for land in Green Square and southern employment land; and 0.8% of residential area and 1.1% of non-residential area in Ultimo-Pyrmont.

 

·    Willoughby LEP 2012 c6.8 requires a contribution of 4% of total floor space for development in designated areas, with the exception of boarding houses, public housing, community housing, group home and hostels. 

 

·    Leichhardt LEP 2013 does not contain affordable housing provisions. 

 

The fourth scheme was imposed under the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006, supported by s30 of the Redfern Waterloo Authority Act 2004 rather than a SEPP (SEPP 70), as discussed earlier. The contributions plan provides for a contribution equivalent to 1.25% of total gross floor area of development in Redfern Waterloo Operational Area. The contribution rate is paid at $68.00 per m2 in 2010 dollars.

The Redfern Waterloo Authority Affordable Housing Contributions Plan 2006 sets out a broad nexus statement, noting that, since the 1980s, the Operational Area has ‘experienced rapid gentrification which has a polarising effect on the community and has led to the creation of pockets of disadvantage and advantage. This has resulted in the loss of low cost private housing as rents and house prices have increased’. Related objectives seek to address these issues.[49]

As discussed later, there is often no explicit calculation related to how the share of land value uplift was determined in relation to the required affordable housing levy.

In the case of the latter, mandatory contributions under s94ED of the Act, applicable areas listed in Schedule 5A are large new growth areas within the LGAs of Liverpool, Camden, Blacktown, The Hills, Hawkesbury and Wyong. To date, there does not appear to be a contributions plan related to affordable housing in these areas, and the Special Infrastructure Contribution Practice Note (Growth Centres Commission 2008) does not include a contribution to affordable housing.

Examples from Other Jurisdictions

Although mandatory mechanisms to capture a proportion of land value uplift are relatively minor and used in only a few areas of NSW, many jurisdictions have inclusionary zoning requirements or mandatory contributions schemes that are relatively well developed and more robust.  Requirements are typically of the order of 15%, although again we have not been able to find an explicit rationale for this figure in any jurisdiction.

Within Australia, South Australia has an affordable housing target of 15% to be provided through the planning system.[50] The Urban Development Authority of Queensland has a minimum target of 15% of dwellings across designated urban development areas.[51] The intent to secure 15% affordable housing was also announced in 2008 by the Minister for Land and Housing in the Northern Territory. [52]

Internationally, Massachusetts set a goal for 10% of housing to be affordable, and where the target has not been met through other mechanisms such as the market or direct funding; local zoning laws may be by-passed to provide affordable housing.[53]  The City of Boston required 15% of market rate units to be set aside for affordable housing. [54] San Francisco similarly required 15% of units to be affordable, and 20% if constructed off-site. [55] Targets for affordable housing were 50% of new housing in London, increasing from previous levels of inclusionary zoning of 25%.[56]  Galway specified 20% to be transferred for affordable housing. [57]

Such requirements may be supported by planning bonuses, tax incentives and government funding to provide an offset to some of the contribution to affordable housing with wide variations across jurisdictions.[58] 

Similar approaches in California USA have established a nexus by estimating the number of jobs required to supply the demand created from the new households in a development, then estimating the number of workers in those jobs who are in very low, low and moderate income households, estimate the shortfall in housing affordability for those households and levy for affordable housing accordingly.[59]

 

5        Overview of Council’s Obligations, Opportunities and Constraints under Relevant Legislation

Appendix A sets out a review of the legislative obligations, opportunities and constraints for local government in the creation of affordable housing through the planning system, with a particular focus on land value capture mechanisms that either seek ‘cost recovery or internalisation of costs’ (principally under s94 of the Act), or through ‘capturing or sharing a reasonable proportion of unearned increment’ of uplift created through the planning system (principally under s93F, and also through s94F). 

In summary, the following is noted as relevant to the development of policy.

·    Council has an obligation to engage with the issue of affordable housing in accordance with Object 5(a)(viii) as a matter in the public interest under s79C(1)(e) of the Act, and under the head of consideration provided under s79C(1)(b) of the Act;

 

·    Council has an opportunity to enter into voluntary planning agreements that include the dedication of land free of cost, the payment of a monetary contribution, or provision of any other material public benefit, or any combination of them, to be used for or applied towards a public purpose, including ‘affordable housing’ under s93F of the Act;

 

·    Council also has the opportunity, in consideration of Object 5(a)(viii) and s94F(5) of the Act to impose a development consent making any other conditions relating to the provision, maintenance or retention of affordable housing; and to seek to increase the supply of affordable housing through the planning and development process (e.g. incentive based schemes, requirements for lower cost or affordable housing types as part of multi-unit developments, etc), with the most likely areas being large redevelopment sites including the three precincts within the Sydenham to Bankstown Urban Renewal Corridor, as well as high value precincts where density bonus type-schemes could be viable.

 

·    Council could levy for a contribution toward affordable housing under s94F where there is a demonstrated need for affordable housing and another requirement of the section is met (e.g. where the development is likely to reduce availability of affordable housing, create a need for affordable housing, etc), but is currently constrained in the use of this provision as it is not included within SEPP 70. An opportunity thus exists to advocate to State Government for inclusion within this provision, given the level of need and nexus described in the Background Paper (JSA 2016) and Housing Profile (former Marrickville Council 2015), with the most likely areas being large redevelopment sites including the six precincts within the Sydenham to Bankstown Urban Renewal Corridor and the Parramatta Road Urban Transformation Area. This also would involve relevant amendments to the LEP, which would need to set out areas of inclusion, the quantum and basis of calculations, etc, like those in City of Sydney and Willoughby.

 

·    A separate contributions plan could be developed and/or approved by the State Government in relation to a major redevelopment precinct under s94F of the Act, most likely within the Sydenham to Bankstown Urban Renewal Corridor and the Parramatta Road Urban Transformation Area, like that developed in relation to the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006. However, this would require legislative support like that which supported the Redfern Waterloo Authority Affordable Housing Contributions Plan 2006 (s30 of the Redfern-Waterloo Authority Act 2004 (see Appendix A for detail)).

 

      The reader is referred to Appendix A of this paper for more detail.

 


 

6        Estimating Land Value Uplift

6.1      Overview

The contributions plans made under s94F of the Environmental Planning and Assessment Act 1979 and s30 of the Redfern Waterloo Authority Act 2004 do not appear to be explicit with regard to the rationale or calculations used as a basis for the contributions levied. The levies are quite low by the standards in other jurisdictions, as discussed above.

Likewise, many voluntary planning agreements made under s93F of the Act are quite general with regard to contributions that may be required, and do not appear to set out a consistent method of calculation, or are unclear with regard to their rationale or other best practice considerations as set out in Section 3.2 above.

In some cases, however, these calculations are explicit, and have the ability to be applied consistently and transparently.  The following provides some examples of planning agreements or policies that have more explicit methods from Johnstone (2014) and other information reviewed by JSA. This is followed by JSA’s preferred method of calculation, which contains some elements of those below.

6.2      Methods Used in Calculations

6.2.1      Waverley Case Study

Under Waverley Council Planning Agreement Policy 2014, Appendix 1, marginal value uplift is estimated on a case by case basis and shared equally between the council and the developer.  The marginal value is taken as the sale price of the additional floor area arising from the planning variation, less the construction cost of the additional floor area.  The sale price is to be estimated by a valuer, while the construction cost is to be estimated by a quantity surveyor.  The approach taken is similar in principle to that taken by JSA.

6.2.2      Parramatta City Council Case Study

Parramatta City Council has published a document titled Parramatta CBD Planning Strategy (2015), which expresses the Council’s value capture policy in the following terms:

A4.2.1 Value Uplift Sharing – That additional higher FSR controls than those proposed in this Strategy can only be achieved by sharing the value of the uplift. That is any additional new FSR is to be purchased by landowners based on 50% of the nominated dollar value per sqm of GFA. The dollar value is to be scheduled to provide certainty and reviewed annually. Such a system would apply for residential uses only, not employment uses. Further, the system would operate in addition to any section 94A contributions payable.

 

6.2.3      Leichhardt Council Case Study

The former Leichhardt Council produced a Voluntary Planning Agreements Policy (2015) which contains an explicit value capture policy in the following terms:

36.10 Generally, in negotiating a voluntary planning agreement the Council will seek to value the uplift in value of the applicant’s land based upon a valuation of the land at the current zoning or pre VPA standard; and compare this with the valuation of the land in the event that the post VPA change in instrument or planning control is allowed, less any additional costs the applicant may incur in realising the increased value. This exercise will be carried out by a valuer who meets the criteria specified in clause 16 of this Policy.

36.11 The same before and after comparison will apply whether the applicant seeks a value uplift derived from a floor space increase; an increase in a height limitation; or a zoning change which increases the land’s value.

36.12 Council on behalf of the community will generally seek 50% of the uplift value derived in that manner.

6.2.4      Byron Shire Council Case Study

Byron Shire Council’s policy on planning agreements, ‘Planning Agreements Policy’ (March 2009) (prepared by JSA), indicates that planning agreements may be negotiated for the provision of affordable housing, and identifies affordable housing as one of the purposes for which it would be ‘most likely’ to negotiate an agreement.

In most councils’ planning agreement where affordable housing is mentioned, it is mentioned as one of a number of community benefits that could be negotiated; while Byron council’s does this too, it elaborates how the affordable housing contribution could be delivered, in some detail.

The policy states that in existing areas the Council would accept an offer of a dedication of affordable housing in return for a request for additional floor space ratio (‘density bonus’). The dedication would be 50% of the additional private benefit gained by the developer in getting additional floor space.

In greenfield sites and brownfield sites under investigation for rezoning or where a rezoning is proposed by a developer, the contribution could take the form of one plot of land for each 10 plots created within each subdivision stage with the area of the plot being no less than 95% of the average area of plots within the subdivision stage, and with a sale price of at least the median for plots within the subdivision stage; or it could take the form of an equivalent monetary contribution; or it could take the form of dedicated dwellings units assessed as of equivalent market value.

