At a time when housing supply, the return of immigration, interest rates, and housing affordability are all dominating the media, all intelligent contributions to the debate are welcome.

The UDIA (NSW) has published a new Report entitled the Apartment Supply Pipeline Report which highlights a forecast of a massive under supply of apartments over the coming period which will, in turn, result in an under supply of housing and increased pressure on housing affordability and prices.  They predict that new apartment completions in the Sydney Mega-Region will collapse in the 2021/22 financial year to only 6,850.  To make up for the current shortfall, the report says we need 25,000 – 35,000 new apartments per year for several years. 

The conclusions of the report are sound and the recommendations are supported as they are consistent with the strong position taken by the Urban Taskforce over the last two and a half years.

However, by relying on the figures published in the NSW Government’s Intergenerational Report 2021, the UDIA appears to have under-estimated the size of the problem that faces the Great Sydney housing market and the number of apartments needed if forecast demand is to be satisfied.

The NSW Government’s Intergenerational Report finds that there needs to be 42,000 new dwellings each year to meet demand predicted over the next 40 years.  Importantly, it finds that over the next 20 years, the relevant number for will be 47,000 per year.  The reason that the number drops off in the second 20-year block is the passing of the baby boom “bubble”.  It is noteworthy that the Treasury forecasts in the Intergenerational Report are based on an assumption of low levels of immigration.  By contrast, both the NSW Premier and the Commonwealth Treasurer have expressed a strong preference for a higher Net Overseas Migration intake. 

The UDIA have extrapolated from the Intergenerational Report’s 40-year average (which is so far out it is not much more that a guess), and concocted an analysis relevant to the “Sydney Megaregion” (their term) made up of Greater Sydney, the Illawarra-Shoalhaven, Central Coast and Hunter.  UDIA finds that the “Sydney Megaregion” comprises 94% of demand new homes in NSW.

UDIA has conducted a useful analysis of the pipeline of apartment supply – but they have compared this to the NSW Intergenerational Report’s 40-year projected demand figure of 42,000 dwellings per year, rather than the 20-year annual demand figure of 47,000 per annum.  A pipeline analysis is relevant to the first 20 years – not the second.

The NSW Intergenerational Report contains some important errors. It predicts that the proportion of new dwellings made up of apartments (or multi-unit dwellings) will “grow to 33%” (page 61) because of changes in the size of families and, again, the passing of the baby boom generation.  The problem is, the average split between apartments and houses is already way above this “predicted level”.  The split, on average, across all of NSW, over the past decade has been: Separated Houses = 47% Attached Dwellings (or Multi Unit dwellings) = 53%.

The UDIA are quite correct to assert that the typical split between houses and apartments in the Greater Sydney Mega Region is 35% houses : 65% apartments (including town houses).

In fact, the ABS data over the past 10 years for Greater Sydney (not the UDIA’s new “Mega Region”) is Detached Houses = 32%.  Town Houses and apartments (multi unit dwellings) = 68%.

By relying on the 2021 NSW Intergenerational Report, the UDIA may have inadvertently under-estimated the size of the task in term of apartment supply and the projected deficit in Greater Sydney in the coming years.

Urban Taskforce’s analysis is that Greater Sydney will maintain the current 10 year ratio of apartments to freestanding greenfield houses.  This is because of the cost of new infrastructure, the impact of floods on some of the growth areas, the impact of bio-diversity protection obligations and the changing nature of the demographic of Sydney.

The NSW Government’s Housing Strategy entitled Housing 2041 (also reviewed by NSW Treasury prior to it being endorsed by the NSW Cabinet) states that the number of new dwellings required in Greater Sydney over the next 20 years is 1 million (see page 46) .  That is equal to an average of 40,000 per year, just in Greater Sydney.

68% of 40,000 = 27,200 (that is before you start addressing the backlog for the current undersupply). 

