The NSW housing supply problem – the making of the TOD SEPP and 4 other areas to watch

The New South Wales State Government has made significant efforts to ease the housing supply issues in NSW, particularly through zoning reforms. However, there remains potential for further supply in encouraging manufactured housing estates and Build-To-Rent (BTR).

In this article we explore the current state of planning reforms and the areas to watch over the course of 2024.

The National Housing Accord (NHA) agreed to by the Commonwealth Government with the States and Territories (2022) recognises that planning, zoning and land release systems are critical to addressing the housing supply and affordability crisis in Australia.  The NHA target of constructing 1.2 million new well‑located homes over 5 years from mid‑2024, is intended to be facilitated by a mix of reforms and funding.

The State Government has made significant commitments in the NHA Implementation Schedule and is well underway in utilising a number of levers to address the commitments made. These include facilitative planning controls to encourage:

• affordable housing; and
• mid to high rise density development near transport hubs.

TOD SEPP

One of the major pieces of the State Government’s reform agenda is found in the State Environmental Planning Policy (Housing) Amendment (Transport Oriented Development) 2024 (TOD SEPP) which commenced on 29 April 2024.  In summary, the TOD SEPP facilitates:

• residential flat buildings of up to 22 metres high with a maximum FSR of 2.5:1 on residential land (R1, R2, R3 and R4) and employment lands (E1 generally and B2 in Canterbury-Bankstown); and
• shop top housing development of up to 24 metres high with a maximum FSR of 2.5:1  on employment land (E1 and E2 generally, B2 in Canterbury-Bankstown and B3 in Gosford city).

The TOD SEPP provisions override the Local Environmental Plan controls, however, matters such as heritage will still form part of the merit-based assessment process.  This may present barriers to utilisation of the provisions given the heritage listings in suburbs such as Ku-ring-gai.  Importantly, the Apartment Design Guide must still be considered by a consent authority when determining applications under the TOD SEPP provisions, a minimum lot width of 21m at the front building line is required to benefit from the residential flat building provisions and active street frontage controls apply to developments in the E1 zone (or B2 zone for the Canterbury-Bankstown area). 

The lands benefitting from the provisions will be identified on the Transport Oriented Development Sites Map and will generally be situated within 400 metres of a railway or metro station in selected local government areas including: Bayside, Burwood, Canada Bay, Canterbury-Bankstown, Central Coast, Cumberland, Georges River, Inner West, Ku-ring-gai, City of Lake Macquarie, City of Newcastle, City of Penrith and City of Wollongong.  The TOD planning controls will commence for 18 station locations on 13 May 2024, with the remaining station locations to follow within 3-18 months. A full list of the areas and the timing for the application of the TOD SEPP permissibility controls is here.

Zoning reforms

The TOD SEPP reflects Part 2 of the Transport Oriented Development Program initiated by the State Government.  Part 1 involves state led rezonings for 8 priority high growth areas near transport hubs in Sydney including: Bankstown, Bays West, Bella Vista, Crows Nest, Homebush, Hornsby, Kellyville and Macquarie Park.  The rezonings will target land within 1200 metres of the transport hubs with consultation and engagement on the state led rezonings proposed to occur in the second quarter of 2024.

Overall the State Government has projected that the State led rezonings and TOD SEPP will result in 185,800 new homes over 15 years.

In addition, further reforms are proposed to encourage low and mid-rise housing including:

• dual occupancies in all R2 low density residential zones;
• allowing terraces, townhouses and 2 storey apartment blocks near train stations and key town centres in R2 low density residential zones across the Greater Sydney region, Hunter, Central Coast and Illawarra Shoalhaven (Six Cities Region);
• allowing mid-rise apartment blocks near train stations and key town centres in R3 medium density zones across the Six Cities Region; and
• introducing new planning controls such as floor space and height allowances, that encourage low and mid-rise housing in well-located areas.

The reforms underwent consultation earlier this year and submissions are being considered.  The reforms are expected to be introduced in mid-2024.

Affordable housing supply

Under the NHA Implementation Schedule, NSW has committed to delivering 3,100 affordable homes over 5 years and recent planning reforms seek to support that goal.

Incentives for affordable housing have been introduced in two tranches: 

• The first being amendments to the State Environmental Planning Policy (Housing) 2021 (Housing SEPP) in December 2023 to introduce a new bonus FSR where a certain percentage of the development is affordable housing.  The maximum bonus FSR of up to 30% and a height bonus of up to 30% is available where a development proposal includes a minimum of 15% of GFA as affordable housing. The incentives are available with a minimum of 10% of GFA as affordable housing and are scaleable based on a formula included in the Housing SEPP provisions.  Additionally, a State Significant Development (SSD) approval pathway has been made available for in-fill affordable housing under the Housing SEPP where the residential development has a capital investment value of $75 million in either the Eastern Harbour City, Central River City or Western Parkland City in the Six Cities Region or $30 million in any other area.
• The second being under the TOD SEPP.  If the GFA of a proposed development benefitting from the TOD SEPP exceeds 2000sqm, then the consent authority must impose conditions requiring at least 2% of the GFA of the development being utilised for affordable housing and operated in perpetuity by a community housing provider. Car parking ratios for the affordable housing component have also been included in the TOD SEPP for clarity.

Manufactured home estates

Manufactured home estate developments are becoming increasingly popular and present a viable solution to the housing crisis, particularly for seniors. The planning controls are not fit for purpose and require a significant overhaul.  The State Government has commenced a phased approach to reform and has recently completed the Phase 1 consultation.  Phase 1 seeks to update standards for flooding and safety, clarify separation distances between manufactured homes and incorporate various housekeeping changes into legislation.

Phase 2 of the reforms will likely be more substantial and consultation will begin sometime in 2024. 

Build-To-Rent

Despite reforms to encourage Build-to-Rent (BTR) in NSW being introduced in 2021, there is a general view that the reforms did not go far enough. This is evidenced by the simple fact that BTR development in NSW is trailing Victoria significantly.  Victoria currently holds 45% of the total completed and proposed BTR units in Australia with Queensland following at 27% and NSW at 19% (Source: Knight Frank Research, Cordell Connect – Breaking the Shackles the Rise of BTR, September 2023).

The answer to making BTR delivery more attractive may be achieved via other means, including:

• proposed Commonwealth reforms which seek to introduce BTR tax concessions. Draft legislation has been released by Treasury with consultation closing on 22 April 2024.  It is noted that NSW introduced beneficial land tax exemptions for BTR in 2021; and
• individual local governments intervening with new incentives.  The City of Sydney recently obtained Gateway approval to amend its LEP to introduce floor space incentives for BTR and co-living in certain areas of Sydney.  For example, there will be a temporary accommodation FSR incentive of 6:1 in Area 2. The changes will supplement the Housing SEPP provisions in Chapter 3, Part 4.

Tension between resilient housing and greenfields development

There is growing tension between the more traditional greenfields rezonings and resilient housing controls introduced in response to climate induced threats, such as bushfire and flooding.  To unlock the delivery of new housing, government funding needs to target and support the delivery of resilient housing.  By way of example, funding for flooding evacuation routes by the State Government could unlock vast tracts of land held in different ownerships. 

Conclusion

Very significant steps have been taken by the NSW State Government in the last 6 months to facilitate the development of affordable and mid to high rise density developments near transport hubs.  However, there remains unlocked potential in BTR, greenfields and manufactured home estates that can contribute to a diversified and accessible housing market in NSW.

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