At large sites, already zoned for urban purposes, the contribution could be one plot for each 20 plots or part thereof created within each subdivision stage, with the area of the plot being no less than 95% of the average area of plots within the subdivision stage, and with a sale price of at least the median for plots within the subdivision stage; or it could take the form of an equivalent monetary contribution; or it could take the form of dedicated dwellings units assessed as of equivalent market value.

At large sites with a yield of 20 or more dwellings or an area of at least 4,000 m2, that are already zoned for urban purposes, or are located in zones where multi-unit housing is permitted, negotiations could commence during pre-lodgement meetings for development applications.

In greenfield sites and brownfield sites under investigation for rezoning or where a rezoning is proposed by a developer, and at larger sites, the council would accept an offer of a dedication of affordable housing in return for a request for additional floor space ratio (‘density bonus’). The dedication would be 50% of the additional private benefit gained by the developer in getting additional floor space.

6.3      The JSA Value Capture Model

One of the central difficulties with LCV approaches is the assessment of the change in value.  As stated by Walters:[60]

LVC assumes that land values increase as a result of some community change. Unless land markets function reasonably well, it is not clear whether such changes will be reflected in higher land prices. Further, even when land prices increase as a result of public action, if tax officials lack the information and expertise to accurately identify such price changes and incorporate them into taxable value, LVC cannot succeed.

The JSA value capture model estimates the likely value of a planning change to a land owner based on changes in property values as a result of the development, taking into consideration the costs of development and a normal level of profit to the developer, and assumes that value uplift is shared equally with the community and with the landowner or developer.

The JSA model also embeds best practice considerations from Taylor (2016) above, including justification or entitlement regarding the creation of an unearned land increment through planning actions, a residual land value analysis,[61] equity and impacts upon development feasibility.

The model estimates the value uplift as:

·    The value of the developed land, estimated using likely yield in apartments for the land multiplied by the market price of apartments based on recent sales data; less

·    The cost of construction of the apartments, estimated using cost planning data from Rawlinson’s Australian Construction Handbook; less

·    The cost of purchase of the land, estimated using recent sales data; less

·    A normal profit or return on investment of 10%.

Expressed another way, residual land value = value of completed development less development costs less [normal] profit; whilst uplift (or unearned land increment) = the difference between the residual land value and the market price of the land under the existing planning regime.

The model is shown graphically in the diagram below along with an example of the estimation of value uplift and value capture for a 1,000 square metre block of industrial land which has been rezoned to allow for eight storey apartments.

The approach can be used on a universal basis by using area averages and known construction costs to estimate value uplift as a proportion of dwellings in the final development, or can be used on a case by case basis with input from valuers and quantity surveyors as is currently the policy in Waverley Council.

 


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Council Meeting

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Council Meeting

28 March 2017

 

 

The underlying assumption is that once planning changes take place, developers will bid up the price of property to a point where they can just make a normal profit.

The strength of the approach is that it relies on data from areas where strong markets exist, including construction and sales of property, giving a high degree of certainty regarding the assessment of value uplift. 

The value of the developed land as apartments can be estimated to a high degree of certainty, with hedonic price analysis of strata dwellings[62] incorporating strata area and postcode accounting for 85% of the variation in price in suburbs in the former Marrickville LGA.  More accurate pricing for a specific development can be obtained through recourse to land valuers. 

Similarly the cost of construction can be estimated with a high degree of certainty, with the major area of assumption being the apartment size and yield in the absence of preliminary architectural drawings, and with published construction rates available such as Rawlinsons Australian Construction Handbook. More accurate costing can be obtained through preparation of preliminary architectural drawings and recourse to quantity surveyors.

The value of the undeveloped land can also be estimated to a high degree of certainty, with hedonic price analysis of separate houses incorporating number of bedrooms, bathrooms, parking, land area and post code accounting much of the variation in price and hedonic price analysis of industrial land incorporating land area accounting for two thirds of the variation in price.  More accurate pricing can be obtained through recourse to land valuers. 

Normal profit is taken as 10%, with this based on ABS 5676.0 Business Indicators, Australia, Table 22: Business gross operating profits/sales ratio, Current prices.  This table shows average profit for Construction over the last five years as 9%.  By way of further comparison, the 2015 annual report for Mirvac, a property development company, shows profit of $628 million (after interest and before taxation) for a total asset base of $6,462 million, a return on investment of 9.7%.

The alternative approach is to estimate the difference between the value of the land prior to the planning changes and after the planning changes.  This is likely to be difficult to establish, as there would need to be a number of sales of land in a particular area, followed by sales of land following the rezoning, where the land has not be redeveloped.

7       
Assessment of Value Uplift and Land Value Capture in Inner West LGA

7.1      Overview

This section is reproduced from the Affordable Housing Background Report (JSA 2016), and applies JSA’s preferred methodology to the calculation of land value uplift and potential land value capture to selected areas within Inner West LGA.

7.2      Change of planning controls related to permissibility, height and FSR

7.2.1      Overview

Much of the land in the former Marrickville LGA is zoned R2, IN1 and IN2.  Residential land in the LGA typically has FSR 0.60 and height of 9.5 metres with some areas of greater height in and around town centres.  Industrial land typically has FSR 0.95 with no height restriction.  Most of this industrial land is in Marrickville and St Peters.[63] 

Land in the former Ashfield LGA is mostly zoned R2, R3 and B4.  Residential land typically has FSR 0.50-0.70 and height of 8.5-12.0 metres with some areas of greater height in and around town centres and along Parramatta Road. 

Land in the former Leichhardt LGA is mostly zoned R1 and B2.  Residential land typically has FSR 0.50-0.60.  Heights are generally not controlled, but are likely to be limited by FSR. 

Preliminary modelling has been carried out to understand the economics of redevelopment in Inner West LGA using current sales data and construction cost data, so as to understand the likely land value uplift associated with changes to planning controls and to assess a reasonable land value capture for council to use for a public purpose.  Land value uplift has been calculated as the value of developed land less the cost of existing land, construction costs and a normal level of profit and we have assumed council would capture 50% of the land value uplift for a public purpose.  The land value capture has been calculated as a proportion of gross floor area to facilitate universal application, however should council wish to negotiate to receive some of the land value capture in cash or in kind other than apartments, the proportion can be converted into cash through using the estimated sale price of apartments in the development.  It would be a matter for council to decide the proportion of the land value capture to use for affordable housing, compared to other public purposes council may wish to progress.

Detailed results of modelling are shown in Table 4-1 below.

The most favourable economics, and hence opportunities for land value capture, relate to the rezoning of industrial land to allow construction of residential flat buildings, to redevelopment of separate housing for residential flat buildings in the former Ashfield and Leichhardt LGAs and to redevelopment of existing three storey walk-ups in Postcodes 2041 (Balmain, Balmain East, Birchgrove), 2040 (Leichhardt, Lilyfield) and 2039 (Rozelle). 

Modelled profitability for industrial land ranges from 15-50% for three storey redevelopment to 80-90% for 14 storey development, suggesting that there will be a significant uplift in land value as a result of such zoning changes.  Many of the lots are quite large and in single ownership, facilitating redevelopment.  Estimated land value capture ranges from 2% for three storey redevelopment in Post Code 2038, to 21% for 14 storey redevelopment in Post Code 2044.

Levels of profitability are generally lower for redevelopment of existing separate houses for residential flat buildings and vary across suburbs.  Three storey construction is likely to be profitable and with opportunities for value capture in Post Codes 2131 (Ashfield), 2045 (Haberfield), 2040 (Leichhardt, Lilyfield), 2039 (Rozelle) and 2130 (Summer Hill).  Six storey construction is likely to be profitable and with opportunities for value capture in Post Codes 2044 (St Peters/Sydenham/Tempe), 2049 (Lewisham/Petersham), 2203 (Dulwich Hill), 2204 Marrickville, 2038 (Annandale), 2041 (Balmain, Balmain East, Birchgrove) and 2132 (Croydon).  Eight storey construction is likely to be profitable and with opportunities for value capture in Post Codes 2048 (Stanmore) and 2050 (Camperdown); while Post Code 2042 will require 14 stories to be profitable.  Lot sizes are generally quite small (averaging 250 m2 but 470 m2 in Ashfield and 650 m2 in Haberfield) and so redevelopment will require consolidation of land which is likely to reduce opportunities. Estimated land value capture ranges from 1% for six storey redevelopment in Post Code 2050, to 28% for 14 storey redevelopment in Post Code 2039.

The economics of redevelopment of existing three storey residential flat buildings are generally less favourable although some areas show good profitability.  Modelled profitability ranges from 4-31% for six storey construction up to 37-100% for 14 storey construction.  Existing residential flat buildings are likely to be on larger lots, again facilitating redevelopment however purchase will be required from individual strata owners, making consolidation difficult.  Estimated land value capture ranges from 1% for six storey redevelopment in Post Code 2045, to 23% for 14 storey redevelopment in Post Code 2039.

There are three proposed redevelopment areas under the Sydenham to Bankstown – draft Urban Renewal Corridor Strategy.  These are discussed below.

Proposed changes in Sydenham include shop top housing and medium to high rise housing in areas currently zoned B5, B7, IN2 and IN1.  Existing FSRs and height are 0.95 in the industrial zoning with no height restriction and 1.75 in the business zoning with height of 14.0 metres (four stories).  Existing development is 2-3 storey factories and showrooms.[64]  The economics of redevelopment appear quite favourable and there is likely to be considerable opportunity for value capture in this precinct, in line with modelling related to the rezoning of industrial land.

Proposed changes in Marrickville include medium to high rise housing (including the Carrington Road Precinct) in areas currently zoned R1, R2, IN2 and IN1.  Existing FSRs and height are 0.95 in the industrial zoning with no height restriction and 0.60 in the residential zoning with height of 9.5 metres (two stories) with some pockets of greater height and density. 

