Overview

The Guidance applies to negotiations entered into voluntarily in relation to a planning application made in accordance with the Planning and Environment Act 1987. Examples of where a Responsible Authority might seek to enter into an Affordable Housing Agreement include where:

  • There is no existing affordable housing planning provision or system in place in relation to the site.
  • The Responsible Authority proposes there is a generation of value through the planning process or the application of incentives that create value it seeks to share towards an affordable housing purpose.
  • The landowner voluntarily agrees to enter into negotiations and reaches an Agreement with the Responsible Authority to provide for an affordable housing outcome.
  • An Agreement is expected to result in a condition on a permit for a site.

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.

Responsible Authority

Key Messages:
  • Early planning may be needed to determine the level of need for affordable housing in a municipality.

  • Once planning and the assessment of need for affordable housing is completed, there are a range of issues that a Responsible Authority should consider determining whether a request should be made to a landowner to voluntarily include affordable housing in a development.

  • Should a decision be made by a Responsible Authority to seek a voluntary agreement and the landowner is amenable to this discussion, the Responsible Authority is advised to consider a range of issues in determining the type, amount and delivery mechanism that they may seek to be realised as a starting point for discussions with the landowner.

In order for a Responsible Authority and landowner to enter into meaningful discussion on the requirements of an agreement, some early planning is necessary to determine the level of need for affordable housing in a municipality.

Many Responsible Authorities will already have in place a Housing Strategy that identifies the relevant needs of households and dwelling types and these will provide useful tools in assessing housing need within a defined location.

Where a Strategy or Plan is not in place, other resources may provide useful information.

  • Any value created by the planning process or other mechanism or incentive the Responsible Authority may provide to support an affordable housing outcome.
  • Approach, 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.

Frequently Asked Questions

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 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.

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.

Land Owners

Key Messages:
  • The decision by a landowner to enter a legal agreement that commits them to achieving an affordable housing outcome on a site must be a decision that is voluntarily made.

  • At a minimum, an Affordable Housing Agreement secured by section 173 needs to be between the Responsible Authority and the landowner.

  • Responsible Authorities and landowners are encouraged to consult early with the proposed end recipient of affordable housing (such as the Director of Housing or a Registered Housing Agency) about proposed voluntary agreements.

A landowner can approach Council with a proposal that included an affordable housing outcome secured by a section 173 agreement for example, as part of their permit application or a rezoning proposal.

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.

Voluntary agreement:

The decision by a landowner to enter a legal agreement with the Responsible Authority that commits the landowner to achieving an affordable housing outcome on a site must be voluntarily entered into.

Parties to the agreement:

At a minimum, an Affordable Housing Agreement secured by a section 173 agreement needs to be between the Responsible Authority and the landowner. A section 173 runs with the ownership of the land, so it remains in place even if the land or dwelling is sold.

The developer and applicant do not need to be part of the Affordable Housing Agreement (unless they are the landowner) but they are likely to be involved in negotiations.

The Affordable Housing Agreement does not have to include the end recipient of the affordable housing (such as the Director of Housing, a Registered Housing Agency, or another housing provider) as a party to the agreement.

However, it is very important that any Affordable Housing Agreement that relies on the involvement by the end recipient of the affordable housing in the future, is able to be executed by that organisation.

Entering into an Affordable Housing Agreement that relies on the end recipient of the affordable housing (such as the Director of Housing, a Registered Housing Agency, or another housing provider) to make significant purchases or to manage a property that does not meet the needs of their tenants, may fail at the execution of the agreement.

Housing Providers

Key Messages:
  • The decision by a landowner to enter an appropriate legal agreement that commits them to achieving an affordable housing outcome on a site must be a decision that is voluntarily made.

  • At a minimum, an Affordable Housing Agreement secured by a section 173 agreement needs to be between the Responsible Authority and the landowner.

  • Responsible Authorities and landowners are encouraged to consult early with the Director of Housing or a Registered Housing Agency about proposed voluntary agreements.

Responsible Authorities and landowners are encouraged to consult early with the proposed end recipient of affordable housing (such as the Director of Housing or a Registered Housing Agency) about proposed voluntary agreements.

Parties to a negotiation of an Affordable Housing Agreement should not assume that the Director of Housing or a Registered Housing Agency can or will apply capital to achieve the required affordable housing outcome.

Written confirmation should be sought from the end recipient of the affordable housing of their willingness to do so and the terms under which they choose to enhance an outcome agreed by the landowner and Responsible Authority.

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

Frequently Asked Questions

Information about community housing and community housing 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 and are registered under the Housing Act 1983 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.

Governor in Council Order

Key Messages:
  • The GIC Order specifies the income ranges for very low, low and moderate - income households for affordable housing.
  • The income ranges in the Order will be adjusted annually in February using the Housing Group of the Consumer Price Index for the December Quarter published by the Australian Bureau of Statistics.
  • 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.

The Governor in Council Order (the Order) forms part of the definition of affordable housing under the Planning and Environment Act 1987.

The Order specifies the income ranges for very low, low and moderate-income households for affordable housing that is not social housing. The Order will be published annually in the Government Gazette.

Under the Planning and Environment Act 1987, social housing has the same meaning as in section 4(1) of the Housing Act 1983.

