Planning requirements to support affordable housing outcomes: international experience and potential application to Victoria

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Planning requirements to support affordable housing outcomes: international experience and potential application to Victoria

Kate Breen, Director, Affordable Development Outcomes

There is a long running debate in Victoria over whether developers should be required to deliver affordable housing as a condition of development approval, referred to as ‘inclusionary zoning’, raised again through the Plan Melbourne Refresh process.  Whilst the debate often goes around in circles, over 40 % of low-income renter households in Victoria are experiencing housing stress and over 34,000 households are on the public housing waiting list.  Internationally, inclusionary zoning requirements are widely adopted, supported by government investment in affordable housing supply.

There is a clear and urgent need for a range of strategies and investment to improve housing supply and deliver specific affordable housing outcomes for lower income Victorians.  There is no single solution to this challenge, but planning can clearly play an important role to support these outcomes given its role in facilitating housing supply, diversity and affordability.

In 2014 I was awarded a Churchill Fellowship, sponsored by AV Jennings, to investigate how cities in the UK, US and Canada were using planning requirements to support affordable housing delivery and to consider how the learnings from these systems could be applied to Victoria.  My Fellowship coincided with a commitment from the Victorian Labor Party, now Victorian Government, to require affordable housing outcomes as a condition of sale of surplus Government land.  The detail of this policy is to be announced and so it is unclear whether the policy will utilise specific planning processes to support delivery.

What is clear, and reflective of international best practice, is that the opportunity to maximise the spatial and economic value of surplus government owned land to support a range of community and affordable housing outcomes should be urgently progressed.  Placing these requirements on surplus government owned land is not dependent on planning reform, although planning incentives could be utilised to support delivery.

If, and how, requirements will be placed on privately owned land is unclear and will depend largely on the public submissions and the subsequent State Government response to the Plan Melbourne Refresh process.  This is a significant opportunity for the Government to utilise a key lever in its control – planning – to support the delivery of improved housing affordability and specifically targeted affordable housing that is critical to Victoria’s long term productivity, liveability and sustainability.  To do so would be in line with the objectives and role of planning, and if structured right, with consideration of market factors and development feasibility and process, will be an important contribution to supporting improved affordable housing supply.

International experience 

Internationally, requirements to deliver affordable housing outcomes either as a voluntary take-up option or as a mandatory condition of planning approval has been driven by a range of social and economic objectives.  The use of a planning control is the common mechanism under which the requirement is set and secured.

In the USA zoning requirements for affordable housing arose in response to exclusionary zoning practice, hence the term inclusionary zoning and are widely adopted to both promote economic opportunity and social integration.  In the UK affordable housing is a ‘material consideration’ when assessing a planning application and can be required as a condition of planning.  These requirements are referred to as ‘Section 106 Agreements’, referencing the planning agreement that secures a range of community outcome as a condition of planning.  In Canada broader community amenity levies are in place of which affordable housing is one purpose that developer contributions may be directed either on or off-site.  For the purposes of this article I use the term inclusionary zoning, but I highlight that this terminology is one of many aspects of the policy we need to consider further, depending on the mechanism that is adopted in Victoria.

The key point is that these requirements are standard practice, demanded by communities, driven by social and economic goals and embedded in legislation and policy.  They are also acknowledged by many private developers as important in recognition of the long-term social and economic benefits of affordable housing provision for their cities.

Inclusionary housing 

It is important to note that inclusionary zoning requirements in the places I visited are not the only means by which affordable housing delivery is being delivered.  Specifically, inclusionary housing responses; policies that support affordable housing provision that is integrated within a building or neighbourhood, such as tax-exemptions or planning incentives, are delivering affordable housing outcomes integrated into private housing at a scale that is generally more effective and less controversial than site-specific inclusionary zoning requirements, particularly in the US.

In New York for example, a voluntary inclusionary zoning program offering a density bonus in exchange for affordable housing is often coupled by developers with a property-tax exemption program known as ‘421-a’.  When utilised together these incentives make the delivery of affordable rental housing viable. The National Rental Affordability Scheme was a good example of an inclusionary housing policy in Australia that delivered integrated affordable housing whilst supporting development viability.

Victoria urgently requires a range of financial supports and tools, including planning measures, if we are to address the pressing and growing affordable housing needs facing lower income households in Victoria.  The application of planning requirements for affordable housing in Victoria will always be one policy mechanism, or a component of a wider policy that needs to work alongside, and be supported by other affordable housing programs if there is to be a significant increase in affordable housing supply.

