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.