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 section 173 has been developed to help facilitate the successful negotiation of agreements to provide affordable housing as part of a development.

Learn more about section 173 in the Guide to Victoria’s Planning System

The Governor in Council Order (the Order) forms part of the definition of affordable housing under the Planning and Environment Act (the Act). The Order specifies the income ranges for very low, low and moderate income households for affordable housing that is not social housing.

Under the Act, social housing has the same meaning as in section 4(1) of the Housing Act. For information on income limits and eligibility for social housing please refer to housing.vic.gov.au

The Order will consist of two tables setting out income ranges for Greater Melbourne and the Rest of Victoria. The tables will include the following three household types:

  • Single adult
  • Couple, no dependant
  • Family (with one or two parents) with dependent children.

The Order will be published annually in the Government Gazette

The Order specifies the income ranges for very low, low and moderate income households for affordable housing as defined under the Planning and Environment Act 1987. The Order is only used for affordable housing that is not social housing.

Parties to a voluntary Affordable Housing Agreement would refer to the Order to determine income eligibility of individuals and households that the affordable housing is targeting when the affordable housing being negotiated is not social housing.

If the affordable housing being negotiated is social housing, parties to a voluntary Affordable Housing Agreement should refer to more information on housing.vic.gov.au

Parties to a voluntary Affordable Housing Agreement would refer to the Specified Matters Under Section 3AA(2) – Ministerial Notice (the Notice) when determining whether the affordable housing they are negotiating is appropriate for the needs of very low, low and moderate income households. The Notice is only used for affordable housing that is not social housing.

If the affordable housing being negotiated is social housing, parties to a voluntary Affordable Housing Agreement should refer to more information on social housing as an affordable housing contribution.

The Specified Matters Under Section 3AA(2) – Ministerial Notice is published in the Government Gazette.

Information about community housing and providers is available at housing.vic.gov.au

Registered housing agencies are not-for-profit organisations that provide affordable rental housing for low income households. They are registered under the Housing Act 1983 (the Act) as either housing associations or housing providers.

More information on registered housing agencies is available at housingregistrar.vic.gov.au

A list of Victorian housing providers that are registered under the Housing Act 1983 is available at housingregistrar.vic.gov.au

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.

The income ranges for affordable housing, that is not social housing, are based on Australian Bureau of Statistics, 2016 Census of Population and Housing median weekly household income. The income ranges will be adjusted annually using the Housing Group of the Consumer Price Index for the December Quarter published by the Australian Bureau of Statistics. The income ranges will be rebased after each Census of Population of Housing

The methodology for creating the income ranges in the base year (2016) is shown below. To access the current income ranges, refer to Resources section for a copy of the Governor in Council Order.

Step 1. The base income is calculated by converting the 2016 Census of Population and Housing median weekly household income for Greater Melbourne and Rest of Victoria into an annual income.

 

Median weekly household income

Median annual household income

Greater Melbourne

$1,542

$80,492

Rest of Victoria

$1,124

$58,673

Step 2. The ratios are applied to the base incomes to form the base income groups.

Ratios

Greater Melbourne

Rest of Victoria

Very Low

50%

50%

Low

80%

80%

Moderate

120%

120%

Income groups

Greater Melbourne

Rest of Victoria

Very Low

$40,246.20

$29,336.40

Low

$64,393.92

$46,938.24

Moderate

$96,590.88

$70,407.36

Step 3. Apply demographic weights to the base income groups to form household types.

Demographic weights

 

Single Adult

0.6

Additional Adult

0.3

Additional Child

0.18

Household types

 

Greater Melbourne

Rest of Victoria

Very Low Income

Single Adult Household

$24,147.72

$17,601.84

Couple Household*

$36,221.58

$26,402.76

Family Household^

$50,710.21

$36,963.86

Low Income

Single Adult Household

$38,636.35

$28,162.94

Couple Adult Household

$57,954.53

$42,244.42

Family Household*

$81,136.34

$59,142.18

Moderate Income

Single Adult Household

$57,954.53

$42,244.42

Couple Adult Household

$86,931.79

$63,366.62

Family Household*

$121,704.51

$88,713.27

*A couple household is any household with two adults and no dependents.

^A family household is any household with one or two parents and one or more dependent children.

