The purpose of this guidance is to give direction to Responsible Authorities, landowners or planning applicants that are considering voluntarily entering into an agreement for an affordable housing outcome.

It aims to assist parties involved navigate their way to a successful affordable housing agreement that increases the supply of affordable housing. It needs to be read in conjunction with the following documents:

Overview

Key Messages:
  • The planning system has a role in facilitating affordable housing.

  • From 1 June 2018, the Planning and Environment Act 1987 includes a new objective “to facilitate the provision of affordable housing in Victoria”.

  • Legislative changes clarify that Responsible Authorities can enter into an agreement with landowners and others under section 173 of the Planning and Environment Act 1987 for the provision of affordable housing as part of a development.

  • "Affordable housing” is defined in the Planning and Environment Act 1987.

The role of planning

Homes for Victorians: Affordability, access and choice (March 2017) and Plan Melbourne 2017-2050 (March 2017) recognise the critical need to increase the supply of affordable housing.

Both strategies found that the planning system alone cannot address all issues relating to the affordability of housing, but acknowledged that there is a role for the planning system to facilitate the supply of affordable housing.

Objective of the changes

The objective of the recent changes to the Planning and Environment Act 1987 (the Act) is to facilitate the supply of affordable housing through the planning system.

The changes to the Act are also intended to provide a framework that allows for innovative approaches to the delivery of affordable housing and flexibility for parties when reaching an affordable housing agreement.

Section 173 agreements for affordable housing

One mechanism to facilitate the supply of affordable housing is through a voluntary agreement between a Responsible Authority (generally a local council) and a landowner to deliver affordable housing as part of new developments.

Such agreements are generally referred to as section 173 agreements. The power to enter into the agreement arises under section 173 of the Act.

Amendments to the Planning and Environment Act 1987

Three important changes have been made to the Act that came into effect on 1 June 2018. Those changes were:

  • Adding a new objective to the Act “to facilitate the provision of affordable housing in Victoria”.
  • Providing a definition of affordable housing – “affordable housing is housing, including social housing, that is appropriate for the housing needs of very low, low, and moderate-income households”.
  • Affirming the use of section 173 for voluntary affordable housing agreements “… a Responsible Authority may enter into an agreement with an owner of land for the development or provision of land in relation to affordable housing”.

Frequently Asked Questions

One of the mechanisms available to a Responsible Authority, such as a council, to facilitate affordable housing in a new residential development is through negotiating an Affordable Housing Agreement with the landowner. Unfortunately, over the past few years, many attempts to negotiate agreements have not resulted in the delivery of affordable housing.

Including an objective in the Planning and Environment Act 1987 to “facilitate the provision of affordable housing" has removed a significant hurdle for Responsible Authorities that are seeking to facilitate affordable housing in their municipality through planning mechanisms.

As for any objective in the Act, a Responsible Authority must undertake the appropriate strategic land use research and municipal policy development in relation to affordable housing. The changes to the Act do not remove the need for a strategic basis for a position by the Responsible Authority.

It is important to note that because any section 173 agreement is entered into voluntarily, councils and landowners have always been able to enter into a section 173 agreement for a range of outcomes, including affordable housing.

This change to the Act just clarifies that a section 173 is a legal mechanism that can be used in appropriate circumstances to deliver affordable housing in a new development.

The overall process for developing an Affordable Housing Agreement and securing it by way of a section 173 is similar to the process for developing any section 173. The difference is that Affordable Housing is a fairly new area of specialisation in the planning sector in Victoria

An example agreement has been developed to help facilitate the successful negotiation of agreements to provide affordable housing as part of a development.

Please include a reference to ‘affordable housing’ in the title of the section 173 agreement to assist DELWP to monitor affordable housing agreements.

More information on the general guidance on use of a section 173

If you have any questions or need further information contact the Affordable Housing team.

Framework

To implement the amendments, the Department has worked with councils, the residential development industry and the affordable housing sector to develop two instruments and support materials.

