Insights

Development contributions for affordable housing: theory and implementation

Posted March 28, 2018

Author(s):

Marcus Spiller, Andrew Spencer

Sectors:

Housing

Types:

State government
Federal Government

In Australia, the task of supplying social and affordable housing has generally been borne by broad-based tax systems operated by the Commonwealth and State Governments, rather than the planning or development assessment system.

Recent policy statements have indicated that in both NSW and Victoria, there is increased government support for supporting the supply of social and affordable housing through the planning system.

It is useful to consider the rationale for addressing the shortage of social and affordable housing in this way, and the implications for land and development economics.

SGS Economics and Planning Marcus Spiller

McIntryre Drive Social Housing, Altona | MGS Architects | Photographer: Rhiannon Slatter

This paper has two purposes: to provide a clear justification in planning and economic theory for affordable housing contributions and to propose specific mechanisms by which affordable housing contributions can be efficiently and equitably generated via the planning and development assessment process.
— Principal and Partner Dr Marcus Spiller

Key points

In Australia, social and affordable housing has generally been funded by Commonwealth and State Governments tax systems, rather than the planning or development assessment system.
State governments in NSW and Victoria have signalled an intent to change this and to use planning policy mechanisms to address the shortfalls in the provision of social and affordable housing.
There is clear justification for using the planning system to support an increase in social and affordable housing: 1) Using value capture, on the basis that the community should share in the land value uplift which is created when planning regulations allow increased development (value sharing), and 2) Considering affordable and social housing in the same way as contributions to open space, parking, water-cycle infrastructure and heritage conservation are required as essential requirements for sustainable neighbourhoods.
These two approaches can and should be applied in tandem.
If clearly and appropriately configured, such contributions should not provide an economic disincentive to develop land, nor will they increase the sales price of market dwellings or nonresidential floor space.
Value sharing for affordable housing provision could legitimately target 50% to 80% of the uplift in land value uplift created by planning decisions
There is a case for a mandatory 1% of floorspace contribution for affordable housing, and this could increase gradually over time depending on need and contributions from other funding streams.
Designated affordable dwellings should be transferred to a not for profit registered housing association or community provider at zero cost. The option of cash-in-lieu payments should also be available to allow flexibility and facilitate contributions from developments where the obligation is less than one dwelling.