Step 4. Round the household types to the nearest $10

Household incomes rounded to nearest $10

 

Greater Melbourne

Rest of Victoria

Very Low Income

Single Adult Household

$24,150

$17,600

Couple Household

$36,220

$26,400

Family Household

$50,710

$36,960

Low Income

Single Adult Household

$38,640

$28,160

Couple Adult Household

$57,950

$42,240

Family Household*

$81,140

$59,140

Moderate Income

Single Adult Household

$57,950

$42,240

Couple Adult Household

$86,930

$63,370

Family Household*

$121,700

$88,710

Step 5. Express the rounded household types as income ranges. Single Adult Household

Income ranges

 

Greater Melbourne

Rest of Victoria

Very Low Income

Single Adult Household

Up to $24,150

Up to $17,600

Couple Household

Up to $36,220

Up to $26,400

Family Household

Up to $50,710

Up to $36,960

Low Income

Single Adult Household

$24,151 to $38,640

$17,601 to $28,160

Couple Adult Household

$36,221 to $57,950

$26,401 to $42,240

Family Household*

$50,711 to $81,140

$36,961 to $59,140

Moderate Income

$38,641 to $57,950

$28,161 to $42,240

 

Couple Adult Household

$57,951 to $86,930

$42,241 to $63,370

Family Household*

$81,141 to $121,700

$59,141 to $88,710

Step 6. The indexation measure is applied and the incomes are rounded to the nearest $10.

For information on income limits and eligibility for social housing refer to housing.vic.gov.au

The Order will be reviewed annually in February with the intention to release the revised income ranges in March. The income ranges will be adjusted using the Housing Group of the Consumer Price Index for the December Quarter which is published by the Australian Bureau of Statistics in February. The income ranges will be rebased after each Census of Population of Housing.

The income ranges in the Order will be adjusted annually using the Housing Group of the Consumer Price Index for the December Quarter published by the Australian Bureau of Statistics the following February. The income ranges will be rebased after each Census of Population of Housing.

The organisation that manages the affordable housing (or facilitates a purchase in a shared equity scheme) will be responsible for allocating the dwellings to households accessing the affordable housing that are very low, low, or moderate-income households as defined in the Order.

If the dwellings are social housing, allocation will be subject to the regulations governing their allocation. Information regarding social housing is available at housing.vic.gov.au

Whoever is managing the rental or sale of the properties will need to have a process in place to make sure the property is allocated or sold to an eligible household. In making the decision on allocation they should have regard to the Order and to the Specified Matters Under Section 3AA(2) – Ministerial Notice. If the dwellings are social housing, allocation will be subject to the regulations governing their allocation.

If the dwellings are social housing, allocation will be subject to the regulations governing their allocation. Information regarding social housing is available at housing.vic.gov.au

Affordability

The affordable housing amendments to the Planning and Environment Act 1987 (the Act) specifically states that matters specified by the Minister for Planning by notice cannot include price ranges or prices for the purchase or rent of housing. This is because unlike the land use planning legislation in some other jurisdictions, prices and rents are not within the remit of the Act.

The scope of the Act relates to the use and development of land. Land use and development can include matters relating to location, type, design, appearance, amenity and density of housing developments but the scope of the Act does not extend to regulating matters about what is to happen with the housing once it has been developed.

Parties to a voluntary Affordable Housing Agreement must consider whether housing costs – in terms of rent or mortgage payments – will be affordable for very low income households; or low income households; or moderate income households. To be affordable, housing costs cannot account for more than a certain proportion of household income. A widely accepted benchmark is that to be affordable, housing costs must not account for more than 30 of gross household income.

In the case of home purchase products with a mortgage, consideration should be given to determining an affordable purchase price given an affordable housing costs. The determination of an affordable purchase price will depend on assumptions about the size of a deposit, the term of the loan, the interest rate for borrowings and the frequency of payments. A rule of thumb is to assume:

  • a 10 per cent deposit;
  • a 25-year loan; the standard variable owner occupier housing loan lending rate published by the Reserve Bank of Australia; and
  • a fortnightly repayment.

If a voluntary Affordable Housing Agreement is secured through a Section 173 (S173) agreement, that agreement can set out how long the dwelling must be used for the provision of affordable housing. The S173 is registered on the title of the dwelling, so remains in place even if the property is sold.