Existing development is 2-3 storey factories in the industrial areas and generally single storey separate housing in the residential areas.  Existing residential flat buildings are typically three storey walk-ups.[65]  The economics of redevelopment of the industrial land are likely to be quite favourable, with considerable opportunity for value capture.  The economics of redevelopment of existing separate housing is less favourable, and is likely to require quite liberal controls allowing six storey construction or higher for redevelopment to occur.  Opportunities for value capture range from 7% for six stories to 15% for 14 stories.  The economics of redevelopment of existing flat buildings will also require quite liberal controls, with redevelopment likely to require a minimum of eight stories to be viable, and opportunities for value capture ranging from 1% for eight stories to 10% for 14 stories.

Proposed changes in Dulwich Hill include medium to high rise housing and shop top housing in areas currently zoned R1, R2, R3, R4, B2 and B4.  Existing FSRs and height are 2.2 and 14-17 metres (4-5 stories) in the business zoning and 0.60 in the residential zoning with height of 9.5 metres (two stories) with some pockets of greater height and density. 

Existing development is two storey shopfronts in the business zoned areas and generally single storey separate housing in the residential areas with some residential flat buildings.  Existing residential flat buildings are typically three storey walk-ups.[66] 

There is insufficient data available to assess the redevelopment of existing commercial areas, but values are likely to reflect those for existing separate housing.  The economics of redevelopment of existing separate housing is relatively favourable, but is likely to require quite liberal controls allowing six storey construction or higher for redevelopment to occur.  Opportunities for value capture range from 10% for six stories to 17% for 14 stories.  The economics of redevelopment of existing flat buildings will also require quite liberal controls, with redevelopment likely to require a minimum of eight stories to be viable, and opportunities for value capture ranging from 3% for eight stories to 11% for 14 stories.

There are four proposed redevelopment areas under the Parramatta Road Urban Transformation Strategy.  These are part of the Kings Bay Precinct at Croydon, currently zoned  B6 (Enterprise Corridor) and R2 (Low Density residential); Taverners Hill Precinct, currently zoned a mixture  B2 (Business Centre), R2 (Low Density Residential),  R1 (General Residential); Leichhardt Precinct currently zoned B2 (Business Centre) and R1 (General Residential);  and the Camperdown Precinct currently zoned B2 (Business Centre), R2 (Low Density Residential), R1 (General Residential), and IN2 (Light Industrial). The exhibited draft Parramatta Road Urban Transformation Strategy, which is currently under review by Urban Growth NSW, included development scenarios for these four precincts that envisaged residential flat buildings ranging from three/four stories up twelve stories in height.

Based on our modelling, and depending on the final details of planning controls, construction of residential flat buildings of three storeys and over are likely to be profitable in Camperdown, as are construction of six storeys in Leichhardt in B2 zoning and construction of three stories in Leichhardt in areas of separate housing.  Consequently, opportunities for value capture would be expected, ranging from 2% to 20% for Camperdown, 3% to 18% in areas of Leichhardt currently zoned B2 (Leichhardt Precinct) and 3% to 23% in areas of Leichhardt currently zoned R1 (Taverners Hill Precinct).

7.2.2      Modelling (Redevelopment)

Overview

The modelling assumes the development of a block of land of 1,000 m2, assumed to be 25 metres wide by 40 metres deep.  Based on the setbacks of 6.0 metres in the apartment design guide, the developable area is 28 metres by 13 metres, or 364 m2.

Three scenarios have been considered for the land purchase, that is the value of the land prior to the uplift in land values as a result of changes to planning controls.

In the first, it is assumed that separate housing consisting of a median priced house on a median sized block of land is amalgamated to achieve the developable block, and that a median price is paid, that is existing housing is purchased and demolished to enable high density residential flat development.  The purchase price is calculated as:

Median house price X 1,000 / median lot size

In the second scenario, it is assumed that existing three storey residential flat buildings are demolished to enable high density residential flat development and that the purchase price is the median for two bedroom strata for the area.   A footprint of 0.33 of the lot is assumed, giving around 4.5 70 m2 two bedroom apartments per floor, or 14 apartments in total.  The purchase price is calculated as:

Median two bedroom strata price X 14

In the third scenario, the land cost is taken as an average price for an industrial zoned lot of 1,000 m2 in Marrickville LGA as estimated using recent sales data;[67] and an average price per square metre for recent sales of industrial land in Camperdown.[68]

The cost of construction has been estimated using rates from Rawlinsons Australian Construction Handbook 2012, multiplied by 1.5 to allow for GST, professional costs, inflation and financing costs.  The estimate assumes five 70m2 apartments per floor, based on the developable area of 364 m2, and 1.2 underground car spaces per unit.  The rates used were for underground parking and for lifted multi storey medium standard apartments.

Profit has been estimated as Sales price less land purchase and construction cost, and has been estimated as a percentage of land purchase and construction cost.

Profit in excess of a normal profit percentage of 10% has been treated as a windfall profit and hence the likely land value uplift, and a land value capture contribution has been calculated based on a 50:50 split of the land value uplift between the developer and/or landowner and a contribution for a public purpose.  The land value capture contribution has been shown as a proportion of gross floor area and is shown as LVC% in the table.  While this has been shown as a proportion of GFA (or its equivalent in dwellings), all or some proportion of this could be taken in cash rather than as apartments, if council wished to redirect a proportion of the value capture to another public purpose.

Modelling has been carried out for three stories (FSR 1.1, height 12.0 metres), six stories (FSR 2.2, height 21.0 metres), eight stories (FSR 2.9, height 27.0 metres) and fourteen stories (FSR 5.1, height 45.0 metres).

The results of the modelling are shown in the table below.


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Council Meeting

28 March 2017

 

Table 7‑1: Potential Redevelopment Scenarios for Selected Post Codes

Scenario 1 ($ ’ 000,000)

Suburb

Land purchase Scenario 1

Construction

cost three stories

sale price

profit

profit %

LVC %

Construction

cost six stories

sale price

profit

profit %

LVC %

2042 (Enmore/Newtown)

$8.75m

$5.01m

$9.53m

-$4.23m

-31%

Nil

$10.02m

$19.05m

$0.28m

2%

Nil

2044 (St Peters/ Sydenham/ Tempe)

$4.55m

$5.01m

$10.45m

$0.88m

9%

Nil

$10.02m

$20.90m

$6.32m

43%

12%

2048 (Stanmore)

$6.48m

$5.01m

$9.44m

-$2.06m

-18%

Nil

$10.02m

$18.87m

$2.36m

14%

2%

2049 (Lewisham/Petersham)

$5.73m

$5.01m

$10.58m

-$0.17m

-2%

Nil

$10.02m

$21.15m

$5.39m

34%

9%

2050 (Camperdown)

$9.22m

$5.01m

$10.78m

-$3.46m

-24%

Nil

$10.02m

$21.56m

$2.31m

12%

1%

2203 (Dulwich Hill)

$4.23m

$5.01m

$9.90m

$0.66m

7%

Nil

$10.02m

$19.80m

$5.55m

39%

10%

2204 (Marrickville)

$5.02m

$5.01m

$9.60m

-$0.43m

-4%

Nil

$10.02m

$19.20m

$4.16m

28%

7%

 

Suburb

Land purchase Scenario 1

Construction cost eight stories

sale price

profit

profit %

LVC %

Construction cost 14 stories

sale price

profit

profit %

LVC %

2042 (Enmore/Newtown)

$8.75m

$13.37m

$25.40m

$3.29m

15%

2%

$23.39m

$44.45m

$12.31m

38%

10%

2044 (St Peters/ Sydenham/ Tempe)

$4.55m

$13.37m

$27.86m

$9.94m

56%

15%

$23.39m

$48.76m

$20.81m

75%

18%

2048 (Stanmore)

$6.48m

$13.37m

$25.16m

$5.31m

27%

7%

$23.39m

$44.03m

$14.15m

47%

13%

2049 (Lewisham/Petersham)

$5.73m

$13.37m

$28.20m

$9.10m

48%

13%

$23.39m

$49.35m

$20.23m

70%

18%

2050 (Camperdown)

$9.22m

$13.37m

$28.74m

$6.15m

27%

7%

$23.39m

$50.30m

$17.68m

54%

14%

2203 (Dulwich Hill)

$4.23m

$13.37m

$26.40m

$8.81m

50%

13%

$23.39m

$46.20m

$18.58m

67%

17%

2204 (Marrickville)

$5.02m

$13.37m

$25.60m

$7.21m

39%

10%

$23.39m

$44.80m

$16.39m

58%

15%

 

Suburb

Land purchase Scenario 1

Construction

cost three stories

sale price

profit

profit %

LVC %

Construction

cost six stories

sale price

profit

profit %

LVC %

2038 (Annandale)

$7.66m

$5.01m

$10.99m

-$1.69m

-13%

Nil

$10.02m

$21.98m

$4.29m

24%

6%

2131 (Ashfield)

$3.31m

$5.01m

$10.20m

$1.87m

23%

5%

$10.02m

$20.40m

$7.06m

53%

14%

2041 (Balmain, Balmain East, Birchgrove)

$10.46m

$5.01m

$14.81m

-$0.66m

-4%

Nil

$10.02m

$29.63m

$9.14m

45%

12%

2132 (Croydon)

$3.57m

$5.01m

$8.97m

$0.39m

5%

Nil

$10.02m

$17.94m

$4.34m

32%

8%

2045 (Haberfield)

$3.05m

$5.01m

$11.88m

$3.82m

47%

13%

$10.02m

$23.76m

$10.69m

82%

20%

2040 (Leichhardt, Lilyfield)

$5.94m

$5.01m

$12.87m

$1.91m

18%

3%

$10.02m

$25.74m

$9.77m

61%

16%

2039 (Rozelle)