Over the last 2 years, the number of apartments completed in Greater Sydney dropped steeply from 25,536 in 2019/20 (reflecting the high number of approvals in 2015/16, 2016/17 and 2017/18) to only 17,432 in 2020/21 (directly commensurate with the drop off in approvals from mid-2018).  Completions will stay low over the next few years and the only way around that is to go into over drive on new apartment approvals.  Part of the solution will be DPIE driven (through new SSD pathways for high yield apartment projects.  Part of the solution rests with the GSC (who now report to Premier Dominic Perrottet) and their urgent repeal of the “retain and manage” industrial and urban services land policy which has hampered brownfield development since its introduction in 2018.

The bottom line is:

"Greater Sydney will require the construction of at least 27,200 new multi-unit dwellings (apartments and town houses) each year just to keep up with a projected demand which is based on a low immigration intake assumption. The projected under-supply only increases the size of the task.  On this – all of industry agrees."

The new Housing SEPP is a slap in the face to the NSW Productivity Commissioner as it goes in precisely the opposite direction to his finding on housing. The NSW Productivity Commission advised that a Housing SEPP for NSW should seek to drive growth in housing supply and meet all the different demands by facilitating a broad range of housing typologies, across different price points throughout different locations. Indeed, these were the sentiments of Minister for Planning Robert Stokes when the then named ‘Housing Diversity SEPP’ was first announced in his assertion that “what you earn shouldn't stop you from living in any suburb”.

The result, after 15 months in the hands of the Jim Betts (he was sacked) led DPIE is very disappointing.

The Urban Taskforce submission to the draft iteration of the Housing SEPP strongly objected to the policy direction being taken, and specifically called out the draft provisions for falling way short of meeting the Minister’s then aspirations. The Urban Taskforce contends that the final SEPP as made today falls astonishingly short of delivering the housing to meet the needs of the whole community and ensuring what you earn shouldn't stop you from living in any suburb.

The classic Sir Humphrey Appleby Yes Minister trick

There appears to be some changes to the SEPP as exhibited that respond to the Urban Taskforce submission to the draft, but the majority of these will deliver modest improvements to the capacity to deliver Seniors Housing.  But the biggest change in this new instrument is the change to the definition of “seniors” for the purpose of “seniors living”.  In a move straight out of the Sir Humphrey Appleby playbook, they have sought to solve the problem of chronic under-supply by changing the age that defines eligibility for seniors living from 55 to 60! Amazing. You have to ask yourself, why not just make it 80 – then you could claim to have completely solved the problem.

The SEPP is an unfortunate final nail in the coffin for Boarding Houses to be delivered by the private sector. This sector of the housing market desperately needed the private sector to increase the supply of well designed and built boarding houses to meet growing demand. The final SEPP, by not mandating that Boarding Houses are permissible with consent in the R2 Low Density Residential zone, has effectively killed the feasibility of boarding houses. The final SEPP allows Councils to choose to have boarding houses as permissible in accessible R2 zoned land. However, regrettably, history and experience shows us that this is highly unlikely to occur.

While there is a 10% bonus for Co-living development, included in the SEPP, the level of prescription and limited permissibility is likely to challenge the feasibility of delivering this relatively new housing form in many urban locations. Minimum car-parking requirements have been reduced from those included in the draft – down to 0.2 spaces per room – but only for sites on “accessible land”. Development standards relating to building setbacks have also been tweaked to allow for a more flexible approach.

We guess that DPIE figured that those over 60 were less likely to be driving because they have agreed to change the car-parking requirements for Seniors Housing with a reduction from those as exhibited, depending on the locational attributes of the site. Additionally, the Metropolitan Rural Area exclusion has been lifted and the permissibility of Seniors Housing has been extended in some circumstances. This change, at least, is welcome. Changes to Seniors Housing under the final SEPP include:

• Senior housing developments allowed in the SP2 – Infrastructure and RE2 – Private Recreation zones if it adjoins any prescribed zone under the Housing SEPP.
• Seniors independent living developments allowed in R2 – Low Density Residential zone if developed by the Land and Housing Corporation or providers that operate under the Retirement Villages Act 1999.
• Removed the term “vertical villages” in the Housing SEPP – instead these provisions are included as bonuses for seniors housing.
• These bonus provisions have been extended to land where shop top housing is allowed, and the B3 – Commercial Core zone.
• The State Significant Development pathway has changed to a capital investment value of at least $30 million (or $20 million outside Greater Sydney) and must include a residential care facility.