Together with the affordable housing amendments, the instruments and support materials create the framework for Responsible authorities and landowners to negotiate voluntary affordable housing agreements.

The framework provides greater clarity and certainty on how voluntary affordable housing agreements will be structured and applied and assist councils in their role as planning authorities.

The instruments are:

  • An Order by Governor in Council which specifies the income ranges for very low, low and moderate-income households for affordable housing that is not social housing.
  • A Ministerial Notice published in the Government Gazette which specifies the matters that must be considered in determining whether housing provided under an Affordable Housing Agreement is appropriate for the needs of very low, low and moderate-income households.

The support materials includes:

  • An example Affordable Housing Agreement using section 173 of the Act.
  • Guidance for seeking and negotiating affordable housing agreements under the Act.

View the resources and supporting material available

Frequently Asked Questions

For the purposes of the Planning and Environment Act 1987, households are defined as being very low income households if their income is 50 percent or less of the median household income of Greater Melbourne or the Rest of Victoria, depending on where they live.

Households whose income is between 50 to 80 percent of the median household income of Greater Melbourne or the Rest of Victoria are defined as low income households.

Households whose income is between 80 and 120 percent of Greater Melbourne or the Rest of Victoria are defined as moderate income households.

Preparing and negotiating an Affordable Housing Agreement will require input from a range of experts including strategic and statutory planning staff, an affordable housing subject-matter-expert, and legal services.

While it is statutory and strategic planning staff who will be managing any development, permit variation, permit application or rezoning process there may be other staff within Council who are best placed to negotiate an Affordable Housing Agreement – social planners will bring a sound understanding of the requirements of managing affordable housing, while property officers may have experience in negotiating development or property deals.

As with other matters in planning, a Council may decide to build the skills of one or two staff members who can specialise in affordable housing (in addition to their existing role) or they may contract in specific expertise. In some cases, councils may have a relationship with a registered housing agency who can provide advice and support in negotiating an agreement.

Suggested negotiation steps

The following process is suggested to help facilitate an effective negotiation of an Affordable Housing Agreement:

Who should be involved:

  • Responsible Authority

Key Steps:

  • The Responsible Authority identifies affordable housing needs.
  • The Responsible Authority prepares planning or non-planning responses.

Things to consider:

  • Early planning is necessary to determine the level of need for affordable housing in a municipality.
  • Due consideration should first be given to State Planning legislation and policy.

Who should be involved:

  • Responsible Authority
  • Landowners
  • End recipient of the affordable housing (such as a registered housing agency (optional)
  • Broker (optional)

Key Steps:

  • The Responsible Authority clearly articulates the proposed affordable housing outcome they are seeking, with reference to this guidance
  • The Responsible Authority confirms the priority of an affordable housing outcome in relation to any other planning outcomes that are being sought, above those set out in the appropriate planning controls
  • The Responsible Authority refers landowners to this guidance and discusses the principles that are proposed to underpin any negotiation
  • The Responsible Authority refers the landowner to information on potential end recipients of the affordable housing (such as a Registered Housing Agency)
  • The Responsible Authority invites the landowner to enter into negotiations in relation to an affordable housing outcome for the site.

Things to consider:

  • Issues that a Responsible Authority might consider to determine whether a request should be made to a landowner to voluntarily include affordable housing in a development:
    • Any value created by the planning process or other mechanism or incentive the Responsible Authority may provide to support an affordable housing outcome
    • Principles, definitions and other matters set out within this guidance
    • Suitability of the site location and built form proposition for affordable housing
    • Site constraints; the priority and cost implications of any other contributions that are sought beyond those otherwise required under the relevant planning controls; and the planning circumstances including the planning application history and stage
    • The landowner’s willingness to consider including an affordable housing component.