$7.97m

$5.01m

$16.73m

$3.74m

29%

7%

$10.02m

$33.45m

$15.45m

86%

20%

2130 (Summer Hill)

$4.29m

$5.01m

$10.73m

$1.42m

15%

2%

$10.02m

$21.45m

$7.14m

50%

13%

 

Suburb

Land purchase Scenario 1

Construction cost eight stories

sale price

profit

profit %

LVC %

Construction cost 14 stories

sale price

profit

profit %

LVC %

2038 (Annandale)

$7.66m

$13.37m

$29.30m

$8.27m

39%

11%

$23.39m

$51.28m

$20.22m

65%

17%

2131 (Ashfield)

$3.31m

$13.37m

$27.20m

$10.52m

63%

16%

$23.39m

$47.60m

$20.90m

78%

19%

2041 (Balmain, Balmain East, Birchgrove)

$10.46m

$13.37m

$39.50m

$15.67m

66%

17%

$23.39m

$69.13m

$35.27m

104%

23%

2132 (Croydon)

$3.57m

$13.37m

$23.92m

$6.98m

41%

11%

$23.39m

$41.86m

$14.90m

55%

15%

2045 (Haberfield)

$3.05m

$13.37m

$31.68m

$15.27m

93%

22%

$23.39m

$55.44m

$29.00m

110%

24%

2040 (Leichhardt, Lilyfield)

$5.94m

$13.37m

$34.32m

$15.01m

78%

19%

$23.39m

$60.06m

$30.73m

105%

23%

2039 (Rozelle)

$7.97m

$13.37m

$44.60m

$23.27m

109%

24%

$23.39m

$78.05m

$46.69m

149%

28%

2130 (Summer Hill)

$4.29m

$13.37m

$28.60m

$10.94m

62%

16%

$23.39m

$50.05m

$22.37m

81%

20%


 

Scenario 2 ($ ’ 000,000)

Suburb

Land purchase Scenario 2

Construction cost three stories

sale price

profit

profit %

LVC %

Construction cost six stories

sale price

profit

profit %

LVC %

2042 (Enmore/Newtown)

$8.89m

$5.01m

$9.53m

-$4.38m

-32%

Nil

$10.02m

$19.05m

$0.14m

1%

Nil

2044 (St Peters/ Sydenham/ Tempe)

$9.75m

$5.01m

$10.45m

-$4.32m

-29%

Nil

$10.02m

$20.90m

$1.12m

6%

Nil

2048 (Stanmore)

$8.81m

$5.01m

$9.44m

-$4.38m

-32%

Nil

$10.02m

$18.87m

$0.04m

0%

Nil

2049 (Lewisham/Petersham)

$9.87m

$5.01m

$10.58m

-$4.31m

-29%

Nil

$10.02m

$21.15m

$1.26m

6%

Nil

2050 (Camperdown)

$10.06m

$5.01m

$10.78m

-$4.29m

-29%

Nil

$10.02m

$21.56m

$1.47m

7%

Nil

2203 (Dulwich Hill)

$9.24m

$5.01m

$9.90m

-$4.35m

-31%

Nil

$10.02m

$19.80m

$0.54m

3%

Nil

2204 (Marrickville)

$8.96m

$5.01m

$9.60m

-$4.37m

-31%

Nil

$10.02m

$19.20m

$0.22m

1%

Nil

 

Suburb

Land purchase Scenario 2

Construction cost eight stories

sale price

profit

profit %

LVC %

Construction cost 14 stories

sale price

profit

profit %

LVC %

2042 (Enmore/Newtown)

$8.89m

$13.37m

$25.40m

$3.14m

14%

2%

$23.39m

$44.45m

$12.17m

38%

10%

2044 (St Peters/ Sydenham/ Tempe)

$9.75m

$13.37m

$27.86m

$4.74m

21%

4%

$23.39m

$48.76m

$15.61m

47%

13%

2048 (Stanmore)

$8.81m

$13.37m

$25.16m

$2.99m

14%

2%

$23.39m

$44.03m

$11.83m

37%

10%

2049 (Lewisham/Petersham)

$9.87m

$13.37m

$28.20m

$4.96m

21%

5%

$23.39m

$49.35m

$16.09m

48%

13%

2050 (Camperdown)

$10.06m

$13.37m

$28.74m

$5.31m

23%

5%

$23.39m

$50.30m

$16.84m

50%

13%

2203 (Dulwich Hill)

$9.24m

$13.37m

$26.40m

$3.79m

17%

3%

$23.39m

$46.20m

$13.57m

42%

11%

2204 (Marrickville)

$8.96m

$13.37m

$25.60m

$3.27m

15%

2%

$23.39m

$44.80m

$12.45m

39%

10%

 

 

 

Suburb

Land purchase Scenario 2

Construction cost three stories

sale price

profit

profit %

LVC %

Construction cost six stories

sale price

profit

profit %

LVC %

2038 (Annandale)

$10.26m

$5.01m

$10.99m

-$4.28m

-28%

Nil

$10.02m

$21.98m

$16.95m

8%

Nil

2131 (Ashfield)

$9.52m

$5.01m

$10.20m

-$4.33m

-30%

Nil

$10.02m

$20.40m

$8.55m

4%

Nil

2041 (Balmain, Balmain East, Birchgrove)

$13.83m

$5.01m

$14.81m

-$4.02m

-21%

Nil

$10.02m

$29.63m

$5.78m

24%

6%

2132 (Croydon)

$8.37m

$5.01m

$8.97m

-$4.41m

-33%

Nil

$10.02m

$17.94m

-$0.46m

-3%

Nil

2045 (Haberfield)

$11.09m

$5.01m

$11.88m

-$4.22m

-26%

Nil

$10.02m

$23.76m

$2.65m

13%

1%

2040 (Leichhardt, Lilyfield)

$12.01m

$5.01m

$12.87m

-$4.15m

-24%

Nil

$10.02m

$25.74m

$3.70m

17%

3%

2039 (Rozelle)

$15.61m

$5.01m

$16.73m

-$3.90m

-19%

Nil

$10.02m

$33.45m

$7.82m

31%

8%

2130 (Summer Hill)

$10.01m

$5.01m

$10.73m

-$4.30m

-29%

Nil

$10.02m

$21.45m

$1.42m

7%

Nil

 

Suburb

Land purchase Scenario 2

Construction cost eight stories

sale price

profit

profit %

LVC %

Construction cost 14 stories

sale price

profit

profit %

LVC %

2038 (Annandale)

$10.26m

$13.37m

$29.30m

$5.68m

24%

6%

$23.39m

$51.28m

$17.63m

52%

14%

2131 (Ashfield)

$9.52m

$13.37m

$27.20m

$4.31m

19%

4%

$23.39m

$47.60m

$14.69m

45%

12%

2041 (Balmain, Balmain East, Birchgrove)

$13.83m

$13.37m

$39.50m

$12.31m

45%

12%

$23.39m

$69.13m

$31.91m

86%

20%

2132 (Croydon)

$8.37m

$13.37m

$23.92m

$2.18m

10%

Nil

$23.39m

$41.86m

$10.10m

32%

8%

2045 (Haberfield)

$11.09m

$13.37m

$31.68m

$7.23m

30%

8%

$23.39m

$55.44m

$20.96m

61%

16%

2040 (Leichhardt, Lilyfield)

$12.01m

$13.37m

$34.32m

$8.94m

35%

9%

$23.39m

$60.06m

$24.66m

70%

18%

2039 (Rozelle)

$15.61m

$13.37m

$44.60m

$15.62m

54%

14%

$23.39m

$78.05m

$39.05m

100%

23%

2130 (Summer Hill)

$10.01m

$13.37m

$28.60m

$5.22m

22%

5%

$23.39m

$50.05m

$16.65m

50%

13%

 

 

 

Scenario 3 ($ ’ 000,000)

Suburb

Land purchase Scenario 2

Construction cost three stories

sale price

profit

profit %

LVC %

Construction cost six stories

sale price

profit

profit %

LVC %

2044 (St Peters/ Sydenham/ Tempe)

$1.96m

$5.01m

$10.45m

$3.48m

50%

13%

$10.02m

$20.90m

$8.91m

74%

18%

2204 (Marrickville)

$1.96m

$5.01m

$9.60m

$2.63m

38%

10%

$10.02m

$19.20m

$7.22m

60%

16%

2038 (Camperdown)

$4.50m

$5.01m

$10.99m

$1.48m

16%

2%

$10.02m

$21.98m

$7.45m

51%

14%

 

Suburb

Land purchase Scenario 2

Construction cost eight stories

sale price

profit

profit %

LVC %

Construction cost 14 stories

sale price

profit

profit %

LVC %

2044 (St Peters/ Sydenham/ Tempe)

$1.96m

$13.37m

$27.86m

$12.54m

82%

20%

$23.39m

$48.76m

$23.41m

92%

21%

2204 (Marrickville)

$1.96m

$13.37m

$25.60m

$10.28m

67%

17%

$23.39m

$44.80m

$19.45m

77%

19%

2038 (Camperdown)

$4.50m

$13.37m

$29.30m

$11.43m

64%

16%

$23.39m

$51.28m

$23.38m

84%

20%


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Limitations of modelling

The modelling is necessarily general in nature using median prices and broad estimates, and outcomes for a particular site will depend on the details of the site and the details of the proposed development.  The modelling assumes that the economics of redevelopment of low rise commercial sites will be similar to redevelopment of existing residential flat buildings, as there is little data available for commercial sites and commercial sites vary widely in size.

Assumptions have been made with regard to development controls and dwelling yield, and preliminary architectural design would be required to confirm these assumptions.  Similarly, cost estimates on preliminary architectural design would be required to confirm estimates of construction cost.

The economics are likely to be much better for redevelopment of brownfield sites, and likely worse for relatively new two storey commercial premises, although as noted, consideration would need to be given to any remediation required for industrial sites.

