By Aaron Gadiel, Partner

The NSW Government has published the legal rules for the first part of its ‘Transport Orientated Development Program’.  The new rules deliver a blanket up-zoning of land around 18 rail/metro stations.

The new rules are set out in the:

• State Environmental Planning Policy (Housing) Amendment (Transport Oriented Development) 2024; and
• the Environmental Planning and Assessment Amendment (Transport Oriented Development) Regulation 2024.

The new rules take effect on 13 May 2024.

Most of the new rules are set out in a new Chapter 5 (‘Transport oriented development’) of the State Environmental Planning Policy (Housing) 2021 (the Housing SEPP).

Significantly, the Government has not delivered on all of the things proposed when it announced the ‘Transport Orientated Development Program’ on 7 December last year.  (Mills Oakley wrote about that announcement in our article here).  Furthermore, some new rules will burden development that has not benefited from the changes. As a result, developers may face greater risks and complications in securing a viable development consent.

This article summarises some key changes that may be of interest to property developers.  It does not cover all the changes.

Staggered timetable

The Government originally announced that it had identified 31 precincts that are equipped with existing infrastructure that can readily support extra development.

The Government had said that — from April 2024 — new planning controls would apply within 400 metres of the relevant train stations and town centres.  It has now changed its position.  The Government has only made changes to the planning rules affecting 18 precincts.

The Government has identified 19 further precincts that it says will be subject to new rules in the future.  These 19 precincts will be subject to ‘more detailed masterplanning’ to be carried out by local councils.  The Government says that the new standard rules applicable in the current 18 precincts will be extended into these areas if the relevant local council:

• fails to undertake local planning; or
• produces a plan that does not provide equal or greater housing than proposed by the NSW Government.

Nonetheless, to be clear, this is not an automatic process. The published rules only cover 18 precincts.  Any new rules for the remaining 19 precincts can only be introduced by a further Government decision.  The Government may follow through on its current stated intentions, or it may do something different (and may fall short of developer expectations).

The 18 precincts which are subject to the new rules — from 13 May 2024 — are as follows:

• Adamstown station, Newcastle City Council;
• Booragul station, Lake Macquarie City Council;
• Cardiff station, Lake Macquarie City Council;
• Corrimal station, Wollongong City Council;
• Gordon station, Ku-ring-gai Council;
• Hamilton station, Newcastle City Council;
• Killara station, Ku-ring-gai Council;
• Kogarah station, Bayside/Georges River councils
• Kotara station, Newcastle City Council;
• Lidcombe station, Cumberland Council;
• Lindfield station, Ku-ring-gai Council;
• Morisset station, Lake Macquarie City Council;
• Newcastle Interchange, Newcastle City Council;
• Roseville station, Ku-ring-gai Council;
• Teralba station, Lake Macquarie City Council;
• Turella station, Bayside Council;
• Woy Woy station, Central Coast Council; and
• Wyong station, Central Coast Council.

The precincts are described as ‘Transport Oriented Development Areas’.  Each area is ‘generally’ land within 400 metres of a railway or metro station.  The Government has published mapping showing each of these areas.  It is available online here.

Most of these 18 areas are outside of Sydney (seven are in Sydney, six are in the Central Coast, four are in Newcastle and one is in Wollongong).

The remaining 19 areas that are not subject to the new rules are set out below (together with the intended ‘month of finalisation’):

• Banksia station, Bayside Council, July 2024;
• Dapto station, Wollongong City Council, July 2024;
• Gosford station, Central Coast Council, July 2024;
• Rockdale station, Bayside Council, July 2024;
• Tuggerah station, Central Coast Council, July 2024;
• Berala station, Cumberland Council, October 2024;
• Canterbury station, Canterbury Bankstown Council, October 2024;
• North Strathfield metro station, Canada Bay Council, October 2024;
• Ashfield station, Inner West Council, December 2024;
• Dulwich Hill station, Inner West Council, December 2024;
• Marrickville station, Inner West Council, December 2024;
• Belmore station, Canterbury Bankstown Council, December 2024;
• Lakemba station, Canterbury Bankstown, December 2024;
• Croydon station, Burwood/Inner West councils, January 2025;
• North Wollongong station, Wollongong, April 2025;
• St Marys metro station, Penrith City Council, April 2025;
• Cockle Creek station, Lake Macquarie City Council, April 2025;
• Wiley Park station, Canterbury Bankstown Council, June 2025; and
• Punchbowl station, Bankstown Council, June 2025.

These 19 areas may, in the future, be subject to the new rules (or some variation of them worked out by the local council and the Department of Planning, Housing and Infrastructure).