Who should be involved:

  • Responsible Authority
  • Landowner
  • End recipient of the affordable housing (such as a registered housing agency (optional )
  • Broker (optional)

Key steps:

  • The Responsible Authority and landowner discuss the viability of the proposal to include affordable housing as part of the development.
  • Discussions between the landowner and  potential end recipients, to determine the end recipients capacity to support and enhance a proposed affordable housing outcome.
  • Negotiations regarding the method by which the proposed affordable housing will be delivered and on what terms.

Things to consider:

  • The Responsible Authority should consider a range of issues in determining the type, amount and delivery mechanism as a starting point for discussions with the landowner, including:
    • The value of incentives that could support the viability of the outcome and the way this value may be utilised to deliver different affordable housing outcomes
    • The diversity of affordable housing types that the Responsible Authority prioritises based on the assessment of local housing need, and the corresponding cost impact of delivering different dwelling types, sizes and outcomes for different end recipients
    • End recipient interest, capacity (both financial and administrative) and constraints to operate effectively as owners or managers of the affordable housing being proposed
    • The appropriateness of the affordable housing being delivered and managed on-site (including consideration to long-term financial viability of ownership or management for the end recipient)
    • Whether it may be appropriate that an agreed contribution to affordable housing is instead provided on another site or in another form (on the advice and agreement of the end recipient) and the process to manage this contribution

Who should be involved:

  • Landowners

Key steps:

  • Finalise agreement of the negotiated outcome, including evidence of support by the proposed end recipient.
  • Proceed to translate the agreement into an appropriate planning control for each party's endorsement.

Things to consider:

  • An Affordable Housing Agreement secured through a section 173 agreement is legally binding between the landowner and another party.
  • The section 173 agreement remains with the land, regardless of whether there is a change in land ownership.

Scenarios

Key Messages:
  • Upon entering negotiations, the Responsible Authority should direct the landowner to this guidance to assist in the negotiations.

  • As part of negotiations with a landowner for a voluntary agreement to provide affordable housing, a Responsible Authority may consider a range of incentives and concessions.

  • A Responsible Authority must discharge its responsibilities fairly and reasonably. It should not withhold authorisation for a planning scheme amendment without evidence-based policy reasons for doing so.

  • A Responsible Authority can seek to include a condition on a planning permit for the provision of affordable housing and it should have evidence to support the requirements if the applicant appeals the conditions to VCAT.

An example of where a Responsible Authority would seek to enter into an Affordable Housing Agreement would be as part of a rezoning proposal or a permit application or a variation to a permit for a significant development.

Agreements can be used if a Responsible Authority is disposing of its land or making it available for the purpose of facilitating affordable housing.

A Responsible Authority should not use an Affordable Housing Agreement as a proxy for undertaking the necessary strategic planning work to determine where and how affordable housing should be facilitated through the planning scheme.

More information on process

More information on parties to the agreement

Scenarios

A Responsible Authority wants to respond to the demand for affordable housing in its municipality and to consider whether planning mechanisms or any other responses are an appropriate way to facilitate affordable housing.

The social planning and strategic planning staff create a working group (and/or engage a consultant) to gather information on housing demand, household income levels, projected population growth, and projected housing supply.

The working group develops a Draft Affordable Housing Policy. Following the appropriate level of community engagement, the Responsible Authority adopts an Affordable Housing Policy which sets out how the Responsible Authority will facilitate the provision of affordable housing.

The policy identifies the planning mechanisms that could help facilitate the provision of affordable housing and the Responsible Authority agrees to include those elements in its overall Housing Strategy.

Through a Planning Scheme amendment, the Responsible Authority seeks to reference/incorporate the Housing Strategy into the Planning Scheme. Council staff use the Housing Strategy and the Affordable Housing Policy as a basis for any discussions on Affordable Housing Agreements.

A landowner with a large land holding wants the planning scheme to be amended to rezone their land from industrial to residential. They engage a planning consultant and the consultant organises to meet with strategic planning staff at the Council.