While the final SEPP is an improvement on the exhibited draft, it is a disaster for the provision of Seniors Living, for Boarding Houses and for Co-Living.  We called for a delay of 12 months and were supported by other industry groups. It is difficult to understand why some have changed their tune and are now backing this catastrophe. 

The practical outcome from the final SEPP is that prescriptive controls and extra costs and leaving too many planning considerations in the hands of local councils will reduce the relative feasibility of delivering a range of housing types to market. This will particularly impact on low cost, affordable housing option and is a significant backward step.

If ever there was a case for the Upper Housing being able to review and reject the making of a SEPP, as it the case for Regulations, then this SEPP is it.

See below (in blue) a summary prepared by DPIE which notes the changes between the Draft and the final version of the SEPP:

In-fill affordable housing

• The minimum dimension for deep soil zone has been reduced from 6m to 3m (in line with current ARHSEPP requirements).
• Boarding houses and co-living housing
• Removing the restriction on co-living housing in the R2 – Low Density Residential zone. That is, co-living housing will be permitted with consent on land where residential flat building or shop top housing is permitted – even if that land is zoned R2.
• The restriction on subdivision of boarding houses has been clarified.

Secondary dwellings

• Amending the development standards for bush fire prone land, flood control lots and land near Siding Spring Observatory so they only apply to secondary dwellings that are complying development under the Housing SEPP.
• Seniors housing
• Expanding permissibility of seniors housing to include SP2 zones designated as place of public worship, educational establishment, and hospital where the site adjoins any prescribed zone.
• Allowing all types of seniors housing (not just RCFs) in the R2 – Low Density Residential zone if the housing is provided by an ‘operator’ as defined under the Retirement Villages Act 1999.
• Removing the requirement for at least 50% of a site to adjoin a residential zone in the RE2 and SP1 zones and instead requiring the site to adjoin any zone prescribed for the purposes of seniors housing.
• Amending the state significant development pathway for seniors housing to stipulate that seniors housing must have a capital investment value of at least $30 million (or $20 million outside Greater Sydney) and must include a residential care facility.
• Removing the term ‘flood planning’ from the Environmentally Sensitive Land schedule and replacing it with ‘land to which the Standard Instrument, clause 5.22 applies’ in relation to seniors housing specified as sensitive and hazardous development.
• General
• Throughout the Housing SEPP, amending references to local character to refer to ‘future character’ for precincts undergoing transition.
• Amending car parking standards as follows:
• In accessible areas – 0.2 space per room, unless LEP or DCP specify a lower rate.
• Otherwise – 0.5 spaces per room, unless LEP or DCP specify a lower rate.
• Amending motorcycle and bicycle parking standards so that they are discretionary.
• Permitting the FSR bonus to apply on heritage land.
• Including a clause to facilitate the reversion of use from a serviced apartment to an RFB or shop top housing to be exempt from ADG consideration:
• On land where RFBs and shop top housing are permitted.
• Where no material physical works are involved, other than works to revert the building to its former use.

Build-to-rent housing

The active street frontage clause of the build-to-rent provisions has been amended to clarify that active uses are required at street level in business zones for all parts of BTR development that face a road.

Amending the reasonable conversion clause so that a developer needs to demonstrate that a building can be reasonably converted to any use that is permitted with consent, rather than limiting this to commercial premises.

Click here to read Minister Stokes' media release announcing the making of the SEPP.

Click here to access DPIE’s webpage on the SEPP: Housing SEPP.

Click here to read the SEPP as gazetted.

Click here to read the Urban Taskforce submission to the draft SEPP.

Housing supply and affordability has been a major story focus in the media in the past two weeks.

