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Affordable Housing, what’s happening?

Australia’s median real house price has almost quadrupled since 1970, while real wages have only doubled[1]. An analysis of recent Census indicates Victoria’s population grew by a total of 20.2% between 2006 and 2016, almost 1 million persons. More people are renting, fewer young people are entering home ownership, and more people are taking on greater debt burdens and consequently experiencing housing stress. Housing is becoming more unaffordable.

State Government policy initiatives, Homes for Victorians: Affordability, access and choice (March 2017) and Plan Melbourne 2017-2050 (March 2017) have recognised the critical need to increase the supply of affordable housing. Various groups have tried to address the issues in an ad-hoc manner at a localise scale. Some councils and developers have tried to negotiate provision for affordable housing as part of a proposed development only to fail at the last hurdle. Yarra, Glen Eira, Moreland, Brimbank have started drafting or drafted Affordable-housing policies as a mechanism to increase the amount of affordable housing within their community.

 

 

Figure 1. Vulnerability Assessment for Mortgage, Petrol and Inflation Risks and Expenditure (VAMPIRE) index[2]

The problem cannot be solved through policy alone. Levels of affordable housing need does not automatically translate to a percentage of housing that could be achieved through the planning scheme or a planning negotiation. It is clear there needs to be a comprehensive whole of Government strategy where land, financing, funding and planning need to be part of the solution. The state government recently fired the first shot in an attempt at creating a cohesive policy direction. The Victorian State Government attempted to clarify the rules through a voluntary mechanism allowing greater public-private partnerships.

What is proposed?
On 1 June 2018 the Planning and Environment Act was amended in three parts to facilitate voluntary agreements for the provision of affordable housing as part of development applications. The amendments include:

  • A new objective to the Act “to facilitate the provision of affordable housing in Victoria”;
  • A definition of affordable housing – “affordable housing is housing, including social housing, that is appropriate for the housing needs of very low, low, and moderate-income households”; and
  • Affirming the use of section 173 for voluntary affordable housing agreements “…a Responsible Authority may enter into an agreement with an owner of land for the development or provision of land in relation to affordable housing”.

Furthermore the state government has allocated income bands for the very low, low and moderate incomes in relation to the rest of the state. These bands are annually reviewed and determine the level of need and if the built form outcomes are appropriate to these households.

Household type in Greater Melbourne Very low (50% median) Low (80% median) Moderate (120% median)
Single $25,220 $40,340 $52,940
Couple $37,820 $60,520 $84,770
Family $52,940 $84,770 $127,080

The government has acknowledged that the policy is a voluntary mechanism. Thus an instrument such as a planning scheme cannot be used to coerce developers and housing associations to provide a solution. The onus has been put back onto the councils to demonstrate strategic justification that demonstrate investment value and community uplift. Without this, there is no obligation for the developer or the housing agency to come to the table. This can been seen at 826 Whitehorse Road Box Hill; where the developer for a 30 storey apartment, office and retail building was able to successfully argue at VCAT that the conditions imposed by The City of Whitehorse to include 10 dwellings as social or affordable homes to be used by a housing authority — were invalid as the developers, had not agreed to the condition.

The Affordable Housing Industry Advisory Group has reinforced this view – success will only occur when there is:

  • Sufficient value and investment available to meet costs;
  • Willing organisations with the capacity to develop and the capacity to manage outcomes on a sustainable basis; and
  • Understanding key stakeholder requirements to operate effectively.

The housing associations do not want housing stock that isn’t fit for purpose and doesn’t meet the needs of their user. The questions planning policies need to be addressed is ‘will the built form be affordable, appropriate and allocated?’

IE: Example 1:

  1. LGA determines 10% of its municipal profile required affordable housing; therefore proposes new development above $5mill requires 5% to be allocated affordable
  2. Developer X has proposed a 100-apartment complex with a construction value of $10mill. LGA negotiates a section 173 agreement where 5% (5 units) will become affordable housing and thus approves a planning permit.
  3. Developer X attempts to negotiate with Housing Agency for the sale of 5 units at market price.
  4. Housing association does not come to the table – Section 173 agreement is not completed; units remain vacant and cannot be sold.

