31/08/2020

Build-to-rent and co-living housing are fast becoming recognised as an attractive sector for institutional investment and developers in NSW.

While they are both established asset classes in the United States and United Kingdom – growth in NSW has largely been considered difficult due to taxation, land costs/availability, demand and planning system issues (including lack of specific provisions, approval pathways and incentives). As a result, NSW only welcomed its first tenants into a build-to-rent housing project in June 2020.

That situation is anticipated to change, and to change rapidly, in NSW. The drivers of change are multi-layered – however regulatory reform is leading the charge. The NSW Government recently announced a 50% land tax discount on the construction of certain build-to-rent projects from 1 July 2020 – and has now turned its attention to ensuring the planning system plays its role in facilitating investment in those projects.

At this stage, the NSW Government has only set out a framework for the proposed planning system changes and is looking to the industry for input on key issues and development standards.

A critical opportunity exists now for investors and developers alike to work with NSW Government to shape the NSW planning system so that it genuinely incentivises development in the build-to-rent and co-living sectors. The purpose of this article is to assist in providing a platform for that discussion.

Key Proposed Changes to NSW Planning System 

The NSW Government has announced that it proposes to prepare a new State Environmental Planning Policy (Housing Diversity) 2020 (Housing Diversity SEPP).

The Draft Housing Diversity SEPP has not yet been released for public comment. However, the NSW Government has released an ‘Explanation of Intended Effect’ (EIE) for the Housing Diversity SEPP which provides that the new Housing Diversity SEPP will also introduce definitions and planning provisions for, among other matters:

  • build-to-rent housing; and
  • co-living.

It is proposed that the definition for build-to-rent housing would refer to a building or place that:

  • contains at least 50 self-contained dwellings that are offered for long term private rent;
  • is held within a single ownership;
  • is operated by a single management entity; and
  • includes on-site management.

It is proposed that the definition for co-living housing would refer to a building held in single ownership that:

  • provides tenants with a principle place of residence for 3 months or more;
  • includes on-site management;
  • includes a communal living room and may include other shared facilities (such as a communal bathroom, kitchen or laundry); and
  • has at least 10 private rooms (some or all of which may have private kitchen and/or bathroom facilities, with each room accommodating not more than two adults).

The following Table identifies and summarises the key planning provisions for the build-to-rent and co-living housing approval pathways.

Table: Key Planning Provisions - Build-to-rent and Co-living

Planning Provision

Build-to-rent

Co-living

Permissibility

Permitted in the following zones:

  • R3 - Medium Density Residential (where residential flat buildings are permitted);
  • R4 - High Density Residential;
  • B3 - Commercial Core;
  • B4 - Mixed Use; and
  • B8 - Metropolitan Centre.

Permitted in any zones where residential flat buildings are permitted – which would generally include the following zones:

  • R3 – Medium Density Residential;
  • R4 – High Density Residential; and
  • B4 – Mixed Use.

State Significant Development

If CIV exceeds $100 million in Sydney (excluding City of Sydney LGA) or $50 million in regional areas

No SSD approval pathway proposed

Rent

Determined by Council

No minimum requirement

FSR

Determined by Council - LEP

Determined by Council - LEP

Height

Determined by Council - LEP

Determined by Council - LEP

Car parking

0.5 spaces per dwelling

0.5 spaces per room

Lease Term

3 years or more

Minimum 3 months

Strata Subdivision

Prohibited first 15 years (except B3 – Commercial Core prohibited in perpetuity)

Not permitted

Room/Apartment Size

Design guidelines to be developed

30 – 35m2

Communal Living Area

Design guidelines to be developed

Minimum 20m2 + 2m2 per room above 10 rooms

 

In addition to the matters set out above, it is important to note that the NSW Government is seeking feedback on other key provisions and mechanisms for build-to-rent housing including:

  • appropriate mechanism to transition from build-to-rent housing to a strata-subdivided apartment development; and
  • appropriate provisions for build-to-rent housing in regional areas – and the Department acknowledges that projects in these areas may be generally be of a smaller scale and housing forms other than apartments (such as for example multi-dwelling housing or terraces).

Next Steps

The ‘devil will be in the detail’ to ensure that proposed changes to the planning system genuinely operate to facilitate investment in the build-to-rent and co-living housing sectors in NSW – rather than adding additional layers to an already complex system.

As can be seen from the Table above, significant planning provisions and development standards are very much in a ‘formative phase’ and the NSW Government has opened the door for industry to present solutions. Key risk areas for consideration include:

  • many of the design elements remain at large – and there is uncertainty in relation to the extent to which (if at all) the design requirements under SEPP 65 will apply;
  • there is an open question around how to best facilitate the transition from single ownership to longer term strata-subdivision for build-to-rent projects - such as for example whether long-term residents should have a first right of refusal to acquire the unit at a fair market price, or whether a minimum percentage of dwellings for affordable housing should be retained. Another important issue will be the extent of compliance with SEPP 65 for units being sold as private dwellings;
  • limited zones within which co-living is permissible - which is proposed to be limited to areas where residential flat buildings are permitted and would not include other potentially high demand areas such as B3 - Commercial Core, B4 - Mixed Use and B8 - Metropolitan Centre;
  • significant control will sit with Council in respect of matters that go to the core of viability – including regulating rents for build-to-rent developments and determining key development standards (FSR and height) with limited protection from compliance with local development standards; and
  • limited visibility on other planning incentives including, among other options, floor space bonuses and reduced/exempted development contributions. 

The NSW Government recognizes that they will need the collective wisdom of the industry to work through the above issues, and to achieve the objectives it desires for the NSW Planning system in this space. An excellent opportunity exists for investors and developers alike to take the NSW Government up on that offer.

There is more at stake than the economic platform for two new housing sectors in NSW – with build-to-rent and co-living housing having the potential to deliver a sense of belonging, pride, connectedness, choice, certainty, affordability and better amenity for residential communities in NSW. Investors and developers know that they need to meet those community expectations if they want to be leaders in this space in Australia.

The NSW Government has invited submissions on its ‘Explanation of Intended Effect for a new Housing Diversity SEPP’ by 9 September 2020. However, consultation with NSW Government is under way and will continue beyond that date. There will also be an opportunity for industry to comment on the Draft Housing Diversity SEPP once that is released.

Please contact Ben Fuller if you would like any assistance preparing a submission to the NSW Government, or liaising with the NSW Government in relation to these matters.

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