If the Responsible Authority wants the property to remain as affordable housing in perpetuity, it is recommended that the S173 set out that the property, or the proceeds from the sale of the property, are to be used for the provision of affordable housing in perpetuity, and avoid clauses that set out that the dwellings are never to be sold. This allows the owner of the property some flexibility to deliver sustainable and strategic asset management for the best outcome of their tenants and their organisation. It also allows for affordable housing shared equity schemes to operate without having to seek approval from the Responsible Authority at each transaction in the future.

One of the biggest challenges to the provision of affordable housing is that the amount of rent that a very low or low income household can afford to pay, is less than it costs to build, manage, and maintain a dwelling and deliver tenancy management services.

It may not be financially viable for a housing provider to buy dwellings at market prices and let them, without some form of upfront and/or ongoing subsidy. Even when dwellings are offered for sale at a discount to market rates, it may still be unviable unless there is a significant discount to the sale price.

Allocation

Parties to a voluntary Affordable Housing Agreement must consider how any dwellings provided under the agreement might be allocated to eligible households. Eligible households include very low income households, low income households and moderate income households as defined under the Planning and Environment Act 1987.

If the dwellings are social housing, allocation will be subject to the regulations governing their allocation. Information regarding social housing is available at Housing.vic.gov.au

Whoever is managing the rental or sale of the properties will need to have a process in place to make sure the property is allocated or sold to an eligible household. In making the decision on allocation, they should have regard to the Governor in Council Order and to the Specified Matters Under Section 3AA(2) – Ministerial Notice.

In preparing an Affordable Housing Agreement the parties should determine who will ultimately be the owner of any dwellings (or land if a land contribution is required). Possible owners and managers of the affordable housing include:

Registered housing agencies

The Director of Housing

  • Individual homeowners plus another party through a shared equity scheme
  • The Council
  • The developer

A private organisation established to own affordable housing

A Housing Trust established for the purpose of owning affordable housing.

A way to help ensure the property is managed and maintained as affordable housing, is for the dwellings to be owned by the Director of Housing or a registered housing agency (in the case of affordable rental housing) or by a registered housing agency plus a homeowner in the case of a shared equity scheme.

Registered housing agencies have a detailed compliance regime under the Housing Act 1983 which ensures that they make the houses they own and manage available to eligible low-moderate income households. They also have the skills and experience to help tenants with high and complex needs access support services so they can sustain their tenancies. More information about registered housing agencies is available at housingregistrar.vic.gov.au

If the houses are to be owned by a Local Council, the developer, or any other organisation, mechanisms should be put in place to ensure the housing remains affordable housing and remains available to eligible households.

As with any asset, if Councils want to own the dwellings they may want to weigh up the staff and compliance costs of creating a new asset class and how it will affect their asset renewal gap.

In preparing an Affordable Housing Agreement the parties should determine who will ultimately manage any affordable housing rental dwellings. There will need to be property management and maintenance of the dwellings, and also tenancy management for the tenants in the dwellings. These services may be undertaken by the same or two different organisations. The dwellings may be managed by:

  • Registered housing agency
  • The Council
  • The developer
  • A private organisation

A way to provide certainty that adequate property and tenancy management services are in place in the long run is for the management to be undertaken by the Director of Housing or a registered housing agency. Registered housing agencies are regulated which helps ensure that they make the houses they own and manage available to eligible very low to moderate income households. They also have the skills and experience to help tenants with high and complex needs access support services so they can sustain their tenancies.

If the houses are to be managed by a Council, the developer, or any other organisation, mechanisms should be put in place to ensure the housing remains affordable housing and remains available to eligible households.

More information about registered housing agencies is available at housingregistrar.vic.gov.au

Other matters

Parties to a voluntary Affordable Housing Agreement must consider how the public benefit of the provision of affordable housing or a contribution to housing affordability is retained. Will the affordable housing provided be secured in the longer term (for example 20-25 years, perpetuity) or is it time limited? If the affordable housing is to be sold at a later date, will the proceeds be re-invested in affordable housing? There is no single method for securing affordable housing. One way is to direct the affordable housing to a registered housing agency regulated under the Housing Act 1983.

