Planning reform for housing in NSW – encouraging reforms but is more needed?

The imperative of increasing housing supply 10 min read

Increasing housing supply in NSW is squarely on the policy agenda for 2024 and beyond, with a raft of planning reforms announced at the end of 2023—and more to come during 2024—to implement the National Housing Accord. While the reforms pave the way for a much-needed increase in the NSW housing supply, they also highlight tensions between state and local controls, and present challenges in delivery.

In this Insight, we examine the in-fill affordable housing incentive bonuses, the two-part Transport Oriented Development Program and the proposals to use government land to increase housing supply.

Key takeaways

• In-fill affordable housing incentive bonuses for bonus floor space ratio (FSR) and height have been introduced, and a new state significant development (SSD) approval pathway is now available for new residential developments that meet specified thresholds.
• The Transport Oriented Development (TOD) Program, to facilitate greater housing density near transport hubs, will be rolled out in two parts this year. Thirty-nine TOD Precincts will be created (eight through accelerated state-led rezonings by November 2024, and 31 through new controls to be introduced from April 2024). Affordable housing requirements will apply in all TOD Precincts.
• A temporary SSD approval pathway will be introduced in the eight 'TOD Accelerated Precincts', and will be available until November 2027. Approvals will have a two-year time limit for development to commence, and the Department of Planning, Housing and Infrastructure (the Department) has committed to a faster assessment and decision-making process.
• A 'pattern book' of endorsed low and mid-rise building designs is being developed by the Department and the NSW Government Architect, and developers who adopt the designs will have access to accelerated approval pathways. Feedback on concept plans will be sought in early to mid 2024.
• Approval pathways for residential development by or on behalf of the Aboriginal Housing Office, the Land and Housing Corporation and Landcom have been expanded.
• The NSW Government's objective of increasing housing supply is to be applauded. However, in several respects the reforms will present challenges likely to be borne out in the assessment of new development applications (DAs), and particularly so for those that fall below the SSD threshold.

In-fill affordable housing incentive bonuses

On 14 December 2023, following a policy announcement in July 2023, and subsequent stakeholder consultation, the NSW Government introduced incentive bonuses for certain housing developments that incorporate an affordable housing component, together with a new SSD approval pathway for large-scale development of this kind.

Bonus provisions

If a minimum 10% of the gross floor area (GFA) of an eligible residential development is affordable housing, then bonus FSR is available:

• Bonuses are scaled according to the size of the affordable housing component, up to a maximum 30% uplift if 15% or more of the GFA is affordable housing.
• In the Six Cities Region (excluding Shoalhaven local government area), these bonuses are only available for land in an 'accessible area': namely, within 800m walking distance of a train, metro or light rail station or a wharf, or within 400m walking distance of a bus stop, if the service timetable meets certain timetable requirements.
• Outside the Six Cities Region, the land must be within 800m walking distance of land in zones E1 Local Centre, MU1 Mixed Use, B1 Neighbourhood Centre, B2 Local Centre, B4 Mixed Use or an equivalent zone.

In addition, a height bonus is available for development comprising residential flat buildings and shop-top housing (either of which could include build-to-rent).

SSD pathway

A new SSD approval pathway has been introduced for in-fill affordable housing developments where the residential development component has a capital investment value (CIV) of more than $75 million in Greater Sydney, or more than $30 million in regional areas.

In order to access this approval pathway, the whole of the development must be permitted under an environmental planning instrument (EPI). Industry-specific Secretary's Environmental Assessment Requirements (SEARs) are available, which may lessen the time between the submission of a Scoping Report by a proponent and the issue of SEARs by the Department.

The TOD Program: creating 39 TOD Precincts in two parts

In December 2023, the Department released early details of the TOD Program. It will create 39 TOD Precincts over the course of 2024, in two parts.

Part 1 of the TOD Program: accelerated rezoning and new SSD pathway for eight TOD Accelerated Precincts

By November 2024, and earlier in some cases, the Department intends to rezone land around eight priority transport hubs. These state-led 'accelerated rezonings' will create eight 'TOD Accelerated Precincts' within 1.2 kilometres of stations at Bankstown, Bays West, Bella Vista, Crows Nest, Homebush, Kellyville and Macquarie Park. The objective is to create capacity for up to 47,800 new homes over the next 15 years. The Department is yet to release the details of the land use zones or proposed height and density controls, as master planning and technical studies are still being undertaken. An opportunity for public comment on the proposed rezonings will be provided at some point this year.

A new SSD approval pathway will be introduced for residential development in the eight TOD Accelerated Precincts with a CIV of $60 million. This new SSD pathway will only be available for a limited time, until November 2027, and the Department has set itself a target of applications being 'in government hands for no more than 90 days'. Approvals granted through this pathway will have a two-year time limit.

Minimum requirements for affordable housing will also apply. The exact proportion is unknown (subject to feasibility testing during the Department's master planning process). However, early signals indicate up to 15% of new homes in the eight precincts will be affordable housing held in perpetuity, with the potential for increased height and floor space ratio controls.

Part 2 of the TOD Program: new controls for a further 31 TOD Precincts

From April 2024, new planning controls will be introduced, creating 31 TOD Precincts within 400 metres of selected train and metro stations.¹ Residential apartment buildings in residential zones R1 to R4 and residential apartment buildings and shop-top housing in local and commercial zones E1 and E2 will be permitted, with heights of up to 21 metres and floor space ratios of up to 3:1, and no minimum lot size or width. New design criteria will be introduced for mid-rise residential apartment buildings, to vary otherwise applicable Apartment Design Guide provisions.