Permissibility

The new rules makes development for residential flat buildings permissible in the following zones within a ‘Transport Oriented Development Area’:

• ‘Zone E1 Local Centre’;
• ‘Zone R1 General Residential’;
• ‘Zone R2 Low Density Residential’;
• ‘Zone R3 Medium Density Residential’;
• ‘Zone R4 High Density Residential’; and
• any equivalent land use zone.

In its December 2023 announcement, the Government announced that residential flat buildings would be made permissible in the ‘E2 Commercial Centre’ zone (within a ‘Transport Oriented Development Area’).  However, the Government has backflipped on this aspect of its previous announcement.

The Government says it has made a deliberate decision to exclude the ‘MU1 Mixed Use’ zone from the new permissibility regime. This means that the changes do not make residential flat buildings permissible in any MU1 zone in a ‘Transport Oriented Development Area’.  (Some MU1 zones already permitted residential flat buildings.  Others only permit shop top housing.)

The new rules make development for shop top housing permissible in the following zones within a ‘Transport Oriented Development Area’:

• ‘Zone E1 Local Centre’;
• ‘Zone E2 Commercial Centre’; and
• any equivalent land use zone.

Non-discretionary development standards — height and floor space ratio

The new rules include a type of development standard that is typically welcomed by developers.

These are formally described (misleadingly) as ‘non-discretionary development standards’.

The purpose of such development standards is to set out standards that — if complied with — prevent the consent authority from requiring more onerous standards for those matters.

Non-compliance with these particular development standards does not prevent development consent from being granted.  In short, these development standards limit the discretion of the consent authority, but do not limit the freedom of the developer.

These provisions mean that — despite any more stringent local environmental plan or development control plan standard — in a ‘Transport Oriented Development Area’:

• a residential flat building may be approved with a height of 22 metres;
• a building containing shop top housing may be approved with a height of 24 metres; and
• the maximum floor space ratio for a residential flat building or a building containing shop top housing (in one of the above listed zones) can be 2.5:1.

The above height standards can be applied in any zone (including an MU1 zone) in a ‘Transport Oriented Development Area’ — where residential flat buildings or shop top housing is permissible (if the local height control is more stringent).

However, the above floor space ratio standard can only be applied in the E1, E2, R1, R2, R3, R4 and equivalent land use zones (in a ‘Transport Oriented Development Area’ if the local floor space ratio control is more stringent).

The height standards are greater than the 21-metre height proposed in December.  However, the floor space ratio standard is lower than the 3:1 that was also proposed at that time.  The Government says that these changes were necessary to allow for buildings to reach six storeys in height — whilst still providing for landscaping, setback, privacy and open space expectations to be met.

Affordable housing

There is a new ‘affordable housing’ requirement for any development in a ‘Transport Oriented Development Area’ for:

• a residential flat building; or
• shop top housing,

where the building has a gross floor area of at least 2,000m².

This requirement applies even if a development does not benefit from the new expanded permissibility rules or the new height/floor space ratio standards.

For example, the new ‘affordable housing’ requirement will apply in an ‘R4 High Density Residential’ zone where:

• residential flat buildings were permitted in any event; and
• the existing height and floor space ratios maximums already exceed 22 metres and 2.5:1, respectively.

The new ‘affordable housing’ requirement will apply in an ‘MU1 Mixed Use zone’ — if that zone is within a ‘Transport Oriented Development Area’.

Development consent must not be granted unless the consent authority is satisfied that —

• at least two per cent of the gross floor area of the building will be used for ‘affordable housing’ (that is, housing for prescribed households with very low incomes, low incomes or moderate incomes); and
• the affordable housing will be managed by a registered community housing provider in perpetuity.

When the development is permitted under the new Chapter 5 of the Housing SEPP, any development consent that is granted will require a restriction on title to the above effect to be registered.  Additionally, the development consent will require the community housing provider to manage the ‘affordable housing’ in accordance with the ‘Affordable Housing Guidelines’.  These guidelines require that rents be discounted from market rates and limit the occupancy of the dwellings to certain types of people in housing need.

This ‘affordable housing’ regime is different from the recently introduced ‘infill affordable housing’ incentive height/floor space ratio scheme.  That scheme only required that the ‘affordable housing’ be retained as such for 15 years.  This new ‘Transport Oriented Development Area’ scheme requires that the housing be maintained as such in perpetuity (that is, indefinitely).

Unlike some local affordable housing schemes, the new ‘Transport Oriented Development Area’ scheme does not include an option to pay cash in lieu of providing affordable housing on-site as part of the development.

Additionally, when the development is permitted under the new Chapter 5 of the Housing SEPP, the requirement to provide affordable housing on-site cannot be varied under ‘clause 4.6’ of a local environmental plan.  This is because the Government has also amended the Environmental Planning and Assessment Regulation 2021 to mandate the provision of the two per cent ‘affordable housing’ as a condition of development consent.  A ‘clause 4.6’ request cannot be used to vary such a condition.