Parties to a voluntary Affordable Housing Agreement must consider how secure the tenancy of the affordable housing provided as part of an Affordable Housing Agreement will be. The provision of rental housing owned and/or managed by a registered housing agency provides a way of providing secure tenure, but there are many other ways housing might be provided such as shared equity and low-cost purchase schemes.

Parties to a voluntary Affordable Housing Agreement must consider whether the housing provided as part of an Affordable Housing Agreement will be suitable in terms of size (for example the number of bedrooms), quality (beyond mandated building standards such as the quality of internal finishes and energy efficiency) and accessibility (for example, whether there are stairs) for the intended target resident group.

Parties to a voluntary Affordable Housing Agreement must consider the location of the affordable housing secured under an agreement in relation to access to services, transport and employment in terms of the very low income, low income and moderate-income households that it is intended for.

Parties to a voluntary Affordable Housing Agreement must consider how the affordable housing will be integrated into the physical build and local community. In terms of integration with the physical build, will the design of the affordable housing look similar or different to other dwellings within the same development? In terms of integration into the local community, consideration should be given to neighbourhood character and community cohesion.

Consideration needs to be given to the policy basis for the level or type of affordable housing proposed as part of a voluntary Affordable Housing Agreement. The parties to a negotiation should be able to provide evidence of the need for a particular type of affordable housing in the area of the proposed development.

Official estimates of housing needs include:

Developers take on a certain amount of risk when deciding on a project. Investors, financiers, and shareholders require a certain return for that level of risk. As with the introduction of any costs into a system, the market is expected to adjust over time as the transition to a more mature affordable housing market emerges.

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.

The Department of Environment, Land, Water, and Planning have prepared this guidance to help council staff and developers in their negotiations. Registered housing agencies may also be able to provide advice on their requirements. While affordable housing is a relatively new component of the planning framework, there are also consultants that specialise in affordable housing.

While it is voluntary to enter into an Affordable Housing Agreement, once that agreement is secured through a S173, the agreement is a legally binding contract.

Entering into an Affordable Housing Agreement is a voluntary process. If parties are not able to reach an agreement, then the assessment of the proposed development should proceed. As the provision of affordable housing is an objective of the Planning and Environment Act 1987 from 1 June 2018, the Responsible Authority may seek information on how the applicant responds to this objective of the Act. A Responsible Authority should have a strategic basis, supported by research and assessment, as they would when seeking to achieve any objective in the Planning and Environment Act 1987 Act.

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

The Responsible Authority will determine how an affordable housing dwelling will be valued for the purpose of other contributions, and for the purpose of rating the property. It is worth noting that based on the income that can be achieved from the property, an affordable house is “less valuable” than a market-based dwelling and the Council may want to reflect that in the Affordable Housing Agreement, and in any Council Affordable Housing policy.

There is no “right” amount of affordable housing that should form part of a development or rezoning proposal. The Director of Housing or a registered housing agency should be consulted to help inform this decision.

Not all affordable housing is social housing (i.e. public housing or housing owned, controlled or managed by a Register Housing Agency). Owner-occupied housing provided for moderate income households in a shared equity scheme could also be affordable housing for the purposes of the Planning and Environment Act 1987.  

The key challenge is who will pay for affordable housing. The greater the proportion of affordable housing provided for very low-income houses, the greater will be the requirement for subsidies. Consideration should be given to the effect of the requirement for affordable housing, and the type of affordable housing, on the financial feasibility of the proposed development project. When the revenue from a project is less than what is required for taking on the risk of a project, the project will not proceed.

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, to the extent possible, gained agreement with the applicant, on what would/wouldn’t be included in an Affordable Housing Agreement secured by way of a planning permit condition for a Section 173.

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.

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

An Affordable Housing Agreement can set out whether the provision of affordable housing is delivered through a contribution of dwellings, land, or a cash contribution. If the provision is by way of a cash contribution, consideration should be given to how the contribution will result in an affordable housing outcome within a reasonable amount of time. For example, if a small cash contribution is negotiated, it may not be enough on its own to deliver even a very modest affordable housing outcome. Consideration could be given to how this contribution could be applied to an existing program of affordable housing delivery, rather than being held until small contributions accumulate to a sufficient size for an affordable housing outcome.