NSW Housing SEPP reforms set to deliver more affordable housing

On 14 December 2023 the NSW Government amended the State Environmental Planning Policy (Housing) 2021 (Housing SEPP), implementing its reforms, announced in June 2023, to increase the supply of affordable housing. While the amendment was not released for public exhibition, the policy changes follow months of stakeholder consultation with industry and government led by the Department of Planning and Environment (DPE). The amendment provides incentives to developers to include a minimum amount of affordable housing in each new development and makes it easier for Government owned agencies such as the Land and Housing Corporation (LAHC), Aboriginal Housing Office (AHO) and Landcom to expedite the delivery of more homes.

Key changes

The key changes to the Housing SEPP include:

• a scalable floor space ratio (FSR) bonus where a minimum 10 % of Gross Floor Area (GFA) is affordable housing. A maximum 30% uplift in FSR may be achieved where 15% or more of GFA is affordable housing. Where 15% affordable housing is not achieved, the bonus is scaled down to reflect the smaller offering. The bonus applies to a range of residential development types including build to rent and mixed-used developments such as shop-top housing. The bonus applies to the whole of the development and not just the residential component.
• a scalable height bonus for residential flat buildings and shop-top housing only. A maximum 30% increase in building height may be achieved where 15% of GFA is affordable housing and the bonus is scaled down to the minimum 10% affordable housing requirement.
• the State Significant Development assessment pathway will apply to:
  • infill affordable housing development where the residential development component has a capital investment value (CIV) of more than $75 million in Greater Sydney or more than $30 million in regional areas;
  • for development carried out by or on behalf of the AHO or LAHC, where the development has a CIV of more than $30 million or has more than 75 dwellings;
  • for development carried out by or on behalf of Landcom, where the development:
    • has a CIV of more than $30 million; or
    • will result in more than 75 dwellings and has a minimum 50% of GFA for affordable housing.
• allowing state-owned housing agencies to build more affordable housing without needing council approvals.
• ensuring bonuses can apply to built to rent developments in commercial zones, even where residential accommodation is prohibited under the relevant Local Environmental Plan.
• inserting a new provision clarifying that if there is conflict between a local Development Control Plan (DCP) and the SEPP, the DCP has no effect to the extent of the inconsistency.
• revising non-discretionary development standards for infill affordable housing.
• repealing the State Environmental Planning Policy No 65 – Design Quality of Residential Apartment Development (SEPP 65) and inserting design principles for residential apartment development as Schedule 9 to the Housing SEPP. Development consent must not be granted nor consents modified for certain residential apartment development unless the consent authority considers these Schedule 9 principles, the Apartment Design Guide and any advice from a design review panel in accordance with Chapter 4 of the Housing SEPP.

Affordable housing and uplift

A development is eligible for a bonus if:

1. the proposed development includes residential development and is permitted with consent;
2. it has an affordable housing component of at least 10%; and
3. all or part of the development is carried out:
   1. for development on land within the Six Cities Region (except Shoalhaven LGA) in an "accessible area". The definition of "accessible area" has been updated to be within 800m walking distance of an entry to a railway, metro, light rail station (or if no entry, the platform) or Sydney ferries wharf or within 400m of a bus stop with a regular bus service; or
   2. for development on other land, within 800m walking distance of land zoned E1 Local Centre, MU1 Mixed Use, B1 Neighbourhood Centre, B2 Local Centre or B4 Mixed Use (or equivalent land use zone).

The Housing SEPP requires the affordable housing component to be managed by a registered community housing provider (CHP) for a minimum of 15 years. That requirement does not apply to AHO or LAHC development.

The new FSR and height bonus is calculated in accordance with a formula contained in sections 16 and 18 of the Housing SEPP, as applicable. A development is eligible for a bonus where a 10% affordable housing component is offered, resulting in a 20% FSR uplift which can be scaled up to a maximum 30% bonus as the affordable housing offering increases. For residential flat buildings and shop top housing developments, the same percentage bonus for FSR can be applied as a height bonus, or if an FSR bonus is not applied, a height bonus of up to 30% calculated in accordance with section 18.

The existing FSR bonus in the Housing SEPP which applies to certain development carried out by LAHC, AHO, Landcom and CHPs is maintained in section 17 and these agencies will now also be able to apply the new bonus in section 16.

Sites which do not have a maximum FSR control will not be able to apply the FSR uplift but may be able to utilise the building height bonus (where applicable).

Interaction with local controls

DPE has released an Infill Affordable Housing Practice Note (Dec 2023) and Planning Circular to help explain the reforms. The Housing SEPP and these accompanying materials make clear how these new affordable housing bonuses interact with other local affordable housing requirements and other bonuses which may be available to developments.

Firstly, the new affordable housing FSR and height bonuses apply on top of any other bonus engaged under an Environmental Planning instrument (EPI) other than the Housing SEPP. For example, a development may attract a FSR bonus as part of a design competition process. That bonus will apply and inform the "maximum permissible FSR" to which the new affordable housing bonus will be added. There is no limit on the other EPI bonuses which can apply. However, the Housing SEPP does limit the application of bonuses that may be applied to developments containing multiple housing types under the Housing SEPP itself. Section 12A(2) limits the additional FSR which can be applied under the Housing SEPP to 130% of the maximum permissible FSR for the land.

Secondly, local affordable housing requirements under another EPI or a planning agreement continue to apply to development and do not count towards the minimum affordable housing component which qualifies a development for the new bonuses.