New Housing SEPP rolled-out, impacting on development opportunities

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By Aaron Gadiel, Partner

The NSW government has finalised its re-shaping of its housing state environmental policies.  There have been reductions in development opportunities and a few scattered improvements.

Background

A state environmental planning policy (SEPP) is a legal document that has the capacity to override or replace local environmental plans (LEPs).

This means that SEPPs can:

  • establish that certain types of development are permissible; and
  • set development standards,

even when these measures are not supported by local councils.

In July 2020 the NSW government released wide-ranging proposals for a new ‘Housing Diversity SEPP’ — this was to be an entirely new state environmental planning policy.

Mills Oakley published an article in August 2020 on those proposed changes —  we concluded that the overall tenor of the then proposed changes would have a negative impact on housing supply.

In December 2020 the government finalised some limited aspects of its ‘Housing Diversity’ policy proposals.  This included measures to expand the levies on, and regulation of, the demolition/refurbishment of boarding houses and some residential flat buildings.  Mills Oakley published an article explaining those particular changes at that time.

More changes were made on 12 February 2021.  These largely concerned ‘build-to-rent’ housing.  Mills Oakley also published an article dealing with those changes at that time.

The latest changes (published on 26 November 2021) represent the substantial conclusion of most aspects of the original July 2020 proposals.

The general tenor and direction of these latest changes were generally foreshadowed in a Mills Oakley article published in August 2021.

The changes are embodied in the new State Environmental Planning Policy (Housing) 2021 (Housing SEPP).  This document repeals and replaces five longstanding SEPPs.

The changes brought about by the new Housing SEPP are complex and wide-ranging.  Much of the substance of these changes was foreshadowed in the various draft documents that have been previously exhibited (see the previous Mills Oakley articles in the links above).

This article will confine itself to a few notable aspects of the package.

Transitional arrangements

Some development applications lodged on or before 26 November 2021 are covered by transitional arrangements.

Such pending development applications are only captured by the transitional arrangements if their determination would have been subject to the SEPPs that have been repealed and replaced by the Housing SEPP.  These are:

  • State Environmental Planning Policy (Affordable Rental Housing) 2009;
  • State Environmental Planning Policy No 70—Affordable Housing (Revised Schemes);
  • State Environmental Planning Policy (Housing for Seniors or People with a Disability) 2004;
  • State Environmental Planning Policy No 21—Caravan Parks; and
  • State Environmental Planning Policy No 36—Manufactured Home Estates.

These former (repealed) SEPPs continue to apply to development applications covered by the transitional arrangements.

The transitional arrangements apply to both regular and concept development applications.

Additionally, a ‘staged development application’ made after 26 November 2021 will also be covered by the transitional arrangements if it has been made subsequent to a concept development application granted on or before 26 November 2021.

Rent control

The recent policy focus on rent control as a solution to the desire for ‘affordable housing’ has now been further entrenched.

While some forms of ‘affordable housing’ under the Environmental Planning and Assessment Act 1979 (the EP&A Act) were previously subject to rent control, now all ‘affordable housing’ must be rent-controlled.

If the ‘affordable housing’ is not managed under the eligibility of the National Rental Affordability Scheme, the occupying household must pay no more than 30 per cent of its gross income in rent.  If the rent exceeds this level, it will not be ‘affordable housing’ under the EP&A Act.  (The revised legislative scheme now appears to assume that housing is only ‘affordable’ if it subject to rent control.) Existing provisions requiring such housing to accommodate households with a gross income of up to 120 per cent of the median are generally retained.

The revision of this definition will potentially confer a modest benefit on the owners/developers of boarding houses and some residential flat buildings (that have not been strata subdivided).

In February 2021 the government extended a levy regime to a wider range of such buildings (to apply when they are re-developed).  The revised definition of ‘affordable housing’ means that it will now be more difficult for a consent authority to impose the levy if the occupants of the existing premises pay more than 30 per cent of their gross income in rent (because the existing housing will not be ‘affordable housing’ under the EP&A Act).

Infill affordable housing

The existing scheme for bonus floor space ratio when ‘affordable housing’ is provided as part of a development has generally been retained.

However, the ‘affordable housing’ component must now be reserved for that use for 15 years, rather than ten years.