Nonetheless, the modelling gives insight into likely sensitivities of development and broad insight into likely profit associated with uplift, and where such strategies are most likely to be effective in the context of housing markets within Inner West LGA.

7.3      Marginal uplift from increased height and/or density

7.3.1      Overview

In many cases, developers will offer to enter into a voluntary planning agreement that allows for additional saleable Gross Floor Area through LEP clause 4.6 variations related to height or FSR.  Where such variations are found to have merit in their own right, and so warrant approval, Council may wish to capture some of the associated value uplift.  Assessment may be made on a case by case with value uplift estimated by land valuers and quantity surveyors or can be assessed on a proportional basis using averages.  An assessment on a proportional basis using averages is set out below.

The analysis is conducted on a marginal basis, that is only the additional costs and additional value are considered.  As such the purchase cost of the land, site costs and the like are ignored.

Where a Voluntary Planning Agreement results in an increase in saleable floor area, land value capture of 21% to 34% of the additional saleable floor area obtained as a result of the Voluntary Planning Agreement is warranted.

7.3.2      Modelling (Additional Saleable Floor Area)

The modelling below assesses the marginal value uplift and hence value capture from additional saleable floor area as a proportion of floor area, represented as apartments where value uplift in excess of a normal profit of 10% is shared 50:50 with the developer and a public purpose.  The land value capture is shown as a proportion of saleable floor area to allow for universal application.

The modelling uses assumptions as set out above in section 7.2.2.

Table 7‑2: Potential Marginal uplift for Selected Post Codes

Marginal uplift ($ ’ 000,000)

Suburb

Construction

cost per floor

sale price

Uplift

Uplift %

LVC %

2042 (Enmore/Newtown)

$1.67m

$3.18m

$1.50m

90%

21%

2044 (St Peters/ Sydenham/ Tempe)

$1.67m

$3.48m

$1.81m

108%

24%

2048 (Stanmore)

$1.67m

$3.15m

$1.47m

88%

21%

2049 (Lewisham/Petersham)

$1.67m

$3.53m

$1.85m

111%

24%

2050 (Camperdown)

$1.67m

$3.59m

$1.92m

115%

24%

2203 (Dulwich Hill)

$1.67m

$3.30m

$1.63m

98%

22%

2204 (Marrickville)

$1.67m

$3.20m

$1.53m

92%

21%

2038 (Annandale)

$1.67m

$3.20m

$1.53m

92%

21%

2131 (Ashfield)

$1.67m

$3.66m

$1.99m

119%

25%

2041 (Balmain, Balmain East, Birchgrove)

$1.67m

$3.40m

$1.73m

104%

23%

2132 (Croydon)

$1.67m

$2.99m

$1.32m

79%

19%

2045 (Haberfield)

$1.67m

$3.96m

$2.29m

137%

27%

2040 (Leichhardt, Lilyfield)

$1.67m

$4.29m

$2.62m

157%

29%

2039 (Rozelle)

$1.67m

$5.58m

$3.90m

234%

34%

2130 (Summer Hill)

$1.67m

$3.58m

$1.90m

114%

24%

 


 

8        Testing the Feasibility of Contribution Rates

8.1      Rationale and considerations in setting a contribution rate

The purpose of this discussion paper is to provide a rationale for a contribution rate that will deliver appropriate levels of affordable housing but will not be so high as to stifle development.  With regard to the latter, it should be noted that there are likely to be other brakes on development.  These are most likely to be the need for lot consolidation and the quality of existing development (e.g. demolition of older timber housing is likely to be more favoured than demolition of good quality offices).

It should be noted that the modelling is general and based on medians and averages.  Larger lots and lots with greater heights and density would be expected to support higher levies.

There is no clear pattern for differentiating the proposed levy using broader geographical areas.  If a differentiated levy was proposed a calculator approach would be best, with the inputs to the calculator being the post code, the previous zoning and the likely height.

8.2      Effect of levy on viability

8.2.1      Overview of Findings

The tables below show the impact of Affordable Housing levies of 15% and 5% on development viability in terms of existing zoning, post code and height.

The impact of a 15% levy compared to a 5% levy is most marked in the case of existing units and better value commercial property.  There is some impact on the redevelopment of separate housing at lower densities, but with reduced impact at higher densities.  There is little predicted impact for industrial land and poorer value commercial property, except at densities likely to be much lower than expected planning controls.

While separate housing could be rezoned to allow higher densities, viability will be affected by the need to consolidate property, and this may be difficult given the generally small lots sizes across the LGA.  The most likely areas where this type of redevelopment could take place are Haberfield, Rozelle and Ashfield, all with typically larger lots. 

Due to lot size and the need for consolidation, redevelopment in areas of separate housing is likely to be smaller developments, and this could be exempted from the levy through having a threshold such as 10 or 20 dwellings.

A similar argument can be put forward for redevelopment of existing low rise residential flat buildings, and in any case quite high densities would be required to support redevelopment. 

The highest profits are associated with rezoning of industrial land, and a 15% levy is generally supportable across these areas.

Considering recent development in inner Sydney, most redevelopment is taking place on rezoned industrial land, due to its lower value as industrial land and the larger lot sizes available.

The other major area of development is mixed use developments in commercial zonings.  We have not modelled commercial zoning due to the wide range in prices depending on the nature of existing development, however in similar work done previously in the Arncliffe area there were two broad prices for commercial land, a higher price similar to Scenario 2 (redevelopment of existing low rise residential flat buildings) for better value properties such as 2-3 storey offices; and a lower price similar to our Scenario 3 (redevelopment of industrial land) for lower value properties such as car yards and older smaller single storey premises with areas of undeveloped land such as car parks and hard stand.

8.2.2      Likely impact on development of 15% target

·                      Table 8‑1: Redevelopment of separate housing:

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

2042, 2048, 2049, 2050, 2204, 2038, 2041

2044, 2203, 2131, 2132, 2045, 2040, 2039, 2130

 

6

 

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2130

2045, 2040, 2039

8

 

2042, 2048, 2049, 2050, 2203, 2204, 2038, 2132

2044, 2131, 2041, 2045, 2040, 2039, 2130

14

 

2042, 2048, 2050

2044, 2049, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130


 

 

·                      Table 8‑2: Redevelopment of existing units (also likely to be similar for better value commercial property such as office buildings)

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

 

 

6

2132

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2045, 2040, 2039, 2130

 

8

 

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

 

14

 

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2132, 2130

2041, 2045, 2040, 2039

 

·                      Table 8‑3: Redevelopment of industrial land (also likely to be similar for poorer value commercial property such as car yards)

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

 

2044, 2204, 2038

 

6

 

2038 (viable at 14%)

2044, 2204

8

 

 

2044, 2204, 2038

14

 

 

2044, 2204, 2038


 

 

8.2.3      Likely impact on development of 5% target

·                      Table 8‑4: Redevelopment of separate housing:

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

2042, 2048, 2049, 2050, 2204, 2038, 2041

2040, 2130

2044, 2203, 2131, 2045, 2039

6

 

2042, 2048, 2050

2044, 2049, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

8

 

2042

2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

14

 

 

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

 

 

·                      Table 8‑5: Redevelopment of existing units (also likely to be similar for better value commercial property such as office buildings)

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130

 

 

6

2132

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2045, 2040, 2130

2041, 2039

8

 

2042, 2044, 2048, 2203, 2204, 2038, 2131, 2132

2049, 2050, 2038, 2041, 2045, 2040, 2039, 2130

14

 

 

2042, 2044, 2048, 2049, 2050, 2203, 2204, 2038, 2131, 2041, 2132, 2045, 2040, 2039, 2130


 

·                      Table 8‑6: Redevelopment of industrial land (also likely to be similar for poorer value commercial property such as car yards)

Stories

Post Codes not viable

Post Codes not viable with levy

Post Codes viable with levy

3

 

2038

2044, 2204

6

 

 

2044, 2204, 2038

8

 

 

2044, 2204, 2038

14

 

 

2044, 2204, 2038

 

8.3      Conclusion

Redevelopment is most likely to take place in older industrial areas and areas of low quality commercial development.  Our modelling suggests that a levy of 15% is likely to be sustainable for developments of six stories and above in such areas, particularly given the order of accuracy of the modelling and the relatively conservative assumptions used.

Development in areas of separate housing is likely to be limited due to small lot sizes and the need to assemble land.  High densities are likely to be necessary to support such redevelopment and a 15% levy is generally sustainable for 8-14 storey development, again within the accuracy of the modelling.  Three storey development, avoiding the separation requirements of the Apartment Design Guide, is generally not likely to be viable, and where it is viable would probably result in smaller developments due to smaller lot sizes.  For example a three storey development on a double block in Ashfield would be expected to yield ten dwellings.  The viability of smaller developments is most likely to be affected by a levy, and setting a minimum sized development to attract the levy is one way of addressing this.  This can be done either as a minimum number of dwellings or as a minimum GFA.  The latter is preferred, as a criterion based on number of dwellings could lead to construction of larger dwellings within the development envelope in order to avoid the levy.  Appropriate thresholds could be 20 dwellings or GFA of 1,700 m2.[69]

Similarly, redevelopment of existing low rise residential flat buildings and better quality commercial is unlikely to occur due to the quite high densities required to ensure viability, and where it does occur will probably be on larger lots with development economics more favourable than those modelled, and hence able to support the levy.

Appendix A: Opportunities and Constraints of Principal Legislation and Related Policies

In NSW, objects and a range of related provisions have been progressively included in the Environmental Planning and Assessment Act 1979 (NSW) since 1999, including section 5(a)(viii) which provides that an objective of the Act is the ‘maintenance and provision of affordable housing’.[70] There are likewise definitions and benchmarks related to ‘affordable housing’ in core legislation and related policy, though there are practical differences in affordable housing outcomes due to differences in affordable housing definitions in different instruments.[71]

Importantly, it is a requirement of the Act that a consent authority take into account the social and economic impacts of a development application as part of a merits assessment under s79C(1)(b). This has obvious applicability to development applications that may result in the loss of affordable or low cost housing, such as low cost flats, Boarding Houses and caravan parks, as well as the assessment of the benefits of an application involving the creation of affordable housing, particularly where this is balanced against other factors as part of the merits assessment. The ability to seek mitigation for loss of affordable housing as part of conditions of consent is also possible under this head of consideration. A growing body of case law in the NSW Land and Environment Court related to social impacts is also relevant.