Below are some examples of media excerpts which shed light on the ongoing debate on TV, radio and in the newspapers.

“This is not an investment boom, it was driven by owner occupiers, desperate to get into the market.”

“There are nine ministers for housing in this country. What are they all doing?” - Alan Kohler, ABC

“When was housing affordability at its peak in Australia and house ownership at its peak? Around 1966. What was the capital gains tax rate then? Zero. It didn’t come in until 1985. This idea that somehow house prices went up because of the capital gains tax discount flies in the face of all evidence.” – Peter Costello, Former Treasurer

The housing affordability jigsaw– if and when it will improve?, 7 30, ABC. Watch the news report here.
 

“30% [price increase] in 12 months – that shows there’s a shortage in supply and the Government needs to get on its bike and starts delivering.” - Tom Forrest, Urban Taskforce

Pressure on Sydney's property crisis, 7NEWS. Watch the news clip here.

“If the government is making announcements about rezoning vast swathes of land for housing or jobs then the necessary infrastructure needs to be built – otherwise it is just more press releases.” – Tom Forrest, Urban Taskforce

69,000 new homes blocked by delayed infrastructure projects, The Daily Telegraph. Read the full article here.
 

"We have created some of the least-affordable housing in the world. That isn’t just a failure, that is equivalent to intergenerational theft." - Jason Falinski, MP

“The home ownership rate rose by about 20 percentage points from 52% at the 1947 census to a peak of 72% at the census of 1966. And the reason why we were able to achieve such an extraordinary increase in homeownership was because governments focused on boosting the supply of housing and didn’t do anything beyond running a high-immigration program to inflate the demand for housing.” – Saul Eslake, Economist

From a 'class divide' to 'intergenerational theft', Australia's real estate frenzy leaves many behind, Four Corners, ABC. Read the full article here.
 

“If you own your own home in retirement, you have a very good chance of living a very comfortable retirement. If you are a renter, then given the current structure of our income support system, then you are in, potentially, quite a lot of trouble.”

“Anyone who doesn’t own their own home by the time they are around 45, given the current settings, is probably looking at potentially quite a big drop in their living standards when they hit retirement.” – Brendan Coates, The Grattan Institute

Why falling home ownership will change how Australians retire, Financial Review. Read the full article here.
 

"If immigration were to come back rapidly, we would see significant upward pressure on rents and significant upward pressure on house prices," – Shane Oliver, AMP

Housing is expensive now, imagine a market with more migrants. Economists see rent, house price lift in 2023, ABC. Read the full article here.
 

"We should make sure that any Australian, regardless of where they're born and who they're born to, has — as far as public policy allows — equal opportunity to own the home in which they live," – Jason Falinski, MP

Housing affordability won't be greatly improved just by less regulation, more supply, RBA argues, ABC. Read the full article here.
 

Home ownership has fallen from its post-war peak of 72.5 per cent in 1966 to 62.7 per cent in 2019, which puts Australia 27th among the 38 member countries of the Organisation for Economic Cooperation and Development.

“For all the crocodile tears which politicians of all persuasions routinely shed about the difficulties facing those wishing to get their first foot on the property ladder, deep down they know that there are far more people who already own at least one property than there are who don’t, but who would like to.’’ – Saul Eslake, Economist

Pandemic didn’t happen for city’s housing market, SMH (Printed edition, 20 Nov 2021, p26)

Other articles:

Property prices have grown twice as much as wages over the past 20 years, Business Insider.  Read the full article here.
 

The work from home revolution has helped trigger a migration to the regions. Now, locals say they have nowhere to live, Business Insider. Read the full article here.
 

Calls to ban 'no grounds' evictions as renters pushed to 'brink of homelessness', ABC. Read the full article here.
 

House price growth three times faster than wages over four decades, SMH. Read the full article here.
 

‘My life just went downhill’: New housing for older women facing homelessness, SMH. Read the full article here.
 

