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A lack of regulation and clear definition around affordable housing options and quotas is causing a backlog in applications for residential developments in Victoria.

The Australian state currently has no guidance for developers around how much affordable housing their proposed schemes should contain. While policy is expected imminently, local planning departments are treading cautiously, resulting in mounting delays.

Meanwhile, the demand for public housing is snowballing as the population in the capital, Melbourne, is set to grow by an additional 1.2 million people over the next decade.

The challenge comes to light as new national data shows a 30.6 percent decline in new apartment approvals in March 2019.

The lack of a state-wide affordable housing framework, including set targets and models, has been a source of confusion for both developers and local councils, says David Brown, Head of Strategic Consulting in Victoria for JLL.

“Councils have no real reference against which to assess the affordable housing component of high-rise residential applications, which means developers are going in blind as to how much affordable housing they should be committing to in their proposals.”

“The upcoming federal election could be a major catalyst for strategies to boost development, but ultimately it is up to the property industry to work through enabling more stock to the market at a price point,” says Brown.

Setting targets
There are currently 82,000 people on the waiting list for public housing in Victoria.

While the state’s planning legislation does not allow for fixed affordable housing targets within new schemes, Brown believes a mandate is “increasingly likely within the next five years.”

In June 2018, the mixed-use redevelopment of the former Amcor paper mill site at Alphington in inner-city Melbourne, was approved after a five-year planning saga that centred around affordable housing.

Negotiations resulted in joint venture partners Alpha Partners and Glenville Homes leasing 150 affordable units to Community Housing for 10 years at 80 percent of market rental value, in what was a landmark outcome for Victoria.

In response to recent legislation aimed at fostering greater innovation and flexibility between councils and developers for affordable housing provision, the City of Melbourne has proposed a ‘recommendation’ of at least six percent affordable housing in all new high density residential schemes within the West Melbourne Structure Plan.

This housing would be provided to a housing association at no cost, or be held in an affordable housing trust to be managed by the state government.

Brown believes this outcome is unlikely as land values are too high.

“For listed developers shareholder value is key and this doesn’t provide value unless it has been agreed on and worked through in the original acquisition price.”

“Until the government can provide more certainty around affordable housing targets the onus will continue to be on developers to work with housing associations to make “sensible” commitments in their vertical schemes”, says Brown.

“Sensible offers are being made by developers who have considered the options at the point of acquiring a site so a significantly lower purchase price and lower body corporate fees are factored into their feasibility.”

Typically, designated affordable housing units are acquired by a housing association at below market price, or provided to a housing association for long-term rent.

Future innovations
The strain on planning departments calls for new investment models, says Brown.

“There’s an opportunity for sites to be brought to the market by governments at a lower purchase price, making them attractive to developers who would be committing to delivering affordable housing, and have an expectation of lower margins from the outset.

“With the growing pains we are experiencing, both sides have to meet in the middle to get some strategic sites away.”

Click to read about how negative gearing concerns are adding pressure to Australia’s apartment market. 

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David Brown

Head of Strategic Consulting in Victoria for JLL.

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