In the initial meeting, the Council’s strategic planning staff discuss the information they would be seeking before approving a planning scheme amendment. They provide:

  • an overview of the key strategic land use considerations for the site
  • the provision of affordable housing and
  • the planning consultant with links to relevant Council policies and strategies.

The planning consultant begins preparing information on what they hope to achieve through a planning scheme amendment and the strategic justification for it. In parallel, Council staff begin discussions with the landowner and the planning consultant to facilitate a voluntary Affordable Housing Agreement.

Council staff discuss the potential for a voluntary Affordable Housing Agreement with the Councillors, and seek guidance on whether there are any incentives or contributions the Council is willing to make to facilitate a viable Affordable Housing Agreement.

Together the landowner and the Council reach a voluntary Affordable Housing Agreement that sets out that a small percentage (three per cent) of future dwellings on the site will be contributed at no cost to a registered housing agency for the purpose of providing rental accommodation to very low and low-income households. The Affordable Housing Agreement also sets out that another small percentage (two per cent) of dwellings will be available for sale to eligible households by way of a shared equity scheme.

The Affordable Housing Agreement also sets out that Council will assess the land occupied by any affordable housing dwellings at a valuation of zero dollars when calculating the Public Open Space requirement.

The affordable housing is secured through a section 173, either prior to or after authorisation for the Planning Scheme Amendment.

A landowner wants to redevelop a site near a Major Activity Centre and engages a planning consultant. The landowner and planning consultant organise a pre-application meeting with the statutory planning staff at the Council.

At the pre-application meeting the Council staff provide an overview of the key statutory planning considerations for the site, including the provision of affordable housing and the planning consultant with links to relevant Council policies and strategies.

Prior to and following lodgement of the planning permit application, the statutory planning staff work with the planning consultant and developer and agree to a voluntary Affordable Housing Agreement.

The Affordable Housing Agreement sets out that the landowner will provide a cash contribution to the value of three per cent of the finished development as a contribution towards the provision of affordable housing.

The landowner and Council staff agree that the Affordable Housing Agreement will be secured through a condition on a notice of decision (or permit) that will require the landowner to enter into a section 173 for the provision of affordable housing in accordance with the details set out in the voluntary Affordable Housing Agreement.

Frequently Asked Questions

To help facilitate an Affordable Housing Agreement, a Responsible Authority may consider concessions or incentives such as:

  • Floor area uplift
  • A truncated planning timeframe
  • Reduced developer contribution
  • Reduction of other planning requirements e.g. carparking, public open space contribution, community infrastructure contribution
  • Rate reduction or exemption for the affordable housing dwellings
  • Other contributions by the Responsible Authority e.g. land or money

A Responsible Authority must discharge its responsibilities fairly and reasonably. It should not withhold authorisation for a planning scheme amendment without evidence-based policy reasons for doing so.

Similarly, the Department of Environment, Land, Water, and Planning will need to see a strategic basis for any request for a planning scheme amendment that includes provisions in relation to affordable housing.

A Responsible Authority can seek to include a condition on a planning permit for the provision of affordable housing. As for any condition on a permit, the responsible authority should have evidence to support the requirements and must be able to defend the condition in VCAT if the applicant appeals the conditions.

Throughout the planning permit process, planning staff should have explored and gained agreement with the applicant, on what would or wouldn’t be included in an Affordable Housing Agreement secured by way of a planning permit condition for a section 173 agreement.

Depending on the arrangements, the requirement for the provision of affordable housing can significantly change the viability of a development. Any requirements should be identified early and clearly and worked through with the applicant.

Approach

This approach will help guide the discussion and support an agreement being reached between the Responsible Authority and the landowner concerning the delivery of affordable housing.