Likewise, a consent authority is required to consider whether a proposed development is in the public interest under s 79C(1)(e), and a growing body of case law has likewise determined that it is in the public interest to give effect to the objectives of relevant legislation. It is relevant in this regard that the Act has as an objective ‘the maintenance and provision of affordable housing’ (s5(a)(viii)).

As such, on the face of it, local government has a role and indeed a statutory obligation to seek to preserve and create affordable housing through the planning and assessment process. However, there are also limitations to local government’s power under the Act, particularly in relation to the levying of mandatory contributions for affordable housing, though arguably its constraints are not as great as some would perceive, and there are examples of schemes where this has occurred.

Dealing first with mandatory contributions, in June 2000, further amendments were made to the Act in relation to affordable housing to provide consent authorities with the specific power to require, as a condition of consent, the dedication of land free of charge or the payment of a monetary contribution for affordable housing in certain circumstances.  Sections 94F and 94G were introduced[72] to provide consent authorities with the express power to impose such conditions ‘if a State Environmental Planning Policy (SEPP) identifies that there is a need for affordable housing within an area’ and certain other conditions are met.[73]

The relevant SEPP for this purpose is SEPP 70 Affordable Housing (Revised Schemes) (SEPP 70), which amends relevant local and regional environmental planning instruments to enable the levying of development contributions to provide for affordable housing. SEPP 70 provides guidance regarding the requirements for assessing housing need, setting contribution levels, apportionment, administration and accountability, and specifies relevant income and rental criteria.[74]

On the face of it, this gives effect to what a number of Councils had been doing for some time under the pre-2000 provisions of s94 (development contributions including for community facilities). However, the provisions of s94F and s94G are operationalised and limited in practice by SEPP 70, which applies to a very limited number of housing schemes including Ultimo-Pyrmont, Willoughby and Green Square, and to only three Council areas – Sydney, Leichhardt and Willoughby Councils. This would appear to preclude other Councils from imposing a mandatory levy, at least under s94F and s94G, although some Councils have done so unchallenged.[75] Despite lobbying from Councils throughout NSW where affordable housing is increasingly a serious issue,[76] the State Government has to date maintained the limited application of s94F and 94G of the Act.

This mechanism is supported by provisions of the relevant local environmental plans.

·    In the case of City of Sydney, c7.13 of the Sydney Local Environmental Plan 2012 sets out affordable housing contributions.  These are 3% of residential floor area and 1% of other floor area for development in Green Square or on southern employment land; and 0.8% of residential floor area and 1.1% of other floor area for development in Ultimo-Pyrmont.

·    In the case of Willoughby Council, c6.8 of the Willoughby Local Environmental Plan 2012 sets out affordable housing contributions amongst other considerations.  These are 4% total floor space of areas identified as Area 3 on the Special Provisions Map.

There have also been other areas that have been subject to specific contributions plans, for example, Redfern Waterloo Authority Affordable Housing Contributions Plan 2006, where affordable housing contributions were collected by the NSW State Government under S94F of the Act, with a Regulation supporting the development of a contributions plan for this State Significant Development. The Contributions Plan is required by s32 of the Redfern-Waterloo Authority Act 2004 to authorise relevant conditions of consent or contributions. Such contributions may be imposed by virtue of s30 of the Redfern-Waterloo Authority Act 2004, which removes the requirements under s93F(1) and s93F(3)(b) of the Environmental Planning and Assessment Act 1979 included in a SEPP (noting that other schemes where such contributions apply come under SEPP 70).

Other express provisions are also contained within the Act to further its affordable housing object.

S93F of the Act provides for the making of a voluntary planning agreement in relation to a proposed amendment to a planning instrument or development application. Under such a planning agreement, the developer is required to dedicate land free of cost, pay a monetary contribution, or provide any other material public benefit, or any combination of them, to be used for or applied towards a public purpose. ‘Affordable housing’ as defined in the Act is one of the listed ‘public purposes’.

A planning agreement is generally advertised in conjunction with the development or rezoning application to which it relates, and forms part of the conditions of consent. A planning agreement is registered and runs with the title to the land, and is binding on, and enforceable against, the owner of the land from time to time as if each owner for the time being had entered into the agreement. The provisions also provide for administrative, reporting, review and other accountability requirements like other forms of development contributions, and may be used in place of or as well as levies with respect to other infrastructure under normal development contributions provisions of the Act. Importantly, a planning agreement does not have to demonstrate nexus between the development and the public purpose for which it was made.

Other powers in relation to levying for affordable housing are provided for the NSW State Government in amendments to the Act in relation to ‘Special Infrastructure Contributions’, which expressly include ‘affordable housing’ as a form of special infrastructure.  This includes the provision, extension and augmentation of (or the recoupment of the cost of providing, extending or augmenting) public amenities or public services, affordable housing and transport or other infrastructure relating to land [emphasis added]; and the funding of recurrent expenditure in relation to the above, or any studies or other support required (s94ED).

Special Contributions Areas are set out in Schedule 5A to the Act, and currently include areas within Wyong, Liverpool, Camden, Blacktown, The Hills and Hawkesbury LGAs. Such contributions are not limited to the provision of infrastructure within a ‘special contributions area’, although such contributions are not to be required unless the provision of infrastructure ‘arises as a result of the development or class of development of which the development forms part’ (s94EE(2)(c)) (for example, in relation to district level infrastructure).  

Reasonable discretion appears to be provided for under s94EE(3), which states that, despite the limitations of other provisions, ‘the Minister may…determine the level and nature of development contributions in the form of a levy of a percentage of the proposed cost of carrying out development or any class of development’. Further, the Minister will determine what part (if any) a development contribution will be ‘for the provision of infrastructure by a Council’ (s94EE(3A)).  It is noted that, in determining the level and nature of contributions, the Minister will, as far as practicable make the contribution ‘reasonable with regard to the cost’ of infrastructure in relation to the development (s94EE(2)(a)).

Finally, it is noted that Councils often assume greater limitations to their powers than necessary since the gazettal of the 2000 amendments.[77] However, s94F(5) makes it clear that ‘nothing in this section prevents the imposition on a development consent or other conditions relating to the provision, maintenance or retention of affordable housing’. This, and s5(a)(viii) and other relevant provisions discussed above, appear to provide sufficient latitude for Councils to engage in, for example, negotiating agreements with developers, identifying circumstances in which it is appropriate to provide for planning incentives through relevant EPIs, mandating diversity or affordability through developing performance criteria or targets in relevant plans (e.g. Masterplan DCPs), requiring social impact assessments to mitigate the loss of affordable housing, or other planning or procedural mechanisms apparently available to further the objects of the Act. A range of more active Councils are engaged in some or all of these activities at present, and these types of activities appear to be legal.

The gazettal of State Environmental Planning Policy (Affordable Rental Housing) 2009 (SEPPARH) aimed to provide a consistent planning regime to encourage and enable the provision of different types of affordable housing to various target groups. In particular, the SEPP aims to facilitate the provision of affordable housing through zone liberalisation, the provision of incentives for delivery of new affordable rental housing including close to places of work, facilitating the retention and mitigation of the loss of existing affordable rental housing, and the development of housing for special needs groups including social housing, Boarding Houses and supportive accommodation.    

 

 


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Council Meeting

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Affordable Housing Policy

Background Paper

 

 

 

 

 

 

 

 

November 2016

 


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Council Meeting

28 March 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepared for Inner West Council by Judith Stubbs and Associates

 

Published by Inner West Council

Email: council@innerwest.nsw.gov.au

http://www.innerwest.nsw.gov.au/

 

Copyright © Inner West Council 2016

 

ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior consent of the publishers.


 

Table of Contents

1..... Overview of Background Report 1

2..... Gentrification and Displacement within Inner West Council Area  3

2.1..... Indicators of Socio-Economic Change  3

2.2        Housing Stress  4

3..... Affordable Housing  5

3.1..... What is Affordable Housing?  5

3.2..... Change in Housing Cost Over Time  6

3.2.1              Overview.. 6

3.2.2              Median Purchase Price Growth. 6

3.2.3              Median Rental Price Growth. 8

3.3..... Market Delivery of Affordable Housing  10

3.3.1              Overview.. 10

3.3.2              Affordable Purchase in Study Areas. 11

3.3.3              Affordable Rental in Study Areas. 18

3.4..... Linear Regression Analysis  20

3.4.1              Results. 20

3.4.2              Assessment of affordability based on LRA.. 26

4..... Assessment of Value Uplift and Land Value Capture  29

4.1        Overview   29

4.2..... Modelling (Redevelopment) 31

4.3..... Marginal uplift from increased height and/or density  38

4.3.1              Overview.. 38

4.3.2              Modelling (Additional Saleable Floor Area) 38

5..... Testing the Feasibility of Contribution Rates  40

5.1..... Rationale and considerations in setting a contribution rate  40

5.2..... Effect of levy on viability  40

5.2.1              Overview of Findings. 40

5.2.2              Likely impact on development of 15% target 41

5.2.3              Likely impact on development of 5% target 43

5.3        Conclusion  44

 

 

Figures

Figure 3‑1: Median Purchase Price, Separate Houses, March Quarter 1991 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars) 7

Figure 3‑2: Median Purchase Price, Strata Dwellings, March Quarter 1991 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars) 8

Figure 3‑3: Median Rental Price, Separate Houses, March Quarter 1990 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars) 9

Figure 3‑4: Median Rental Price, Strata Dwellings, March Quarter 1990 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars) 10

