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

A small block of units on Clovelly Road built in 2021 was granted extra floor space so the developer could add five affordable units, taking the total development to 13. The units, three minutes’ walk from the beach, with parking and a bus stop outside, are in a highly desirable spot. But “affordable” they are not. According to RP Data, the affordable two-bedroom units now rent for $960 to $1,000 a week, which is a 20% discount to other two-bedroom units in the block in line with government policy. To be eligible for the affordable units, tenants must prove they meet an income threshold, which for a couple is $121,100 before tax. Related: Luxury apartment development in Kings Cross pits Paul Keating against Morris Iemma That means the renter is outlaying 40.3% of their pre-tax income and likely 50% of their post-tax income to live in one of these “affordable” homes. Anastasiya Kozak of HomeGround Real Estate, the for-purpose agency that manages the affordable component of the block, said often it was families going through situation change, such as a recent separation, that would rent this type of property. She said the agency had a policy of charging a maximum of 40% of pre-tax income in rent, and that often there was a negotiation with the owner to secure the tenant. Before the new building was constructed, there were four three-bedroom flats in a scruffy federation block. They rented for $680-$700 a week and were filled with students and backpackers who were paying an average of $230 a room instead of the current $500. Sign up: AU Breaking News email Thanks to the New South Wales government’s policy to encourage new housing through “in-fill” development near transport, this story is being repeated in many parts of Sydney. The reason? Developers, not tenants, are often the economic winners from the policy. Under the NSW In-fill Affordable Housing density bonus scheme (IAH policy), property owners can get up to 30% extra density in exchange for providing up to 15% of the project’s dwellings at 20% below market rent for 15 years. Some councils have their own bonus schemes. Work for Shelter NSW done by Chris Murphy, chief economist at Fresh Economic Thinking, and Peter Phibbs, professor emeritus at the University of Sydney, found that the proportion of the bonus value which ends up with the renter is between 21% and 92%, depending on where the property is located. This means that between 8% and 79% of the extra value – by way of extra floors, enhanced views and more units – is retained by the developer. 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 delivered a greater benefit to developers. Further proof that the policy is advantageous to developers can be found in the number of developers now applying for the density bonus. Almost every development being lodged as state significant development (SSD) includes an application for affordable housing, which means either developers have discovered their altruistic streak or there is money to be made. Of the residential projects approved by the housing minister, Paul Scully, for fast-tracking in October, all 17 applied for the affordable housing density bonus. This bonus often allows developers to exceed height limits, push expensive units to higher floors and improve views, while the affordable units languish on the lower floors on the noisier side of the building. Developers can also benefit personally as the gap between the concessional rent and the market rent could be treated as a charitable donation for tax purposes. The researchers said the implication of their research was that the policy may need a makeover, especially in suburbs with high-value real estate and tight controls on density. The most high-profile example of how the policy is leading to bizarre outcomes is the redevelopment of The Chimes on Macleay Street in Potts Point, now being opposed by the former prime minister – and longtime Potts Point resident – Paul Keating. The Chimes, built in the 1960s, is currently composed of 80 studio and one-bedroom apartments, some with glorious views. They rent for around $350-$380 a week. The developer, Time and Place, plans to replace them with 34 apartments, with the top floors expected to sell for $10m plus. Three extra floors, over and above the usual maximum of 10 storeys, will be added to house “affordable” units. Related: A two-bedroom Bondi Junction unit for $1,100 a week. Is ‘affordable housing’ really affordable? But opponents, such the City of Sydney, Keating and many locals, say these units will no longer be affordable in the normal sense of the word. “This outcome is, I believe, inconsistent with the public interest and social impact aims required for State Significant Development,” Keating said in his objection. “Using the Housing SEPP uplift to deliver fewer, larger, more expensive luxury apartments whilst displacing a large existing cohort of lower-income residents undermines the intent of the Housing SEPP and the NSW government’s broader affordability strategy.” Housing advocacy groups have been voicing increasing concerns about the housing density bonus scheme. John Engeler, chief executive of Shelter NSW, said the “affordable” housing policy did little for the bottom two quintiles of income earners and should really be referred to as discount housing, not affordable housing. He said Shelter NSW’s research showed the policy appears to mainly benefit developers who get the biggest share of the benefit from the policy. “There is a world where there is a win-win, but NSW’s policy caters for a relatively high income group and the actual quantum of ‘affordable’ units is relatively low,” said Leo Patterson Ross, chief executive of the Tenants Union. “There is something of a hope that encouraging all buildings will exert pressure on prices, as it did in Auckland, but I fear it’s not enough to overcome the powerful forces driving up prices,” he said. Patterson Ross said the affordable housing policy was much less stringent than some in European cities and London. The researchers suggested extending the time for the units to remain affordable from 15 to 30 years, and matching the rents charged with the ability of renters to pay, rather than simply linking them to the market rent.