Where there is a broad agreement between the parties to enter negotiations voluntarily, the following approach is suggested:

  • The decision to enter into negotiations and conclude an agreement is voluntary. A planning condition in relation to affordable housing delivery must have the explicit written agreement of the landowner. Parties may elect to cease negotiations at any stage.
  • The Responsible Authority should clearly set out:
    • The underlying value they expect has been, or will be, created through the planning approval process or other mechanisms or incentives to support the delivery of the affordable housing.
    • The way that value is proposed to be shared between the Responsible Authority and the landowner.
    • The outcomes they expect can be generated from this value.
  • Regard must be given to the commercial viability of delivering a negotiated affordable housing outcome. Contributions should not unduly impact on development progression, market supply or affordability.
  • Determination of what constitutes an acceptable affordable housing outcome should be made with reference to the definition of affordable housing set out in the Planning and Environment Act 1987 and with regard to the interest and financial capacity of proposed end recipient to own and/or manage the dwellings generated by the Affordable Housing Agreement.
  • The decision as to the end recipient of any affordable housing contribution should rest with the landowner (or planning applicant acting on behalf of the landowner) in consultation with the proposed end recipient and the Responsible Authority.
  • Conditions on the management and use of the affordable housing should be limited – especially where the managements and use of the affordable housing is regulated through other means as is the case with social housing. If deemed necessary, proposed conditions on the management and use of the affordable housing should be agreed to by a proposed end recipient. Undue restrictions that limit an end recipient’s ability to manage dwellings, including restrictions on title, can create significant costs to the end recipient and should be avoided.

Definitions

Act

The Planning and Environment Act 1987 (Vic).

Affordable housing

Given in the Planning and Environment Act 1987. Affordable housing is housing, including social housing, that is appropriate for the housing needs of very low, low, and moderate-income households.

Agreement

An agreement made pursuant to section 173 of the Planning and Environment Act 1987.

Governor in Council Order

Found section 3AB of the Planning and Environment Act 1987.

Greater Melbourne

The Australian Bureau of Statistics’ Greater Capital City Statistical Area of Victoria.

Housing Act

The Housing Act 1983 as amended from time to time.

Landowner

The person or persons registered or entitled from time to time to be registered by the Registrar of Titles as proprietor or proprietors of an estate in fee simple in the Subject Land or any part thereof and includes any mortgagee-in-possession.

Ministerial Notice

A notice published in the Government Gazette pursuant to section 3AA(2) of the Act.

Planning scheme

A planning scheme controls land use and development within a municipal district. It contains state and local planning policies, zones and overlays and other provisions that affect how land can be used and developed. Each planning scheme consists of maps and an ordinance containing planning provisions. The planning scheme is a statutory document and each municipality in the state is covered by one.

Planning scheme amendment

Changes to the planning scheme are called amendments and the process is set out in the Planning and Environment Act 1987. An amendment may involve a change to a planning scheme map (for example: a rezoning), a change to the written part of the scheme, or both.

Registered Housing Agency

A housing provider or association registered with Victoria's Registrar for Housing Agencies for the purposes of the Housing Act.

Responsible Authority

A Responsible Authority is the body responsible for the administration or enforcement of a planning scheme or a provision of a scheme. A Responsible Authority is responsible for considering and determining planning permit applications and for ensuring compliance with the planning scheme, permit conditions and agreements. The Responsible Authority is usually the municipal council. However, in the Melbourne Planning Scheme for example, the Minister for Planning is the Responsible Authority for land in a number of areas including the Melbourne Casino Area, Melbourne Docklands Area, Flemington Racecourse and the Royal Melbourne Showgrounds.

Rest of Victoria

The area not defined as being part of the Australian Bureau of Statistics’ Greater Capital City Statistical Area of Victoria.

Shared equity scheme

Shared equity involves a home buyer plus another entity each taking part ownership or equity in a dwelling. By allowing the home buyer to pay less than 100 percent of the property they require a smaller loan and deposit – thereby allowing them to enter the market earlier.

Social housing

Given in the Housing Act 1983. Social housing means public housing; and housing owned, controlled or managed by a participating registered agency.

Page last updated: 02/11/2018