‘Boarding houses’ and ‘co-living housing’

The definition of the ‘boarding house’ development type has been (separately) changed in all local environmental plans (and this new definition is used in the Housing SEPP).

Significantly, a new development is not a ‘boarding house’ unless (among other things):

  • the occupants of the boarding house pay no more than 30 per cent of their gross income in rent; and
  • it is either to be managed by a registered community housing provider or carried out by the NSW Government’s public housing development agency.

For most private developers, this change will make the ‘boarding house’ development type unattractive.

However, there is a new, separate, development type called ‘co-living housing’ which is intended to cover some of the ground previously captured within the new generation ‘boarding houses’ developed since 2009.

In general terms, ‘co-living housing’:

  • has at least six private rooms (some or all of which may have private kitchen and bathroom facilities);
  • provides occupants with a principal place of residence for at least three months; and
  • has shared facilities maintained by a managing agent (who provides management services 24 hours a day),

but does not include backpackers’ accommodation, a boarding house, a group home, hotel/motel accommodation, seniors housing or a serviced apartment.

‘Co-living housing’, is permitted wherever residential flat buildings, ‘shop top housing’ or ‘co-living housing’ is permitted under a local environmental plan or a SEPP (other than the Housing SEPP).

The standards for ‘co-living housing’ are different from the new generation ‘boarding houses’ developed by the private sector since 2009.  There is a hierarchy of standards.  In general terms, as follows:

  • some standards must be complied with, unless there is a ‘clause 4.6’ variation;
  • some standards do not need to be complied with, but if they are satisfied the ability of the consent authority to refuse consent is limited; and
  • some standards that must merely be taken into consideration (and do not necessarily need to be complied with in the course of a merit assessment).

Significantly, the floor space ratio bonus (that previously applied to new generation ‘boarding houses’) has been significantly scaled back (from 20-100 per cent to 10 per cent).

Seniors Housing

There are several particularly notable changes to seniors housing.

Firstly, the Housing SEPP gives effect to an almost blanket removal of rural land from the special seniors housing arrangements.  The ability to develop seniors housing on rural land (that adjoins land zoned primarily for urban purposes) was one of the central features of the previous long-standing seniors housing scheme.  The proposed new seniors housing scheme will only apply to a single rural zone, being the ‘Zone RU5 Village’ (RU5) zone.

Secondly, the age to qualify as a ‘senior’ resident (in new seniors housing) has been increased from 55 years to 60 years.

Thirdly, there is a development standard that requires a consent authority to be satisfied that any seniors housing development in the ‘R2 Low Density Residential’ must be operated as a retirement village.  This standard may potentially be varied under ‘clause 4.6’ in appropriate circumstances. It also does not apply where development for the purposes of seniors housing is permitted on a site under another SEPP or LEP.

Finally, there is a more generous provision for height and floor space ratio bonuses (when compared with the previous seniors housing special arrangements).  This needs some brief explanation.

The former Seniors Housing SEPP contained provisions that related to vertical villages (potentially medium-rise or high-rise) seniors housing developments.

The previous scheme allowed for a bonus floor space ratio of 0.5:1.  This is, for example, a bonus of 25 per cent if the floor space ratio is 2:1 and a bonus of close to 17 per cent if it is 3:1.  This was not generally sufficient to attract significant developer interest.

One constraint was the difficulty in achieving the additional floor space ratio within the available height control.

The Housing SEPP includes a different floor space ratio bonus.  It only applies when either:

  • development for the purposes of a residential flat building or ‘shop top housing’ is permitted; or
  • the development is carried out on land in ‘Zone B3 Commercial Core’.

In simple terms, the bonus floor space ratio is as follows:

  • for development involving independent living units — an additional 15 per cent of the maximum permissible floor space ratio;
  • for development involving a residential care facility — an additional 20 per cent; and
  • for development involving independent living units and residential care facilities — an additional 25 per cent.

For developments of independent living units (ie private apartments) the bonus floor space ratio has been reduced.

However, in a positive move (in terms of housing supply), there is a provision for a bonus height (ie an increase to maximum building height) by up to 3.8 metres.  No site compatibility certificate is required.

Teething problems expected

Changes to the NSW planning system that are this wide-ranging are rarely implemented without a lot of teething problems.  It is likely that there will be some disputes with local councils about what the new provisions mean.

For further information, please do not hesitate to contact us.

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