All new developments will be required to include an affordable housing component, set at a minimum of 2% initially, to be increased over time. It remains to be seen whether this affordable housing must be provided in perpetuity or some lesser period.

Pattern book of endorsed designs

The Department and the the NSW Government Architect are developing a 'pattern book' of endorsed housing designs for low- and mid-rise buildings up to six storeys. Details of an international design competition to be held by the Department will be announced early this year.

Although not intended to be limited to TOD Precinct developments, the TOD Program foreshadows that developers who choose to adopt endorsed pattern book designs will have access to an accelerated approval pathway. Low-rise housing using the pattern book will be complying development. Mid-rise housing will still undergo assessment as a local DA with council, but it is the Department's intention that assessment will be accelerated because the pattern book design will have already undergone compliance checks before the DA is lodged.

Before the pattern book becomes available in late 2024 to early 2025, proof-of-concept plans will be released for community consultation in early to mid-2024.

Government approval pathways

To facilitate the use of government land to deliver housing, the approval pathways for developments carried out by or on behalf of the Aboriginal Housing Office, Land and Housing Corporation and Landcom have been expanded:

• These authorities can self-assess and determine to proceed with a residential development (ie without development consent) if the development is permitted under another EPI, and thresholds for the number of dwellings, building height, FSR and parking spaces are met.
• A new SSD approval pathway has been introduced for development resulting in more than 75 dwellings with a CIV of more than $30 million. This pathway is available for developments carried out by or on behalf of the Aboriginal Housing Office or Land and Housing Corporation; or, if at least 50% of the GFA will be used for affordable housing, Landcom.

A clearer path forward or a challenging road ahead?

As is often the case with planning reform, this wave of changes raises a number of questions that can only be answered once we see the reforms in practice.

This is the first time in more than a decade that there has been a state-assessed approval pathway for residential development, and this reflects the NSW Government's policy decision to send more housing projects through the major projects assessment pathway. This is a welcome recognition of the priority that needs to be placed on increasing the rate of approvals and housing completions in order to meet the Government's targets.

However, more applications in the state-assessed pathway will need to be supported by increased resourcing and a focus on timelines. The Department's announced 'Faster Assessment Program' is a positive step, but the target of an average assessment time of 275 days from lodgement to determination is still a very lengthy approval process.

These reforms are likely to be controversial for some councils, and recent media reports confirm that certain community groups are concerned about densification in their localities. For developments that do not meet the SSD threshold, issues critical to achieving the Government's priorities include:

• whether councils have the capacity and resources to deal with a potential influx of new DAs relying on the bonus provisions; and
• whether the Government's desire for certain development controls to be applied flexibly will be borne out in practice. The Department's Planning Circular on In-fill Affordable Housing, which accompanies the reforms, encourages councils to consider the flexible application of controls in light of the public benefit relating to the delivery of affordable housing.

More fundamentally, some in the development industry have expressed concern about aspects of these reforms. For example:

• the minimum affordable housing component to qualify for the in-fill affordable housing bonus is in addition to any minimum requirement that must be provided under locally adopted (ie council) controls. Some developers have questioned whether provision of locally mandated affordable housing components, plus providing the 10%-15% affordable housing required under these state reforms in order to access the FSR and height bonuses, is economically feasible.
• developments involving local heritage items or within heritage conservation areas may not be able to utilise the bonuses in practice. These reforms do not override any heritage protections in local environmental plans, but the Department's In-Fill Affordable Housing Practice Note states that local controls (such as heritage) should be applied flexibly and need to be balanced against the need to realise more affordable housing. In the TOD Precincts, heritage controls are not 'switched off' completely, but instead will apply 'to the extent not inconsistent with' the new controls. Quite how such a test will be applied by councils remains to be seen.
• projects that are already approved, whether for construction or as a concept proposal, cannot be modified to take the benefit of the FSR or height uplift under the in-fill affordable housing incentive bonuses. This likely means a missed opportunity to realise more housing supply for projects that have already obtained approvals, except where proponents are prepared to face the cost, time and uncertainty of lodging a fresh DA.

In relation to the TOD Precincts, there is a question as to whether the two-part program, with differing approval pathways, creates two speeds of delivery, with SSD applications progressed more smoothly than local DAs in the TOD Precincts.

Integrating the pattern book into the statutory assessment process may help, but it remains to be seen what role assessing officers and design review panels will have when it comes to DAs using an endorsed design, and to what extent a pattern book design can be varied to suit the site, while still being eligible for a fast-tracked assessment.

On the question of monetary contributions, it is also unclear whether current contributions plans are calibrated to meet the additional demand generated for local infrastructure by housing at the scale now contemplated by these reforms. The Department has foreshadowed that in TOD Precincts, interim fixed contribution levies could be imposed where contributions plans do not apply or are still under review.

Next steps

The In-fill affordable housing incentive bonuses are now in force, as is the new SSD approval pathway for large residential developments in accessible areas, which include at least 10% affordable housing.

Further announcements about the TOD Precincts are coming soon, and there will be opportunities during the course of 2024 to make submissions to the Department before the reforms are finalised.

If you have questions about how these reforms affect you, please contact any of the people below.