Article by Anthony Whealy and Isabella Ferguson, Gadens Lawyers

The Affordable Rental Housing SEPP was introduced in July 2009 to facilitate new affordable rental housing by providing a range of incentives to encourage developers to build new developments, of which at least 20% of units would be affordable rental housing, managed by not-for-profit community housing providers for a period of time (10 years).The general incentive provided was increased density/floor space being allowed.

The SEPP has been reviewed over a number of recent months, culminating in it being battered and bruised by significant amendments announced on 20 May 2011. In public announcements made that day, Planning Minister Brad Hazzard took aim at the SEPP and did not miss, labelling the SEPP as a ‘a cash cow’ allowing ‘small time developers to rip into local communities and change their entire face’, and referred to ‘the butchery committed on communities’ by the SEPP.

Although Mr Hazzard’s statement says that the State Government has ‘stopped all new private development applications’ under the SEPP (a claim also incorrectly reported by all major newspapers), the SEPP has not in fact been stopped. Rather, it has been amended, and now continues to operate, but in its amended form.

The key changes to the SEPP are:

• For dual occupancies, multi dwelling housing, or residential flat buildings, the SEPP is now only available if the particular development is already permissible on the land (under another LEP or SEPP). Previously the SEPP allowed these developments in all residential zones, but 20% of the dwellings had to be used for affordable housing in zones where the DA was already permissible, and 50% of the dwellings /units had to be used for affordable housing in zones where the DA would otherwise have been prohibited. As the latter category is no longer available, only the 20% minimum requirement remains.
• The requirement that 20% of the number of dwellings be provided as affordable housing allowed developers to build for example 20% of units as small as 1 bedders to satisfy the affordable housing component, and build the other 80% as much larger 2 bedders or 3 bedders which would not be provided as affordable housing. This loophole is fixed by requiring 20% of the total gross floor area to now be provided as affordable housing
• Where such DAs are permissible, the amended SEPP does still provide floor space ratio (FSR) bonuses (otherwise why use the SEPP at all?). These bonuses remain unchanged from the unamended SEPP. The extent of the bonus floor space depends on the amount/component of affordable housing provided, but generally the FSR bonus will be between 0.2:1 and 0.5:1.
• Where such DAs are lodged, seeking to achieve additional FSR as contemplated by the SEPP, a new ‘character’ test applies, whereby the consent authority must consider ‘whether the design of the development is compatible with the character of the local area’. Much information released by the Department misstates this requirement as one whereby the development must actually be compatible. However, the true position is that this is only one matter that must be considered and weighed up as against all other relevant matters for consideration. A development might not be compatible with the character of a local area, but might nevertheless warrant approval for other reasons.
• More problematic though is interpreting what is meant by ‘the local area’ – where does it start and where does it finish? Media releases, fact sheets, circulars, and website statements released by the Department on 20 May all either use different terminology altogether (such as ‘the surroundings’ ‘the neighbourhood’ ‘the locality’ or ‘the area’) or are silent on what the concept of ‘the local area’ captures. It seems to us that as a matter of legal interpretation, the term has to be construed broadly to give effect to the aims and objectives of the SEPP, which are to facilitate, rather than to restrict, affordable housing. As such, the ‘local area’ would be a large area comprising at least a number of blocks, rather than looking at a development by reference to the buildings immediately adjacent to it or only within the same streetscape. If there are other large buildings within the broader ‘local area’, then the proposal may well be compatible with the character of that local area. This view would be supported by the Department’s December 2010 Discussion Paper, which suggests an analysis of ‘streets and blocks’ should be required.
• Tougher parking requirements now apply. Previously the requirement was 0.5 spaces per dwelling. Now the SEPP requirements are dependant on room numbers per dwelling. The 0.5 spaces continues to apply to 1 bedroom dwellings, but this doubles for 2 bedders and triples for 3 bedders.
• The requirement that DAs relying on the SEPP (to obtain bonus FSR) be located within certain distances from accessible public transport facilities – for example 400m from a regular bus stop, or 800m to a railway station or wharf, are largely retained in identical form. The difference here is that the bus stops must also be ones that are used until later at night (9pm weekdays rather than 6pm) and now also on weekends.
• No changes were made to the SEPP in relation to granny flats (secondary dwellings);
• In relation to boarding houses, these are permissible in many zones but within low density zones, they are permissible only when they are within specified distances from regular public transport facilities. Parking requirements also effectively double in low density zones, but are still reasonably low, for example 2 spaces are required for a 10 room boarding house. In other areas, away from accessible public transport facilities, a 10 room boarding house would require 4 spaces. The new “character” test described above also applies to boarding hose DAs.
• Savings provisions are provided for pending DAs that have already been lodged. However the savings provisions are somewhat harsh in that those applications, which have already been designed and may be well into their DA assessment, will now be subject to the consideration of whether their design is compatible with the character of the local area. In addition, the requirement that they provide at least 20% of total “gross floor area” (rather than the old requirement for 20% of total dwellings), will apply to those pending applications.
• The Government has also announced that it now intends to review the SEPP entirely with a view to producing a new affordable housing SEPP. Surprisingly though, the Department will be working with councils to develop their own affordable housing strategies which, if satisfactory, will enable those councils to be exempted from the new SEPP altogether. This could see a return to a piecemeal, council by council approach to the State’s affordable housing crisis. Or, more likely, a process of forcing all developers to pay for new affordable housing by way of mandatory levies whenever they carry out any new development of any kind.

Conclusion

There can be little doubt that NSW is experiencing a genuine rental crisis. Market forces of supply and demand almost certainly guarantee that with less rentals available, rental prices will continue to increase, intensifying the shortfall in ‘affordable’ rental housing. The demand for rental housing in NSW is predicted to increase by 80% by 2045. There can be no doubt that NSW faces a genuine housing affordability crisis.

Previously the AH SEPP had the potential to go some way to increasing the stock of affordable rental housing in NSW. Whether it went far enough was highly doubtful. The amendments to the AH SEPP, announced on 20 May 2011, while certainly a win for local councils and local communities, will make it less likely that the private sector will choose to contribute towards the construction of new affordable housing stock in NSW, other than perhaps on a very small scale by way of the retained ‘granny flat’ provisions of the AH SEPP.

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