By Anthony Whealy, Partner and Amelia De Mattia, Associate

A recent decision of the Land and Environment Court of NSW (‘Court’) serves as a reminder that the power to impose a condition of consent requiring the payment of contributions or the dedication of land for the purposes of providing affordable housing is discretionary in certain circumstances, and can therefore be challenged in appeals to the Court.

In Freecity Alpha Development Pty Ltd v The Council of the City of Sydney [2025] NSWLEC 1694, a case in which we acted for the Developer of the site, the Council of the City of Sydney (‘Council’) sought to impose a condition of consent requiring the payment of an affordable housing contribution on a co-living housing development proposed to be operated as student accommodation, in very close proximity to Sydney University. The imposition of this condition was disputed on behalf of the Developer.

Section 7.32 of the Environmental Planning and Assessment Act 1979 (‘EP&A Act’) is the source of power allowing a consent authority to impose a condition of consent requiring the payment of contributions or the dedication of land specifically for the purpose of providing affordable housing, and reads as follows:

7.32 Conditions requiring land or contributions for affordable housing (cf previous s 94F)

(1) This section applies in relation to a development application for consent to carry out development within an area if a State environmental planning policy identifies that there is a need for affordable housing within the area.

(2) Subject to subsection (3), the consent authority may grant consent to a development application to which this section applies subject to a condition requiring—

(a) the dedication of part of the land, or other land of the applicant, free of cost to be used for the purpose of providing affordable housing, or

(b) the payment of a monetary contribution to be used for the purpose of providing affordable housing,

or both.

(3) A condition may be imposed under this section only if—

(a) the condition complies with all relevant requirements made by a State environmental planning policy with respect to the imposition of conditions under this section, and

(b) the condition is authorised to be imposed by an environmental planning instrument, and is in accordance with a scheme for dedications or contributions set out in or adopted by such an instrument, and

(c) the condition requires a reasonable dedication or contribution, having regard to any other dedication or contribution required to be made by the applicant under this section or section 7.11.

(4) A consent authority that proposes to impose a condition in accordance with this section must take into consideration any land or other sum of money that the applicant has previously dedicated free of cost, or previously paid, for the purpose of affordable housing within the area otherwise than as a condition of a consent.

(5) Nothing in this section prevents the imposition on a development consent of other conditions relating to the provision, maintenance or retention of affordable housing. Such conditions may require, but are not restricted to, the imposition of covenants (including positive covenants) or the entering into of contractual or other arrangements.

For the purposes of subclause (1), the State Environmental Planning Policy (Housing) 2021 (‘SEPP Housing’) provides at s 14 that there is a need for affordable housing within the whole State.

Therefore, the condition proposed by the Council could only be imposed if the provisions of subclause (3) were all satisfied. The relevant discretionary consideration is that in subclause (3)(c).

The Council argued that the provisions of subclause (3) were all satisfied as:

For the purposes of s 7.32(3)(b), there was no question that the condition was authorised to be imposed by s 7.3 of the EP&A Act, and that the relevant “scheme” was that identified in cl 7.13(4) of the Sydney Local Environmental Plan 2012 (‘SLEP’), being the City of Sydney Affordable Housing Program adopted 26 June 2023, which in turn provides the relevant calculations of the contribution.

With respect to subclause (3)(c), it was argued on behalf of the Developer that the imposition of the condition was not reasonable as the development was for the purposes of student accommodation, which may be regarded as synonymous with affordable housing. Although co-living housing appears in Chapter 3 – “Diverse Housing” rather than Chapter 2 – “Affordable Housing” of SEPP Housing, when used for student accommodation it is nevertheless arguably housing for very low, low, or moderate income households. Accordingly, it was argued that imposing a condition requiring the payment of a contribution for the purposes of providing affordable housing, where the development itself is essentially a form of affordable housing, is unreasonable and is essentially ‘double dipping’.

