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 affordable housing which is intended to be sold (rather than leased) to an eligible household, consideration needs to be given to how the property’s sale can be made viable (affordable). Parties are advised to make very conservative assumptions about the availability and terms of finance (mortgage or other instrument) for the proposed property for households within the defined income ranges and under the ownership terms proposed.

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.

Page last updated: 17/10/2018