 

Tables

Table 3‑1: Relevant Affordable Housing Income and Cost Benchmarks. 5

Table 3‑2: Sales prices for separate houses and strata dwellings by quartile for selected areas. 13

Table 3‑3: Sales prices for separate houses and strata dwellings by quartile for selected areas. 14

Table 3‑4: Median sales prices for separate houses and strata dwellings by number of bedrooms for selected areas  16

Table 3‑5: Median sales prices for separate houses and strata dwellings by number of bedrooms for selected areas  17

Table 3‑6: Affordability of rental accommodation for selected Post Codes. 19

Table 3‑7: Regression analysis - Former Marrickville LGA– Separate Houses by price, date, number of bedrooms, number of bathrooms, number of parking spaces, land area and postcode for the year to April 2016  21

Table 3‑8: Regression analysis – Former Ashfield and Leichhardt LGAs – Separate Houses by price, date, number of bedrooms, number of bathrooms, number of parking spaces, land area and postcode for the year to April 2016  22

Table 3‑9: Regression analysis – Former Marrickville LGA – Strata by price, date, number of bedrooms, number of bathrooms, number of parking spaces, and postcode for the year to April 2016. 23

Table 3‑10: Regression analysis – Former Leichhardt and Ashfield LGAs – Strata by price, date, number of bedrooms, number of bathrooms, number of parking spaces and postcode for the year to April 2016  24

Table 3‑11: Regression analysis – Former Marrickville LGA – Strata by price, date, strata area and postcode for the year to April 2016. 25

Table 3‑12: Regression analysis – Former Leichhardt and Ashfield LGAs– Strata by price, date, strata area and postcode for the year to April 2016 (sample size too small to differentiate between postcodes). 26

Table 3‑13: Strata Dwelling affordability. 27

Table 4‑1: Potential Redevelopment Scenarios for Selected Post Codes. 33

Table 4‑2: Potential Marginal uplift for Selected Post Codes. 39

Table 5‑1: Redevelopment of separate housing: 41

Table 5‑2: Redevelopment of existing units (also likely to be similar for better value commercial property such as office buildings) 42

Table 5‑3: Redevelopment of industrial land (also likely to be similar for poorer value commercial property such as car yards) 42

Table 5‑4: Redevelopment of separate housing: 43

Table 5‑5: Redevelopment of existing units (also likely to be similar for better value commercial property such as office buildings) 43

Table 5‑6: Redevelopment of industrial land (also likely to be similar for poorer value commercial property such as car yards) 44

 

 

Appendices

Appendix A:  Socio-Economic Changes Over Time

 


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1        Overview of Background Report

This Background Report provides the context and rationale for Inner West Council’s Affordable Housing Policy, which sets out Council’s strategic priorities and approach to the maintenance and provision of affordable housing in the LGA.

The Report first sets out data and analysis on key issues facing Inner West LGA relevant to the need to create affordable housing. 

The analysis of key indicators of socio-economic change in Appendix A provides clear evidence of significant demographic change, rapid gentrification and displacement of more disadvantaged and vulnerable people from Inner West LGA over at least the past decade, and  inability to accommodate low and moderate income key workers in an increasingly expensive housing market. The more recent gentrification of areas like Sydenham-Tempe-St Peters in recent years, and longer-term displacement of more disadvantaged people from areas like Newtown, are particularly evident. It provides a compelling rationale for intervening in the market to create affordable housing.

The Report then sets out an analysis of historical changes in housing cost, and of current and likely future affordability of purchase and rental housing in different areas of the LGA.

In particular, the findings suggest that virtually no new-build strata products would be affordable for purchase through the market for very low, low and moderate income households, or may be affordable to the very top of the moderate income band at best. All family households with children would be excluded from affordable purchase.

The vast majority of households needing affordable rental housing in Inner West LGA are also excluded from affordable rental through the market, and will be in the future without strong planning intervention.

The findings indicate that the vast majority of those needing affordable purchase housing in Inner West LGA unlikely to have their needs met through the market without planning intervention.

The Report then sets out an analysis of how likely it is that the market could provide affordable housing in the future, and what planning interventions through the market would most likely be effective in this regard.  Again, the findings suggest that there is limited opportunity for the market to provide affordable housing, with very low and low income households excluded, as are larger moderate income households.

Finally, an economic analysis of the likely value uplift associated with redevelopment in various areas, and with rezoning in key urban renewal precincts, is provided as a further rationale for Council’s policy position. The findings provide evidence for significant profit associated with redevelopment for higher density development throughout the LGA, as well as considerable value uplift associated with up-zoning of the three relevant precincts within the Sydenham to Bankstown Urban Renewal Corridor and precincts within the Parramatta Road Urban Transformation Area. These findings provide a strong justification for value capture associated with incentive-based or voluntary planning agreement approaches in association with redevelopment, as well as mandatory contributions or inclusionary zoning within the Urban Renewal Corridor.

 


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2        Gentrification and Displacement within Inner West Council Area

2.1      Indicators of Socio-Economic Change

The analysis of key indicators of socio-economic change in Appendix A provides clear evidence of significant demographic change, rapid gentrification and displacement of more disadvantaged and vulnerable people from the Inner West LGA over at least the past decade. The more rapid gentrification of many areas of the former Marrickville LGA in recent years contrasts with the longer-term displacement of more disadvantaged people from areas within the former Leichhardt LGA, which has the most advantaged profile overall.

·    Although the Inner West LGA saw a similar increase in weekly households income similar to Greater Sydney, the former LGAs of Marrickville and Leichhardt that constitute a significant proportion of the Inner West LGA saw dramatic increases in median weekly household income in real terms (25% and 32%, respectively compared with 10% for Greater Sydney);

 

·    The loss of very low income households in the Inner West was four times the average rate (2.7 p.p. decrease compared with 0.7 p.p. decrease for Greater Sydney), with a particularly high rate of loss in the former Leichhardt LGA;

 

·    There was a decline in the proportion of low income households (-1.0 p.p.) compared with an increase in Greater Sydney (+0.6 p.p.), particularly in the former Marrickville (1.9 p.p. decline) and Leichhardt (1.3 p.p. decline) LGAs;

 

·    Although the percentage increase for median rental for the Inner West LGA is in line with Greater Sydney (27% each), the former Marrickville LGA experienced a substantially greater proportional increase to median rent compared to Greater Sydney (32% compared with 27%). Comparatively high increases in median rent were also seen in the SA2s of Dulwich Hill Lewisham (35%) and Petersham-Stanmore (32%), although starting from a lower base rent;  

 

·    There was a higher percentage point change in the proportion of persons aged 15 years and over with a tertiary qualification (+10.4 p.p. compared with +8.1 p.p. in Greater Sydney). Particularly large increases were seen in the SA2s of Sydenham-Tempe-St Peters (+13.3 p.p.) and Dulwich Hill-Lewisham (+13.1 p.p.), as well as the former Marrickville LGA overall (+12.1 p.p.);

 

·    There was also a significantly higher increase in residents aged 15 years and over with a Bachelor Degree or higher qualification in the Inner West compared with Greater Sydney;

 

·    In terms of occupational profile, the Inner West experienced almost twice the rate of increase of Managers and Professionals compared with Greater Sydney (+7.2 p.p. compared with 4.0 p.p., respectively);

 

·    The decline in unemployed people was around 3 times the average rate of decline, noting that this is more likely to be due to the exit of unemployed people in a gentrifying housing market rather than a real decrease in unemployment per se;

 

·    Finally, there was a much greater than average improvement in the SEIFA Index of Relative Socio-economic Disadvantage and SEIFA Index of Education and Occupation as aggregate measures of area vulnerability, with particularly strong improvement Lewisham, St Peters and Enmore in the case of the former, and in Sydenham, Tempe, Marrickville and St Peters in the case of the latter Index;

 

·    It is also noted that, despite a slight proportional  increase in social housing in the past 10 years, the Inner West LGA has a much lower than average proportion of such accommodation (3.5% compared with 5% for Greater Sydney).

 

The high and growing degree of gentrification and increasing exclusion of diverse income and occupational groups evident from the analysis provides a compelling rationale for intervening in the market to create affordable housing for groups currently being displaced from the Inner West LGA, and for diverse groups who can no longer afford to live there. (See Appendix A for more detail).

2.2      Housing Stress

A very high proportion of households in the key target groups are in housing stress (paying more than their gross household weekly income on housing costs), and thus at risk of having insufficient income to pay for other necessities such as healthy food, education, transport and health care.

In 2011, 81% of very low income, 69% of low income and 26% of moderate income households were in housing stress in the Inner West LGA, with rates trending upwards for low and moderate income renting and purchasing households.  

 

 


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3        Affordable Housing

3.1 What is Affordable Housing?

Housing is generally considered to be ‘affordable’ when households that are renting or purchasing are able to meet their housing costs and still have sufficient income to pay for other basic needs such as food, clothing, transport, medical care and education.

‘Affordable housing’ also has a statutory definition under the NSW Environmental Planning and Assessment Act 1979 (NSW), being housing for very low, low or moderate income households.  SEPP 70 defines ‘very low-income’ households as those on less than 50% of median household income; ‘low-income’ households’ as those on 50-80% of median household income, and ‘moderate-income’ households as those on 80-120% of median household income for Sydney SD. 

 As a commonly used rule of thumb, affordable housing is taken to be housing where households pay less than 30% of their gross household income on housing costs. This is often regarded as the point at which such households are at risk of having insufficient income to meet other living costs, and deemed to be in ‘housing stress’. Those paying more than 50% of gross income are regarded as being in ‘severe housing stress’. 

‘Low cost’ housing is often, though not always, ‘affordable’. For example, in a premium (high amenity) location, even a small, lower amenity strata dwelling may be ‘unaffordable’ to a very low-, low- or moderate-income household.

The following table provides benchmarks that are used in this study when referring to ‘affordable housing’, in 2015 dollars, and are consistent with relevant NSW legislation.