In agreeing with the Developer and exercising its discretion not to impose the affordable housing condition, the Court noted the following important matters (at [137] – [144])

1. The term “affordable housing” is defined in s1.4 of the EP&A Act as:
   1. affordable housing means housing for very low income households, low income households or moderate income households, being such households as are prescribed by the regulations or as are provided for in an environmental planning instrument.
2. The SEPP Housing contains a more substantive definition of “affordable housing”, including that the household:
   1. has a gross income within the following ranges of percentages of the median household income for Greater Sydney or the Rest of NSW—
      1. very low income household—less than 50%,
      2. low income household—50–less than 80%,
      3. moderate income household—80–120%, and
   2. pays no more than 30% of gross income in rent
3. Whilst the Developer was not constrained from charging rent equivalent to more than 30% of the household income, it was reasonable to conclude that as the development is for the purposes of student accommodation, it is likely that the development will accommodate very low, low, or moderate income households.
4. The Plan of Management lodged with the Development Application (and imposed via the conditions of consent) required prospective residents to provide evidence of and identify an enrolment in any “registered training organisation in Australia”. In that regard, the NSW Affordable Housing Ministerial Guidelines 2023/2024 suggest that where “affordable housing” comprises a household with a median income of up to $132,900, this is likely to describe the residents of the proposed development since they must be registered students (as required by the terms of the Plan of Management).
5. Pursuant to s 70 of the SEPP Housing, co-living developments cannot be subdivided into separate lots. Accordingly, it can be concluded that the development is (and will remain) for the purposes of student accommodation that is likely to be occupied by households on an income no greater than $132,900.
6. A relevant consideration was the modest scale of individual units, designed in conformity with the requirements of s 69 of SEPP Housing that limits the size of each private room to not more than 25m² and not less than 12m², for a private room intended to be used by a single occupant, or otherwise 16m². This would likely impact on the rental pricing/accommodation cost of the rooms within the development.

The decision is consistent with a very recent decision by the Court in Lynch v The Council of the City of Sydney [2025] NSWLEC 1574, where the Court exercised its discretion not to impose a condition requiring the payment of an affordable housing contribution for a development proposing the construction of a new single dwelling (to replace an existing dwelling). In that case, the condition sought a contribution of some $218,000 on a single dwelling house, which equated to over 10% of the total construction cost. The Court held that this “is a substantial sum and ultimately represents an unreasonable burden to apply to one family seeking to rebuild (and enlarge) an existing family home”.

These cases do not mean that an affordable housing contribution will always be unreasonable for every co-living or single dwelling house development. However, it certainly highlights that those arguments are available, and that the Land and Environment Court might well be minded to strike out such conditions in circumstances where they are similarly unreasonable.

For co-living developments, legal advice should be sought during the DA process, as factors such as demographics, site location, and proper identification of the likely occupants of a building (potentially crystallised through a carefully drafted Plan of Management) will be important considerations.

Ultimately, the Freecity decision is a reminder that the power to impose an affordable housing contribution is discretionary in circumstances where its imposition may be unreasonable for the purposes of s 7.32(3)(c) of the EP&A Act. Whilst the public benefit in requiring contributions towards affordable housing is important and well understood, the legislation clearly maintains a discretionary consideration which is often overlooked. This discretion is important in attempting to strike a balance between the public benefit in contributing towards affordable housing in the traditional sense, and ensuring that there is still an incentive for development to occur at all, in particular development which also provides alternative housing for very low, low, and moderate income households.  In this case, the fact that student accommodation was labelled as “diverse housing” under the Housing SEPP did not mean that it would not also in reality provide an important form of affordable housing. To impose further affordable housing levies on such a development was in our view inherently unreasonable, and the Court ultimately agreed.

Need further assistance?

For those needing further assistance or clarity on the appeal process or any aspect of development or modification applications, our Planning and Environment team at Mills Oakley is here to help. We are experienced in advocating and advising developers and property owners, and can provide expert guidance to navigate any challenges with local councils. Please reach out to Anthony Whealy for assistance.