NSW Government proposes new Housing Diversity SEPP

Following the outbreak of COVID-19 in Australia and the staged shutdowns that have been implemented across the country, the outlook for the housing market faces significant uncertainty. Whilst the full impact of COVID-19 on the economy, labour market and housing demand still remains to be seen, as part of its response to the impacts of COVID-19, the NSW Department of Planning, Industry and Environment (DPIE) proposes to introduce a new ‘Housing Diversity State Environmental Planning Policy’ (Housing Diversity SEPP).

The Housing Diversity SEPP is intended to facilitate the construction of affordable and well-designed rental accommodation and introduces updates to existing planning provisions for seniors, social and student housing. The Housing Diversity SEPP is one of the ways that the DPIE hopes to ensure that the development sector plays an active role in assisting in the economic recovery of New South Wales. While a draft copy of the Housing Diversity SEPP has not been publicly released yet, the DPIE has released an Explanation of Intended Effect (EIE) and called for submissions to be made in response to this by 9 September 2020.

Summary of proposed changes

The EIE explains that the Housing Diversity SEPP will:

• consolidate the following three housing-related SEPPs:
  • State Environmental Planning Policy (Affordable Rental Housing) 2009 (ARH SEPP);
  • State Environmental Planning Policy (Housing for Seniors and People with a Disability) 2004 (Seniors SEPP); and
  • State Environmental Planning Policy No 70 – Affordable Housing (Revised Schemes).
• introduce new definitions into the Standard Instrument- Principal Local Environmental Plan for ‘build-to-rent housing’, ‘student housing’ and ‘co-living’;
• amend select state-level planning provisions, particularly in relation to boarding house and seniors housing development; and
• amend select state-level planning provisions to support social housing developments undertaken by the NSW Land and Housing Corporation (LAHC) on government-owned land.

Consolidation of three Housing-related SEPPS

As part of the NSW Government’s program to streamline the planning system by reducing the number of State policies, the EIE states that the proposed Housing Diversity SEPP will aim to deliver a planning framework that consolidates three existing State level housing-related planning policies into a single instrument.

New definitions for build-to-rent housing, student housing and co-living

Through the introduction of new definitions and planning provisions for build-to-rent housing, student housing and co-living, the Housing Diversity SEPP will aim to provide new opportunities for institutional investment in residential development in New South Wales, generating new jobs in the planning and construction industry and jobs associated with the ongoing management of these housing types.

Amendments to select provisions for boarding house and seniors housing developments

The proposed changes will introduce an affordability requirement to boarding house developments, which is currently assessed and approved under the ARH SEPP. The ARH SEPP was introduced in 2009 to facilitate growth in affordable rental housing stock. However, in its operation, there has been a significant expansion of new generation boarding house developments but no commensurate growth in affordable housing. Although when the ARH SEPP was introduced it was assumed that the smaller habitable rooms within boarding house developments would be rented out at affordable rates, in reality it has been stated in some quarters that many developers have been able to use the ARH SEPP and attract market rents for “micro apartments” in attractive locations, close to the city and public transport.

In addition to introducing an affordability requirement, the EIE specifies that a number of amendments should be made to the ARH SEPP and Seniors SEPP, including amendments designed to:

• remove the requirement for boarding houses to be mandated within the R2 – Low Density Residential zone;
• change the floorspace ratio (FSR) bonus for boarding house development to 20%;
• update the provisions relating to retention of existing affordable housing;
• update the provisions of Schedule 1 – Environmentally sensitive land of the Seniors SEPP to align with current legislative and planning provisions;
• amend the SEPP provisions to clarify that development standards in a local environmental plan prevail to the extent of any inconsistency with the SEPP; and
• introduce provisions in the new SEPP so that a Site Compatibility Certificate (SCC) is valid for five years, provided that a development application is lodged within 12 months of the date on which the SCC is issued.

Amendments to support social housing developments undertaken by the NSW LAHC

The new Housing Diversity SEPP will introduce a series of changes to the ARH SEPP and Seniors SEPP designed to promote the delivery of new housing by or on behalf of LAHC on government-owned land. This will include:

• implementing provisions that are aimed at facilitating the redevelopment of government-owned land for two storey residential development, that may comprise elements of social, affordable and private housing, by increasing the number of dwellings in a development that LAHC can self-assess from 20 to 60;
• extending density bonuses and car parking concessions that currently apply under the ARH SEPP and Seniors SEPP, to all components, including the private housing components, of a residential development undertaken by or on behalf of LAHC;
• clarifying that LAHC can carry out any type of residential accommodation, including manor houses and terraces, that is permissible under an environmental planning instrument; and
• allowing LAHC to self-assess applications for subdivision of government-owned land.

Some key considerations for councils

Many local councils have voiced their concerns that the developments carried out under the previous housing-related SEPPs do not adequately meet the demand for low-cost housing, but instead provide accommodation for young professionals and students, with no affordability obligations imposed on developers.

Through implementing the changes proposed under the Housing Diversity SEPP, the DPIE intends to introduce an affordability component by changing the definition of “boarding house.” In addition, a boarding house will be required to be managed by a registered not-for-profit community-housing provider. These providers offer housing for people on very low, low or moderate incomes or to people with additional needs. In order to maintain their registration, non-for-profit community housing providers must follow national standards for community housing.

Another key change proposed for boarding house developments concerns the FSR incentive. Boarding house developments proposed on land where residential flat buildings are permitted and which do not contain a heritage item or certain heritage protections attract an FSR bonus. The FSR control which applies to those developments is the maximum FSR for any form of residential accommodation on that land plus an extra 0.5:1 FSR where the existing maximum FSR is 2.5:1 or less, or an extra 20% of the existing maximum FSR if the FSR control is over 2.5:1.

The new affordability requirement has also led to the introduction of new housing typologies under the Standard Instrument and proposed Housing Diversity SEPP. Developers have used the current boarding house provisions to construct accommodation for occupants such as students, singles and professionals. Build-to-rent (BTR) housing is a large-scale apartment development offering long-term private rentals where the building is in single ownership and management, and on-site management services are provided. The New South Wales Government hopes to attract institutional investment into this type of accommodation to increase stable and long-term rental options for residents. BTR housing will be permissible with development consent in higher density residential, commercial and mixed use zones with the option for councils to introduce the development into additional zones by amending their LEP’s. The Housing Diversity SEPP will incentivise the development of BTR housing through a favourable minimum car parking space requirement, with height and FSR standards to be regulated by councils.

Making a submission

Noting that it is intended that the new Housing Diversity SEPP will introduce a number of significant changes to the planning controls governing housing development across New South Wales, we encourage local councils to review the EIE in detail and consider the potential implications for its local government area.

Special thanks to Elizabeth Ryan, Lawyer and Rebecca Stokes, Lawyer for their assistance in putting this article together.