The primary purpose of a housing agency is to attract, create, hold and manage value in affordable housing for lower income households. Agencies do not receive operating subsidy, therefore do not have the ability to purchase property. The mission and business practices of each agency revolves around determining and matching households in need with appropriate built forms outcomes that ensure ongoing affordability. Thus an agency will not enter an agreement with a developer where it cannot manage the long-term viability of the housing or the development. Secondly a housing agency will not enter an agreement with a developer where there is an operational restriction in managing the long-term viability of the property.

IE: Example 2:

  1. LGA determines 10% of its municipal profile required affordable housing; therefore proposes new development above $5mill requires 5% to be allocated affordable
  2. Developer X has proposed a 100-apartment complex with a construction value of $10mill. LGA imposes a planning conditiona where 5% (5 units) will become affordable housing and thus approves a planning permit.
  3. Developer X is forced to gifts or part gifts 5 units to a Housing Association and sells the remaining units at an above market prices.
  4. Developer does not come to the table, as the development is no longer viable. Affordable housing targets are not achieved.

Both examples demonstrate that all parties need to come to the table to negotiate a viable solution where value is created for all parties. The policy direction by the state government puts significant pressure on LGA’s to show clear guidance and solutions on how affordable housing solutions will be achieved within their municipalities. It requires discretion from LGA’s and the ability to be flexible if they want to achieve outcomes. This will be challenging to several LGA’s as it will place them in direct conflict within their community and sometimes their own policies.

Can developers exploit the loop holes?
Plan Melbourne outlines a number of ways we can achieve greater affordable housing. One way would be to create additional value for the land owner and seek agreements where the value is shared. The City of Melbourne in 2016 attempted an incentive based planning provision (Amendment C270) which aimed to incentivises floor area uplift within the central city.

  • The proposal created a base Floor Area Ratio at 18:1, with a greater Floor Area Ratio triggering a floor area uplift mechanism.
  • If the proposed floor area ratio exceeds 18:1, the application required details of the public benefit to be provided. The responsible authority would then consider the extent of the floor area ratio exceeding 18:1 and the public benefit achieved.
  • The public benefit for Floor Area Uplift (FAU) would be determined through a predefined methodology

The FAU mechanism was introduced to reward developers with extra floors in return for contributing to the community. The scheme nominated several inclusions that could contribute towards the community including, libraries, aquatic centres, art galleries, performance spaces, meeting rooms, kindergartens, social housing, open space, etc. However, by the time it became policy the term “community benefit” was replaced with “public benefit”; opening provisions of commercial office uses. As of February 2018, a total of 54,248sqm of commercial floor area has been awarded to applicants due to uplifts with no floor area uplift awarded under the other defined community benefit categories.

 

Conclusion
Its very early days for affordable housing policies in Victoria with the value capture mechanism under heavy debate and scrutiny from all segments. Some segments of local government want to levy developers to co-fund new community infrastructure to avoid any exploitation by developers and to ensure any value captured stays within the LGA. The attitude from several major developers is aimed towards the lack of clarity and certainty in the planning process and very little trust offered towards government. The housing agencies keep reminding us subsidised housing needs subsides. But one thing everyone can agree on is the need for increased affordable and social housing.

The recently re-elected state government with a majority has made it clear that it will take a soft touch towards regulation – the initiative is aimed squarely at local governments to work with private developers to find a custom solution for their individual LGA’s. The state government will underwrite and provide financial support if the business case stacks up. With open policy comes the opportunity for innovation of development models and also exploitation of good will.

 

[1] Committee for Economic Development of Australia (CEDA) (2017) Housing Australia, Melbourne, CEDA., p. 16.

[2] Grifith Univeristy Urban Research Program

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