The Government’s published explanation of the changes says that the ‘affordable housing percentage will gradually increase over time to make sure essential workers such as health workers, teachers and hospitality workers can live closer to work’.  This is not currently reflected in the published legal rules.  It would take a further decision by the Government in the future (and a formal amendment to the rules) to increase the required percentage of ‘affordable housing’.

The two per cent affordable housing requirement is additional to any other affordable housing requirements mandated under a local environmental plan, planning agreement, etc.

The incentives (for up to 30 per cent extra height or floor space ratio) under the state infill affordable housing scheme can be sought in combination with the heights/floor space ratios in the new ‘Transport Oriented Development Areas’.  However, the two per cent affordable housing ‘in perpetuity’ requirement will need to be delivered in addition to the 15-year affordable housing under that state infill affordable housing scheme.

Affordable housing parking spaces

The new ‘Transport Oriented Development Area’ regime contains a parking development standard that applies when the two per cent ‘affordable housing’ is required to be supplied.

The new rules say that the development ‘must provide’ the following number of parking spaces for each required affordable housing dwelling:

• for each dwelling containing 1 bedroom — 0.4 parking space;
• for each dwelling containing 2 bedrooms — 0.5 parking space; and
• for each dwelling containing 3 or more bedrooms — 1 parking space.

This provision is identified as a ‘non-discretionary’ development standard, which normally means that a developer can choose not to comply with it (and no ‘clause 4.6’ request would normally be required).

However, unusually (for a non-discretionary development standard), the new standard says that the development ‘must provide’ the nominated car parking.  It also says that the standard prevails over other provisions in the Housing SEPP or another ‘environmental planning instrument’ (such as a local environmental plan) to the extent that that other provision permits a lower number of parking spaces for dwellings used for affordable housing on the land.

Accordingly, if this provision is not amended, we anticipate that local councils may assert that a ‘clause 4.6’ request would be needed if a developer proposed to provide less or no car parking (for the required two per cent affordable housing).  Whether a clause 4.6 request is actually necessary may need to be resolved via litigation.  (Hopefully, the Planning Department will read this article and amend the standard to make it clearer!)

No minimum lot size

Development consent may be granted to development for residential flat buildings or shop top housing in a ‘Transport Oriented Development Area’, despite a minimum lot size restriction under another ‘environmental planning instrument’ (such as a local environmental plan).

Minimum lot width

A new development standard has been introduced requiring any development for a residential flat building or shop top housing in a ‘Transport Oriented Development Area’ to be on a lot at least 21 metres wide at the front building line.

This requirement applies irrespective of whether the development benefits from the new expanded permissibility rules or the new height/floor space ratio standards.

The introduction of the new development standard is a backflip on the December 2023 Government announcement.  The Government had previously said that there would be no minimum lot width.

Active street frontages

Any residential flat building in a ‘Transport Oriented Development Area’ in the ‘E1 Local Centre’ zone will be subject to a new ‘active street frontage’ development standard.

A consent authority will need to be satisfied the building will have an active street frontage.  This means that the ground floor will need to have building design elements that encourage interaction between the inside of the building and the external public areas adjoining the building.  This does not necessarily require that the ground floor be fronted by commercial premises.

Again, this requirement applies irrespective of whether the development benefits from the new expanded permissibility rules or the new height/floor space ratio standards.

The requirements will prevail over a provision in another ‘environmental planning  instrument’ (such as a local environmental plan) that requires an active street frontage.

Apartment Design Guide

Residential flat buildings and shop top housing developments in the new ‘Transport Oriented Development Areas’ will continue to be assessed against the provisions of the Apartment Design Guide.

In its December 2023 announcement, the Government said that it would introduce new design criteria for mid-rise residential apartment buildings in relation to:

• building separations;
• setbacks;
• vehicle access;
• visual privacy; and
• communal open space.

The Government’s published explanation of its decision says that the new scheme ‘will not include any additional design criteria’.  This is another backflip.

Co-living housing

The new provisions also extend the permissibility for ‘co-living housing’ to the following land within the new ‘Transport Oriented Development Areas’:

• ‘Zone E1 Local Centre’;
• ‘Zone R1 General Residential’;
• ‘Zone R2 Low Density Residential’;
• ‘Zone R3 Medium Density Residential’;
• ‘Zone R4 High Density Residential’;
• ‘Zone E1 Local Centre’;
• ‘Zone E2 Commercial Centre’; and
• any equivalent land use zone.