Inclusionary zoning 

Planning requirements that require or encourage affordable housing delivery in particular circumstances should be progressed within this context and on the basis that these requirements:

  • align with the objectives and purpose of planning;
  • are a key mechanism by which Government can (and already does) secure community benefits in return for supporting the private market to financially gain from planning approval;
  • support the delivery of affordable housing integrated within private development that can deliver important social and economic benefits to individuals, the community and the State; and
  • align with the objectives of the private sector to support and deliver sustainable communities and provide consumers with appropriate housing choice.

Once the rationale for the system is determined the Government can then consider the policy details. Drawing on international experience, to be successful inclusionary zoning requirements should be:

  • legally permissible, physically possible and financially feasible;
  • situated as part of a wider affordable housing strategy, supported by other incentives or supports, particularly if aiming to house very low income groups;
  • applied in a fair and transparent manner;
  • clear and consistently applied to the market, limiting the ability for negotiation on a site-by-site basis;
  • underpinned by an assessment of market factors, development processes, financing and development viability to inform the policy framework;
  • understood within the context of different markets where the requirement may be more, or less, effective depending on the structure of the policy and the market conditions;
  • result in outcomes that are appropriately secured and managed as long-term affordable housing; and
  • developed with an understanding that there may be trade-offs by different stakeholders if the requirement is to be delivered.

To progress the consideration of how inclusionary zoning requirements could apply in Victoria, recognising the diversity of industry views and challenges involved in delivery, the following scenarios are proposed to be further developed and considered by the Government in consultation with the private and not-for-profit development sectors:

  1. Modest application of affordable housing requirements or financial contribution towards affordable housing supply to be applied, to commence at a future date that allows for land values to be adjusted to account for the requirement.
  1. Application of affordable housing requirements in instances of new urban renewal areas; major re-zonings or change of use; and projects of State significance where there will be large infrastructure expenditure by Government and where the value of the land is anticipated (on the basis of economic modelling) to increase as a result, thereby capturing some of that benefit to delivery community benefits whilst still providing commercial benefits.
  1. A broader voluntary inclusionary housing approach, which could involve affordable housing being delivered on private developments where the developer or investor has accessed incentives, which could include planning incentives and/or other financial or taxation benefits, or a combination.

This does not need to be an either / or decision, rather a range of inclusionary zoning and inclusionary housing responses could be adopted, tailored to different circumstances or objectives.

Ultimately I expect that a more comprehensive incentive-based voluntary inclusionary housing approach, whereby the private sector decides to participate on the basis of accessing particular benefits will be a more successful and a less contentious policy in the long-term.  This is a more difficult policy goal however, likely to require Federal Government participation, although the State can still push ahead as NSW has done with initiatives such as the Social and Affordable Housing Fund.

While inclusionary zoning requirements continue to be debated, and will probably require a range of legislative and policy changes to be put in place, the government can demonstrate leadership and its commitment to affordable housing through the treatment of all of its surplus assets and through continuing to engage with the private and not-for-profit housing sector on ways to improve housing affordability and specifically targeted affordable housing outcomes in Victoria.

Kate Breen is the Director of Affordable Development Outcomes, based in Melbourne, and can be contacted on Kate@affordabledevelopmenoutcomes.com.au.  A copy of her Churchill Fellowship Report is available at www.churchilltrust.com.au.  The author wishes to acknowledge the generous support of The Winston Churchill Memorial Trust and sponsor AV Jennings.

 

  1. References:i State Government of Victoria (2015) Plan Melbourne Refresh Discussion Paper, October 2015, http:// refresh.planmelbourne.vic.gov.au/plan-melbourne-refresh-discussion-paperii Australian Bureau of Statistics (2013) Catalogue 4130 – Housing Occupancy and Costs 2011-12. Additional Tables – Low Income rental households, Table 1: ‘Proportion of low income rental households paying more than 30 per cent of their gross income on housing costs, 2007-08 to 2011-12’ http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/ 4130.02011-12?OpenDocument [Additional tables – low income rental households]

iii Victorian Government, Department of Human Services (2015) Public Housing Waiting List and Transfer List, June 2015 http://www.dhs.vic.gov.au/about-the-department/documents-and-resources/research,-data-and-statistics/public- housing-waiting-and-transfer-list

iv Breen, Kate (2015) AV Jennings Churchill Fellowship to investigate to investigate the use of inclusionary zoning requirements to support the delivery of affordable housing, https://www.churchilltrust.com.au/fellows/detail/3888/Kate +Breen

v Victorian Labor (2014) Victorian Labor Platform 2014, https://www.viclabor.com.au/wp-content/uploads/2014/05/ Victorian-Labor-Platform-2014.pdf

viNSW Government, Department of Family and Community Services, (2015) Social and Affordable Housing Bondhttp:// www.facs.nsw.gov.au/reforms/social-housing/SAHF