The position of local Councils on the Infrastructure Contributions reforms has been fascinating to watch. WHo would have guessed that Liberal Party Minister Rob Stokes would do a deal with Labor's Linda Scott to the exclusion of Clover Moore?

With Council elections fast approaching (Saturday December 4th) the battle for media attention between the combatants has taken a turn. On the one hand, the current Lord Mayor of Sydney, Clover Moore – who led the charge with large newspaper ads protesting the evil of the Infrastructure Contributions package. On the other, Linda Scott, the Labor contender for the position of Lord Mayor and current President of Local Government NSW.

The outcome was a surprising unity ticket between the Minister for Planning, Rob Stokes, and Labor’s Linda Scott, LGNSW effectively signed up to the infrastructure contributions reform package.  What was interesting was the effective side lining of Clover Moore from the process.

But this sudden leap towards bonhomie between LGNSW and the NSW Government is not all that it appears to be.  Urban Taskforce has examined the poorly cobbled together media release. As is always the case, the devil is in the detail.

The changes heralded in the media release and warmly welcomed by Mayoral-aspirant, Linda Scott are:

1. Allowing councils that currently fund community infrastructure from developer contributions to continue to do so;
2. Ensuring that state contributions are spent in the region where they are collected;
3. Re-setting the blanket rate councils can charge, known as 7.12 plans; and
4. Increasing the maximum amount councils can charge for infrastructure associated with solar and wind farms.

On point 1 – this is a backdown from the Government and is contrary to Peter Achetstraat’s NSW Productivity Commission recommendations.  Expenditure on community facilities (will be allowed provided total fees are within the existing caps of $20K/dwelling and $30K/dwelling as applicable). This will allow local Councils to continue to levy new home buyers for the delivery of improvements to community facilities for existing residents.  It is a tax on new home buyers.  This was explicitly recommended for removal by the Productivity Commission, but this practice has been preserved (t is understood that this will only be allowed for the next three years).  Changes in three years’ time are then expected to be applied to the “Essential Works List” which ban the application of infrastructure contributions on the construction of community facilities.

On point 2 – It was always the case that Regional Infrastructure Contributions would be required to be spent in the Region they are collected in.  The problem is, the Greater Sydney Region is a single region.  Councils gained nothing with this commitment. There is no requirement for nexus and it is understood that this is not likely to change.

On point 3 -  no-one really knows what this means and it is certainly not explained in the media release – but it is understood that this relates to the preservation of s.7.12 contribution plans to ensure that Councils that have already made plans are not left worse off as a result of the changes.  The real question here is – will this result in extra fees for developers and therefore new home buyers?

On Point 4 – The wording on this is bizarre.  Urban Taskforce is advised that this was an effort to require the IPC to impose local infrastructure contributions on State Significant Developments like Coal mines and gas extraction.  However, they decided to reference other development types (Solar and wind farms) which are assessed through the SSD framework to make the point.  The problem is: these land use types do not impact on local infrastructure – at all!  They do not require drainage, road augmentation, extra playground space etc.  Obviously it is appropriate that State Significant Developments which have an impact on local infrastructure (particularly coal trucks leaving mining sites) should pay of local infrastructure fee.  On the other hand, this will remove one of the advantages offered to Build to Rent developments with a construction value greater than $100 million.  By going through the SSD pathway, they were previously exempt from local infrastructure contributions.  This exemption appears to have been removed and undermines the Minister’s support for Build to Rent.

While the NSW Property Council used this joint LGNSW/Government release to step back from their embarrassing unmitigated enthusiasm for the proposed changes to the infrastructure contributions package, the steadier heads in the property and development sector have expressed reservations and some concern and held fire.

Click here to read MInister Stokes media release.

This week Urban Taskforce made a submission to DPIE in support of the Explanation of Intended Effect – proposed Amendment to State and Regional Development SEPP to identify large scale cemeteries as State Significant Development (SSD).

The specifics that beset cemetery development are compounded by a range of inefficiencies in the planning system, such as long processing times for rezoning and development applications. Enabling an SSD pathway will significantly improve the approvals process, provide certainty for developers and benefit current and future generations.