In a ‘Transport Oriented Development Area’, the existing ‘non-discretionary development standard’ on floor space ratio for co-living housing is available.  This standard allows for an additional 10 per cent of the maximum permissible floor space ratio if the additional floor space is used only for co-living housing.

The extra 10 per cent is calculated with reference to the 2.5:1 floor space ratio permitted within the above zones in the ‘Transport Oriented Development Area’ (when that provision applies).

The 22-metre height limit for the new ‘Transport Oriented Development Area’ is not available for a development that is only co-living housing.  (This is because it is only available for a ‘residential flat building’, and this expression is defined to exclude ‘co-living housing’).  However, it might be possible to pursue exclusively co-living housing of that height in such an area (where a lower height limit is applied to the co-living housing) via a ‘clause 4.6’ request.

The 24-metre ‘shop top housing’ height limit in the new ‘Transport Oriented Development Areas’ might be applied to co-living housing when the particular co-living housing can also be characterised as ‘shop top housing’ (ie where each co-living private room is a ‘dwelling’ and the dwellings are all located above the ground floor of a building where at least the ground floor is used for commercial premises or health services facilities).

Similarly, when a particular co-living housing development can also be characterised as ‘shop top housing’, the two per cent affordable requirement will also apply (in a ‘Transport Oriented Development Area’ if the building has a gross floor area of at least 2,000m²).

Build-to-rent housing

The ‘build-to-rent’ provisions in the Housing SEPP will be extended to include land on which residential flat buildings are permissible in the new ‘Transport Oriented Development Areas’.

Heritage considerations

In its December 2023 announcement, the Government said that a merit-based assessment will continue to apply to developments in the new ‘Transport Oriented Development Areas’ and ‘relevant heritage controls will apply to the extent they are not inconsistent with the new standards (bold added)’.

However, no special override of heritage provisions has been enacted as part of the new reforms.

The Government’s non-legal summary of its reforms says that ‘[a]pplications in heritage conservation areas will continue to be lodged with and assessed by councils’.

The Government says that local councils ‘are well placed to assess applications that might involve the removal of a non-contributory building to the heritage value of that area’.

The Government also says that ‘[a]ny new development needs to improve and enhance the heritage values of those locations’.

The Government’s non-legal summary also says that the new controls do not apply to land that contains:

• a heritage item (local or state), or
• an Aboriginal object, or
• a site within an Aboriginal place of heritage significance, or
• archaeological sites.

These exclusions are not reflected in the text of the Housing SEPP itself.  If they are given any legal effect, it must be through the actual mapping of the new ‘Transport Oriented Development Areas’.  Developers/landowners should check the mapping of their sites.

Despite the Government’s non-legal summary, the legal reforms do include any provisions that require the improvement and enhancement of the heritage values of heritage conservation areas.  Additionally, the legal reforms do not include any provisions that would prohibit the demolition of contributory buildings in heritage conservation areas.

Nonetheless, this does not mean that the new controls will necessarily permit, for example, the demolition of contributory items in a heritage conservation area.  Any proposed development will need to be assessed for its effect on the heritage significance of the area concerned.  The Government’s failure to override of this provision means that, in heritage conservation areas (or where heritage items are said to be impacted), developers will be exposed to a risk that the development notionally made possible by the new controls may not be achievable to the full extent (or may not be achieved at all).

Under the standard heritage assessment framework (which has been left in place), it is often possible to make significant changes to contributory items in heritage conservation areas.  It can even be possible, in some circumstances, to demolish such contributory items.  However, each proposal must be assessed on its merits in its particular context.  The Government’s failure to follow through on the heritage aspects of its December 2023 announcement will expose developers in heritage conservation areas (within the new ‘Transport Oriented Development Areas’) to the risk that a development application will be refused on heritage grounds.

Transitional provisions

The new regime does not apply to:

• a development application made, but not determined, on or before 13 May 2024; or
• a modification application made after 13 May 2024, if it relates to a development consent granted on or before 13 May 2024.

The bottom line

Any change in controls to increase height and floor space will generally be welcomed by developers and others who care about boosting the state’s housing supply.

Nonetheless, the Government has significantly retreated from its December 2023 announcement.

The foreshadowed changes to the Apartment Design Guide criteria to facilitate development on smaller sites in these areas have been abandoned.

The potential for conflict between the new permissibility, height and floor space ratio controls and heritage concerns in heritage conservation areas has not been addressed.  While heritage considerations will not necessarily prevent development from taking place, developers may face significant heritage risks when pursuing development applications.

Furthermore, the Government has introduced new ‘affordable housing’ and minimum lot width requirements that will burden developments that were already permissible — and already able to achieve or exceed height limits of 24 metres or floor space ratios of 2.5:1.

While some aspects of the changes may be a step in the right direction, this is not the great leap forward that was foreshadowed in December 2023.