Discounted but not ‘affordable’: policy to build cheaper rental apartments a boon for Sydney developers | Housing

A small unit block built on Clovelly Road in 2021 was given extra floor space, allowing the developer to add five affordable units, bringing the total development to 13. The units are a three-minute walk from the beach and are in a highly desirable spot with outside parking and a bus stop.

But they are not “affordable”.

Affordable two-bedroom units now rent for $960 to $1,000 per week, according to RP Data; This means a 20% discount compared to other two-bedroom units in the block, in line with government policy.

To qualify for affordable units, renters must prove they meet an income threshold of $121,100 before taxes for a couple.

This means the renter is spending 40.3% of their pre-tax income and possibly 50% of their after-tax income to live in one of these “affordable” homes.

Those renting such properties are often families going through a change of circumstances, such as a recent separation, said Anastasiya Kozak of HomeGround Real Estate, a purpose-built agency that manages the affordable component of the block.

He said the agency has a policy of charging a maximum of 40% of pre-tax income as rent, and negotiations are often made with the landlord to secure the tenant.

Before the new building was built, there were four three-bedroom flats in a makeshift federation block. Renting between $680 and $700 a week, these rooms were filled with students and backpackers who paid an average of $230 per room instead of $500.

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This story is being repeated in many parts of Sydney, thanks to the New South Wales government’s policy of encouraging new housing through “infill” construction near transport.

Why? The economic winners of this policy are usually developers, not tenants.

Under the NSW Affordable Housing density bonus program (IAH policy), property owners can gain up to 30% extra density in exchange for providing 15% of housing in the project at 20% below market rent for 15 years.

Some municipalities have their own bonus programs.

The study, conducted for Shelter NSW by Fresh Economic Thinking’s chief economist Chris Murphy and University of Sydney professor emeritus Peter Phibbs, found that the proportion of bonus value reaching the tenant was between 21% and 92%, depending on where the property was located.

This means between 8% and 79% of the extra value is retained by the developer through extra floors, improved views and more units.

Less conservative assumptions estimate the benefit to property developers at between 34% and 83%.

Murphy and Phibbs looked at projects using the IAH policy in nine different suburbs. Higher value suburbs such as Edgecliff, Crows Nest and North Sydney provided greater benefits to developers.

Further evidence that the policy is advantageous for developers can be found in the number of developers currently applying for density bonuses.

Almost every development notified as a State significant development (SSD) includes an application for affordable housing; This either means the developers have discovered their altruistic side or there is money to be made.

All 17 of the housing projects approved for fast-track progress by housing minister Paul Scully in October have applied for the affordable housing density bonus.

This bonus often allows developers to exceed height limits, pushing expensive units to higher floors and improving views, while affordable units languish on lower floors on the noisier side of the building.

Developers can also benefit personally, as the difference between concessional rent and market rent can be treated as a charitable donation for tax purposes.

The researchers said the conclusion of their study was that the policy may need revamping, especially in suburbs with high-value real estate and tight controls on density.

The most notable example of how this policy has led to strange results is the redevelopment of The Chimes on Macleay Street in Potts Point; This project is now opposed by former prime minister and long-time Potts Point resident Paul Keating.

Built in the 1960s, Chimes now consists of 80 studio and one-bedroom apartments, some with stunning views. They rent for around $350-380 per week.

Developer Time and Place plans to replace them with 34 apartments, with the upper floors expected to sell for more than $10 million. Three extra floors will be added on top of the usual maximum of 10 floors to house “affordable” units.

But opponents such as the City of Sydney, Keating and many locals say these units will no longer be affordable in the normal sense of the word.

“I believe this outcome is inconsistent with the public benefit and social impact objectives required for Significant Development of the State,” Keating said in his appeal.

“Using the Housing SEPP increase to deliver fewer, larger, more expensive luxury flats while displacing a large group of existing low-income residents undermines the purpose of the Housing SEPP and the NSW government’s wider affordability strategy.”

Housing advocacy groups are expressing growing concern about the housing density bonus plan.

Shelter NSW chief executive John Engeler said the “affordable” housing policy did little for the bottom two deciles of income earners and should actually be called discounted housing, not affordable housing.

He said Shelter NSW’s research showed the policy mainly benefited developers who received the greatest benefit from the policy.

“It’s a win-win world, but NSW’s policy caters to relatively high income brackets and the actual amount of ‘affordable’ units is relatively low,” said Leo Patterson Ross, chief executive of the Tenants’ Union.

“There is hope that encouraging all building, as is done in Auckland, will put pressure on prices, but I fear this is not enough to overcome the powerful forces pushing prices up,” he said.

Patterson Ross said affordable housing policy is much less stringent than in some European cities and London.

The researchers proposed extending the length of time units remain affordable from 15 to 30 years and matching rents to tenants’ ability to pay rather than simply pegging them to market rent.