1.                  Table 3‑1: Relevant Affordable Housing Income and Cost Benchmarks

 

Very low-income household

Low-income

household

Moderate-income household

Income                     Benchmark

<50% of Gross                   Median H/H Income                            for Greater Sydney

50-80% of Gross                            Median H/H Income                     for Greater Sydney

80%-120% of Gross                  Median H/H Income                       for Greater Sydney

Income Range (2)

<$783                                           per week

$784-$1,253                                per week

$1,253-$1,879                               per week

Affordable Rental Benchmarks (3)

<$235                                            per week

$236-$376                                    per week

$377-$564                                         per week

Affordable Purchase Benchmarks (4)

<$228,000

$228,001-                              $364,000

$364,001-                               $545,000

Source: JSA 2016, based on data from ABS (2011) Census indexed to March Quarter 2016 dollars

(1)    All values reported are in March Quarter 2016 dollars

(2)    Total weekly household income

(3)    Calculated as 30% of total household income

(4)    Calculated using ANZ Loan Repayment Calculator, using 4 January 2016 interest rate (5.37%) and assuming a 20% deposit for a 30 year ANZ Standard Variable Home Loan and 30% of total household income as repayments.

3.2      Change in Housing Cost Over Time

3.2.1      Overview

Rental and purchase prices have increased significantly within the Inner West LGA in real terms over the two decades or so, with some temporal variation. Overall, a steep increase in purchase prices (particularly in the former Marrickville LGA), and to a lesser extent rental costs, is contributing to an affordability crisis for very low, low and many moderate income households in recent years, as described later.

In real terms (adjusted for inflation) for the Inner West LGA, comprising of the former Ashfield, Leichhardt and Marrickville LGAs:

·    the median price of separate houses increased 4.5 times in Ashfield, 4.0 time in Leichhardt and 6.4 times in Marrickville since 1991;

·    the median price of strata dwellings increased 3.0 times in Ashfield, 3.2 times in Leichhardt and 3.4 times in Marrickville since 1991;

·    the median rent for separate houses increased 1.8 times in Ashfield, 1.8 times in Leichhardt and 2.0 times in Marrickville since 1991; and

·    the median rent for flats and units increased 1.5 times in Ashfield, 2.0 times in Leichhardt and 1.8 times in Marrickville since 1991. 

3.2.2      Median Purchase Price Growth

Separate houses

Median purchase prices for separate houses in Marrickville LGA tracked those in Greater Sydney up until around 1996, after which they diverged. The divergence became greater from 2007 to 2008, and in 2014 median purchase prices for Marrickville increased rapidly to around $1.3 million, leaving Greater Sydney purchase prices behind at around $800,000.

In real terms, Marrickville house prices doubled between 1997 and 2003, and have almost doubled again since 2003.

Former Ashfield and Leichhardt LGAs began with higher median purchase prices, at just under $400,000 in 1991, and generally maintained similar growth patterns up until 2014. However, between 2007 and 2012 median purchase prices for separate houses in Leichhardt LGA tended peaked slightly higher than the Ashfield LGA, but merged again in 2013 with both peaking at approximately $1.5 million in 2015.

2.                  Figure 3‑1: Median Purchase Price, Separate Houses, March Quarter 1991 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars)

 

Strata dwellings

Median purchase prices for strata dwellings in Marrickville and Ashfield LGAs have tracked prices for Greater Sydney since around 2010 after having previously been slightly lower than both Greater Sydney and New South Wales. Strata Dwelling Purchase prices peaked at around $675,000-$700,000 in 2015 for these former LGAs and Greater Sydney. Purchase prices from strata dwellings in Leichhardt LGA, while starting at a similar point to Greater Sydney at approximately $250, 000 saw steeper increases from 1996 to 2001 and a high amount of variability between 2001 and 2005, spiking between around $800,000 and $600,000. From 2006 purchase prices for strata dwellings in Leichhardt followed similar growth patterns to Greater Sydney, peaking at approximately $850,000 in 2015.


 

3.                  Figure 3‑2: Median Purchase Price, Strata Dwellings, March Quarter 1991 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars)

 

3.2.3      Median Rental Price Growth

Separate houses

Median rental costs for separate houses in the former Marrickville, Leichhardt and Ashfield LGAs have remained higher than those for Greater Sydney and New South Wales for the duration of the time series. While each of the LGAs follows a similar trend over the time period, the rental costs for separate houses in Leichhardt remain higher than those in Ashfield and Marrickville LGAs, staring at around $450 in 1990 and peaking at around $800 in 2015. The Marrickville and Ashfield LGAs track closely over the time period, both beginning at just over $400 in 1990 and peaking at approximately $750 in 2015. Generally these LGAs experienced increases between 1996 and 2001 before prices stagnated from 2001 to 2007, sitting between $450-$500 for Marrickville and Ashfield and $550 and $600 for Leichhardt.  Prices began increasing again from 2001 to 20015

 

4.                  Figure 3‑3: Median Rental Price, Separate Houses, March Quarter 1990 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars)

Strata dwellings

Median rents for strata dwellings in Marrickville and Ashfield LGAs have been consistently lower than those in Greater Sydney for the duration of the time series. The difference has been around $25-$50 per week lower for most of the time series, but expanding out to a maximum of $100 per week lower for a brief period in 2001 for Marrickville. While rents for strata dwellings in the Leichhardt LGA began lower than Greater Sydney, they increased, converging with Greater Sydney in 1998 at around $350. From 1998 to 2015, median strata rents for Leichhardt were generally higher than Greater Sydney; however they converged for brief periods in 2010 at around $450 and 2012 at around $480 per week.

5.                  Figure 3‑4: Median Rental Price, Strata Dwellings, March Quarter 1990 to June Quarter 2015, Adjusted for Inflation (March Quarter 2016 Dollars)

 

3.3      Market Delivery of Affordable Housing

3.3.1      Overview

Affordable Purchase

Affordable purchase in the former Marrickville LGA is limited to households in the upper half of the moderate income band and to first quartile strata properties in the suburbs of Enmore, Newtown and Tempe.  Such properties comprise only 4% of dwellings sold during the period.  Analysis by bedroom shows that these dwellings are likely to be studio and one bedroom apartments, which means that affordable purchase is not available for larger and family households in any income band.

There was no affordable purchase in the former Ashfield and Leichhardt LGAs.

It is therefore unlikely that any new build strata products would be affordable through the market as these would equate to at least the median (and more likely the third quartile) sale price, or would be available to only the top of the moderate income band at best. All family households with children would be excluded from affordable purchase.

The findings also indicate that the vast majority of those needing affordable purchase housing in the study area are unlikely to have their needs met through the market without planning intervention.

Affordable Rental

Affordability is somewhat better for rental, however, availability is restricted with affordable rental not available for larger and family very low and low income households and very limited stock affordable to very low income households. 

Very low income households at the upper end of the band can affordably rent a boarding house room in Enmore/Newtown, Lewisham/Petersham, Marrickville, Ashfield and Summer Hill noting that such rooms are about 2% of stock advertised. 

Low income households can affordably rent a boarding house room within Inner West LGA, and can affordably rent a median studio/one bedroom apartment in Dulwich Hill and Croydon, noting that these products comprise around 4% of stock advertised.

Moderate income households can generally affordably rent boarding house rooms and median studio/one bedroom apartments and two bedroom apartments in some suburbs.  These products comprise around 62% of stock advertised, with two bedroom dwellings comprising around 26% of stock.

As such, the vast majority of households needing affordable rental housing in Marrickville LGA are excluded from affordable rental through the market, and will continue to be excluded in the future without strong planning intervention.

3.3.2      Affordable Purchase in Study Areas

Overview

There are few opportunities for affordable purchase within the former Marrickville LGA.  Affordable purchase is limited to those in the upper half of the moderate income household band and to the purchase of first quartile strata properties in the suburbs of Enmore, Newtown and Tempe.  A number of suburbs have no affordable first quartile products including Marrickville, Petersham, St Peters, Stanmore and Sydenham while Lewisham and Dulwich Hill are only affordable to those in the very top of the band.

When data is analysed by bedroom, affordable purchase is limited to studio and one bedroom apartments and for moderate income households in the upper half of the income band for the suburbs of Enmore, Lewisham and Newtown and for those in the upper quarter of the income band in Petersham and St Peters.

There is no affordable purchase in the former Ashfield and Leichhardt LGAs apart from a median one bedroom in Haberfield, however only one such apartment was sold and so the finding is not reliable.

Affordability analysis

Affordability by quartiles

The table below indicates that there were no housing products in the first, second or third quartiles that would have been affordable for purchase by very low or low income purchasers in suburbs within the Inner West LGA in the year ending April 2016.

No separate houses at the first quartile were affordable to any of the target groups in any of the suburbs studied.

First quartile strata dwellings were affordable to the top 50% of moderate income households in Enmore and Newtown, the top 25% of moderate income households in Tempe, and only the very top few percent of moderate income households in Dulwich Hill and Lewisham.

No first quartile affordable purchase is available to any group in Camperdown, Marrickville, Petersham, St Peters, Stanmore, Sydenham, Annandale, Ashfield, Balmain, Balmain East, Birchgrove, Croydon, Haberfield, Leichhardt, Lilyfield, Rozelle or Summer Hill.

 


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6.                  Table 3‑2: Sales prices for separate houses and strata dwellings by quartile for selected areas

 

Separate house

Strata

Suburb

N

Q1

Q2

Q3

N

Q1

Q2

Q3

Camperdown

38

$1,207,000

$1,387,500

$1,737,500

18

$665,000

$740,000

$958,125

Dulwich Hill

62

$1,212,500

$1,400,000

$1,668,500

227

$545,000

$640,000

$750,000

Enmore

53

$1,150,000

$1,290,000

$1,435,000

15

$472,500

$640,000

$726,250

Lewisham

43

$1,136,000