The very same issues of long processing times for rezoning and development applications are affecting housing development as well. NSW Government had promised that 90 per cent of housing approvals would be determined within 40 days of lodgement by 2019 but this has not come to fruition. Other attempts to resolve the inexplicably long DA processing times in NSW were made, such as the ePlanning initiative, leading to only minor improvements.

As the housing supply crisis is reaching a boiling point, it is time to consider treating large housing projects as SSD developments. The SSD pathway will provide a level of certainty for the development industry to increase the number of projects and supply more homes and a lot quicker.

The SSD pathway for large cemeteries is NSW Government’s response to the cemeteries’ crises. It is time to apply the same approach and implement a similar solution for the housing crisis too!

Click here for UTA submission to the EIE -proposed Amendment to State and Regional Development SEPP to identify large scale cemeteries as State Significant Development (SSD)

Between 2015 and 2017 the NSW Government implemented nine regional plans to cover all areas of NSW outside of Greater Sydney. The latest draft revised regional plans are now on exhibition for the Central West and the Orana and New England North West Regions.  The two draft plans are the result of the first five-yearly reviews.

The Plans are being exhibited when the affordability of housing in the regions continues to plummet. Just this week, the Real Estate Institute of NSW reported that in the regions rental vacancy rates are generally below 1% - having increased by an average of 13% in the past year.

The draft Central West and Orana Plan states that by 2041 a minimum of 18,992 new homes will be required. In this regard, the draft Plan suggests proposals for higher-density ‘infill’ development are to be encouraged in and around the centres of the Region’s cities.

The draft New England North West Plan states around 7,700 additional homes will be needed across the region over the period from 2016 to 2041 with the growth expected to be focused around the My article content paragraphsregional cities of Tamworth and Armidale.

Submissions on both plans can be made until 18 February 2022.

Click here to view the Central West and Orana and New England North West 2041 regional plans.

For more information for the Central West and Orana Regional Plan email westernregion@planning.nsw.gov.au

For New England North West email: northern@planning.nsw.gov.au.

Click here to view the Real Estate Institute of NSW’s October 2021 rental vacancy figures

Since leaving the Urban Taskforce Chris Johnson has written a book titled ‘Mid-rise Urban Living’ for London publishers Lund Humphries.

The book advocates for planning systems to encourage mid-rise development as an appropriate balance between high rise towers and low rise urban housing. The history of this form of development in cities like Barcelona, Paris, London and Berlin is traced along with new examples from Europe, UK, Asia, USA and Australia. The mid-rise way of urban living is seen as an essential component of growing cities and that the economics of this form of development are better than that of terrace houses or town houses.

Today the Urban Taskforce hosted a Book Launch Webinar where the author, Chris Johnson, was joined by a number of speakers, including Minister Stokes.

You can purchase a copy of the book here.

Greenland Australia officially opens one of Sydney’s tallest residential buildings … read more … 

Build Australia 23 November

Meriton’s Harry Triguboff says the decision to allow fully vaccinated skilled adults and students back to Australia is exactly what the apartment sector needs … read more … 

The Courier Mail 24 November

New $72 million Woolworths at Leppington village centre will create jobs in Western Sydney … read more … 

The Daily Telegraph News Local 24 November

Aland’s Paramount on Parkes, the latest apartment tower to hit the market in Parramatta, profiled …read more 

Urban.com.au 22 November

Stockland unveils its all-inclusive community playspace at Willowdale Denham Court … read more … 

Architecture and Design 24 November

Mixed-use development demand shows uptick in 2021: Five minutes with Meriton's director of residential sales - James Sialepis … read more … 

Urban.com.au 24 November

Architectus appointed to deliver the $60 million Kangan’s Broadmeadows Health and Community Centre of Excellence … read more … 

Architecture and Design 24 November

Ethos Urban’s analyses Australia’s top 20 best places for residential property investors … read more … 

Domain 25 November