Potential pitfalls for renovating affordable housing

The State Environmental Planning Policy (Affordable Rental Housing) 2009 (Affordable Housing SEPP) intends to increase the supply and diversity of affordable rental and social housing in the state.

The Affordable Housing SEPP specifically aims to retain existing affordable housing and where there is considered to be a reduction in affordable housing a contribution may be required to fund the provision of new affordable housing on another site.

This article aims to raise awareness of the potential pitfalls of renovating existing affordable housing in the form of boarding houses and low-rental residential flat buildings (Part 3 of the Affordable Housing SEPP) and covers:

  • When the Affordable Housing SEPP applies in relation to renovating existing buildings?
  • What renovations can be done to existing affordable housing without requiring consent?
  • Is it possible to renovate and retain the building as affordable housing?
  • Who decides on imposing the Affordable Housing levy and how much is the levy?

 

When the Affordable Housing SEPP applies in relation to renovating existing buildings?

There are two conditions which need to be met to confirm whether the Affordable Housing SEPP applies in relation to the retention of existing buildings:

  1. It needs to be a “Low-rental residential building” which means a boarding house or a residential flat building containing a low-rental dwelling. A low rental dwelling means a dwelling that (in the last 24 months prior to the lodgement of a development application) was let at less than the median rental level for a dwelling of the same type, with the same number of bedrooms in the same local government area. This is irrespective of the owner and the original purpose of the building, and
  2. Boarding houses and residential flat buildings had to be low rental dwellings before 28 January 2000.

 

Exceptions are strata buildings, seniors housing and buildings owned by, or under the care, control and management of, a social housing provider.

What renovations can be done to existing affordable housing without requiring consent?

Routine maintenance activities are allowed to prevent the deterioration of the building, ensure the health and safety of residents or maintain a reasonable standard of accommodation. Maintenance examples include periodic repairs, painting, renewal of floor coverings, replacement of light fittings, re-wiring or work to comply with a fire safety order. The work is to be consistent with the Affordable Housing SEPP to retain the low rental accommodation.

Consent is required under Part 3 of the Affordable Housing SEPP for low rental residential buildings in NSW to:

‘(a)  demolish the building,

(b)  alter or add to the structure or fabric of the inside or outside of the building,

(c)  change the use of the building to another use (including, in particular, a change of use to backpackers accommodation),

(d)  if the building is a residential flat building, strata subdivide the building’.

Note: The State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 (Codes SEPP) is not applicable to development related to alterations or demolition of a building to which the Affordable Housing SEPP applies (Clause 1.4A of the Codes SEPP).

Is it possible to renovate and retain the existing building as affordable housing?

There must be a legally enforceable mechanism to ensure that accommodation is maintained as affordable housing. An example of a legally enforceable mechanism is management of accommodation for affordable housing by a registered community housing provider. Section 94(5) of the Environmental Planning and Assessment Act 1979 refers to conditions relating to the provision, maintenance or retention of affordable housing which may require the imposition of covenants (including positive covenants) or the entering into of contractual or other arrangements.

Who decides on imposing the Affordable Housing levy and how much is the levy?

The consent authority considers the Affordable Housing SEPP guideline and the following matters under clause 50(2) of the Affordable Housing SEPP to determine whether or not to impose a levy:

‘(a)  whether there is likely to be a reduction in affordable housing on the land to which the application relates,

(b)  whether there is available sufficient comparable accommodation to satisfy the demand for such accommodation,

(c)  whether the development is likely to cause adverse social and economic effects on the general community,

(d)  whether adequate arrangements have been made to assist the residents (if any) of the building likely to be displaced to find alternative comparable accommodation,

(e)  the extent to which the development contributes to any cumulative loss of affordable housing in the local government area,

(f)  the structural soundness of the building, the extent to which the building complies with any relevant fire safety requirements and the estimated cost of carrying out work necessary to ensure the structural soundness of the building and the compliance of the building with the fire safety requirements,

(g)  whether the imposition of a condition requiring the payment of a monetary contribution for the purposes of affordable housing would adequately mitigate the reduction of affordable housing resulting from the development,

(h)  in the case of a boarding house, the financial viability of the continued use of the boarding house’.

When considering clause 50(2)(b) regarding the availability of sufficient comparable accommodation the Sydney vacancy rate is taken into consideration. If the Sydney vacancy rate is less than 3% it is deemed to indicate that there is insufficient comparable accommodation. If the Sydney vacancy rate is equal to or exceeds 3% in the preceding quarter, then the applicant can demonstrate that accommodation is available in the locality to address comparable accommodation. The Affordable Housing SEPP Guideline provides further details on the process for demonstrating that accommodation is available in the locality.

Clause 50(2)(d) considers arrangements to assist displaced residents find alternative accommodation. A number of options are outlined in the Affordable Housing SEPP guideline to assist displaced residents as follows:

  • The provision of accommodation in other premises in the same ownership/management or by arrangement with other owners/manager;
  • A written agreement with a local estate agent giving displaced residents first option for comparable accommodation that comes onto the market;
  • Payment of relocation costs or ex-gratia disruption payments;
  • Extension of period of notice to vacate beyond the 60 days generally required under the Residential Tenancies Act 1987.

The decision to impose a condition for payment of the affordable housing levy is discretionary. If the consent authority is satisfied that the development will or is likely to reduce the availability of affordable housing within the area they can impose a condition to require payment of a levy for the loss of affordable housing.

The levy is 5% of the cost to replace the number of bedrooms in the same local government area that will be lost by the proposed development. For boarding houses that are not financially viable a further discount is provided.

Conclusion

When purchasing property, consideration should be given to whether the building is a low rental residential building to fully understand the works which can be completed without consent and the potential levy that could be imposed with redevelopment and how this affects the financial viability of renovation or redevelopment.

This article should be read in conjunction with the Affordable Housing SEPP and corresponding Affordable Housing SEPP Guideline. For specific planning advice in relation to the Affordable Housing SEPP or for a due diligence report prior to purchasing property please contact Mecone.

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