Income limits for social housing are determined by the Director of Housing.

Notice

Key Messages:
  • There is no right amount of affordable housing to be included in a permit application or permit variation. The Director of Housing or a Registered Housing Agency should be consulted in this regard.

  • The dwellings classed as affordable housing may be owned by a range of organisations and people.

  • 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.

  • In preparing an Affordable Housing Agreement the parties should determine who will ultimately manage any affordable housing rental dwellings, which are eligible to be managed by a range of organisations and people.

  • 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.

For the purpose of 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.

The Specified Matters Under Section 3AA(2) – Ministerial Notice specifies the matters blow 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:

Specified Matters Under Section 3AA(2) – Ministerial Notice

How is regard given to ‘allocation’ in a voluntary Affordable Housing Agreement?

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.

What processes will be in place to allocate dwellings to households who need them?

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 (i.e. let 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.

Affordability: in terms of the capacity for very low income, low income and moderate income households that it is intended for.

How is regard given to ‘affordability’ in a voluntary Affordable Housing Agreement?

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 per cent 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.
How will ongoing affordability be assured?

If a voluntary Affordable Housing Agreement is secured through a section 173 agreement, that agreement can set out how long the dwelling must be used for the provision of affordable housing. The section 173 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 section 173 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.

Longevity: in terms of the public benefit of the provision.

How is regard given to ‘longevity’ in a voluntary Affordable Housing Agreement?

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.

How is regard given to ‘tenure’ in a voluntary Affordable Housing Agreement?

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.

Type of housing: in terms of form and quality.

How is regard given to ‘type of housing’ in a voluntary Affordable Housing Agreement?

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)
  • accessibility (for example whether there are stairs) for the intended target resident group.

Location: in terms of site location and proximity to amenities, employment and transport.

How is regard given to ‘location’ in a voluntary Affordable Housing Agreement?

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.

Integration: in terms of the physical build and local community.

How is regard given to ‘integration’ in a voluntary Affordable Housing Agreement?

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.

How is regard given to ‘official estimates of housing needs’ in a voluntary Affordable Housing Agreement?

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:

Read more information about the Notice

Affordable Housing Agreement

Key Messages:
  • A section 173 agreement is a legal document and in most instances will be prepared by legal representatives.
  • It is key to the Planning and Environment Act that agreements for affordable housing be entered into voluntarily. There are a range of criteria as set out below that can be used to establish the voluntary nature of an agreement.
  • 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.
  • An Affordable Housing Agreement can set out whether the provision of affordable housing is delivered through a contribution of dwellings gifted or sold at a discount, land or a cash contribution.
  • Please include a reference to ‘affordable housing’ in the title of the section 173 agreement as it will assist the Department of Environment, Land, Water and Planning to monitor affordable housing agreements.

The landowner and Responsible Authority may enter into a legal agreement for the provision of an affordable housing outcome.This Agreement is expected to be a section 173 agreement.

Each site, development, permit variation, permit application and rezoning is unique and so each Affordable Housing Agreement will have a unique set of requirements. The agreement sets conditions that apply to the use of the land. A section 173 agreement is a legal document and in most instances will be prepared by legal representatives.

An Example Affordable Housing Agreement using section 173 has been developed that can be used to help facilitate negotiations.

Please include a reference to ‘affordable housing’ in the title of the section 173 agreement as it will assist the Department of Environment, Land, Water and Planning to monitor affordable housing agreements.

Prior to finalising a permit condition, evidence that the agreement for the provision of affordable housing has been reached voluntarily by all parties should be documented. It is suggested to include confirmation:

  • That the Responsible Authority and the landowner agree to the proposed outcome.
  • There is sufficient evidence provided that the affordable housing outcome will be delivered.
  • That the affordable housing outcome proposed is in accordance with the enabling requirements of the Planning and Environment Act 1987 and is clearly articulated, such as:
    • the percentage of floor area or dwellings or land to be provided
    • the type of affordable housing the dwellings will be utilised for and the proposed end recipient who will own and/or manage the dwellings.
  • That the affordable housing generated will be made available to eligible households with appropriate regard to affordability.
  • As to the delivery arrangement, such as whether the dwellings are to be built and gifted to the end recipient, sold to the end recipient at a discounted rate, or delivered through an otherwise agreed delivery arrangement.
  • Agreed expectations regarding expected third party investor requirements and the basis, including any supporting evidence, on which these assumptions have been made.
  • How the value that is created by the application of a negotiated planning agreement will be appropriately held and secured.
  • Any other assumptions that underpin the Affordable Housing Agreement.

The percentage, type and household targeting (allocation policy) that results from a voluntarily entered agreement is ultimately subject to agreement by the Responsible Authority and the landowner, and should have regard to this Guidance and:

  • The value to be delivered, drawing from the value created by the planning process or other mechanism, and the way that value can then be shared between the responsible authority and the landowner.
  • The requirements of the end recipient to ensure eligible households access and benefit.
  • The capacity of the end recipient, or other third-party investor, to contribute financially to enhance the baseline affordable housing outcome being negotiated as a result of the value proposition.
  • The priorities of each party to the negotiation in relation to the percentage of affordable housing that is achieved and the allocation of the housing to different income groups, with reference to the financial capacity of an end recipient.