By Aaron Gadiel, Partner

The NSW Government has taken a backward step in its support for ‘build-to-rent’ housing — cancelling a new planning pathway in ‘Central Sydney’ only five months after it became available.  In a related measure, a new extended system of ‘affordable housing’ levies now applies across the City of Sydney.

The changes were made by the Sydney Local Environmental Plan 2012 (Amendment No 52) and took effect on 1 July 2021.  The decision was taken by the Department of Planning, Industry and Environment on behalf of the Planning Minister, Rob Stokes.

Build-to-rent

In February 2021 the NSW Government amended the State Environmental Planning Policy (Affordable Rental Housing) 2009 (the Affordable Housing SEPP) to create a new development assessment stream for ‘build-to-rent housing’.  Mills Oakley outlined the new scheme in an article here.

However, from 1 July 2021 all of the Affordable Housing SEPP has been switched-off for ‘Central Sydney’.  This includes Sydney’s central business district, extending as far as Haymarket.

This means that the build-to-rent housing provisions are no longer available in Central Sydney.  (They are also not available to some land at Green Square, Ultimo-Pyrmont and the ‘southern employment land’, but these exclusions were pre-existing.)

It also means that other planning streams favouring affordable rental housing (under the Affordable Housing SEPP) are no longer available in Central Sydney.  For example, the bonus floor space ratio for ‘in-fill affordable housing’ (and boarding houses) has been stripped away.

Development applications in Central Sydney that were pending at 1 July 2021 can still benefit from the Affordable Housing SEPP provisions, including the build-to-rent provisions.  However, anyone who had been spending money on a build-to-rent proposal for Central Sydney — who had not yet made a development application — will now be out-of-pocket with no compensation.

The change is striking.  Only in February, the government took steps to expressly include zone ‘B8 Metropolitan Centre’ in the build-to-rent housing planning scheme.  This zone is only located within the City of Sydney, in Central Sydney.  This is a very significant back-flip in a short period of time.  This is likely to further weaken the confidence of the development industry in the stability of the state’s planning regime.

Affordable housing levies

The change also introduced a new ‘affordable housing’ levy on development in Central Sydney and most other areas of the City of Sydney.  This levy is known as a ‘section 7.32’ levy.

Existing levies on certain land in Green Square and Ultimo-Pyrmont generally remain, with some tweaks.

For development applications lodged before 1 July 2022 to new levy is equal to:

• 1.5 per cent of the total floor area of the development that is intended to be used for residential purposes; and
• 0.5 per cent of non-residential total floor area.

Development applications that were pending on 1 July 2021 are not subject to the new levy.

For development applications lodged from 1 July 2022 to new levy is equal to:

• three per cent of the total floor area of the development that is intended to be used for residential purposes; and
• one per cent of non-residential total floor area.

Despite what the Sydney Local Environmental Plan 2012 (the LEP) says (under the overarching planning legislation) a condition imposing the levy cannot be included in a development consent unless either:

• the consent authority is satisfied that the proposed development will or is likely to reduce the availability of affordable housing within the area;
• the consent authority is satisfied that the proposed development will create a need for affordable housing within the area; or
• the proposed development is allowed only because of the initial zoning of a site, or the rezoning of a site.

When a condition is imposed, the condition must require the levy to be met (at the choice of the developer) either by:

• a dedication in favour of the City of Sydney of one or more dwellings (each having a total floor area of 35-90 square metres) with any remainder being paid as a monetary contribution; or
• a monetary contribution to the Council.

However (despite what the LEP now says) any condition imposed can only require a reasonable dedication or contribution, having regard to:

• the extent of the need in the area for affordable housing;
• the scale of the proposed development; and
• any other dedication or contribution required to be made by the applicant as a ‘section 7.32’ affordable housing contribution or as a ‘section 7.11’ contribution.

The new levy is not mandatory.  That is, a consent authority is not required to impose the levy, even when it has the legal power to do so.

This means that a consent authority is obliged to consider any representations made (as part of the development application) as to why the levy should not be imposed in a particular case.  It is not lawful for a consent authority to refuse to consider those representations, even when they seek a departure from the City of Sydney’s policies.

It is worth noting that there are various exclusions from the calculation of ‘total floor area’.  (‘Total floor area’ is defined differently from the ‘gross floor area’ used for calculating floor space ratio.)

Notably, any floor area that is used for ‘affordable housing’ is excluded from the levy.   This may be important to some developers.

‘Affordable housing’ is defined to be housing for ‘very low income households’, ‘low income households’ or ‘moderate income households’.  This captures housing for households whose household income is anywhere up to 120 per cent of the median household income for Greater Sydney (Greater Capital City Statistical Area) according to the Australian Bureau of Statistics.  At the time that the 2016 census data was collected, 120 per cent of the median household income for Greater Sydney was $2,100 a week.

There is no requirement for housing to be managed by a non-profit or community housing organisation to benefit from this exclusion.