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Density bonus key to affordable housing in Victoria

  • August 23, 2023
  • by Property Australia
The ‘Unlocking Affordable Housing’ report evaluates seven mechanisms to improve affordability

New analysis released by the Property Council of Australia provides clear policy options designed to unlock private sector investment into the Victorian affordable housing market to help address the current housing supply and affordability crisis.

The ‘Unlocking Affordable Housing’ report, prepared by APP Group on behalf of the Property Council, identifies developer density bonuses, capital grants to support construction and rental subsidies as the most effective options to overcome current affordable housing investment hurdles.

The analysis confirms the increasing difficulties for the property industry to deliver housing at the affordable end of the market due to escalating delivery costs, extended planning delays and challenging taxation settings.

Property Council Victorian Executive Director Cath Evans said in the wake of the increased housing targets set by National Cabinet last week and Victoria’s obligations to deliver affordable housing under the National Housing Accord, there was a pressing need to provide support for the private sector to invest in affordable housing at scale to solve the current significant challenges.

“With last week’s National Cabinet meeting delivering a strong direction for governments across the country and a new nationwide target of 1.2 million new homes to be built in the next five years, we urge the Victorian Government to consider the mechanisms we propose in this report in the formulation of their upcoming housing statement,” she said.

“The measures modelled in our analysis, based on extensive consultation across the industry including with institutional investors, identify best scenario options that not only clear current investment hurdles but consider current budget constraints.

“Closing the current investment gap could unlock thousands of new affordable homes per year with the right policy solutions and incentives.

“The analysis concludes that developer density bonus policy options translate best for both supply and cost to government, but will need to be developed over a longer-term horizon and be accompanied by the anticipated significant planning system reform,” Ms Evans said.

The detailed APP report outlines a range of measures the Victorian Government might consider using to incentivise the private sector to deliver the affordable housing Victoria desperately needs. These measures include:

– Land tax exemptions
– Discounted lease of well-located government-owned land
– Development density bonuses
– Capital grants equivalent to 50 per cent of the construction cost
– Rental subsidies paid directly to the affordable housing asset owner
– Finance reduction through a State or Commonwealth Government entity at a discount to market interest rates.

Although, a developer density bonus is the logical long-term policy option for Government to ensure a consistent supply of affordable rental accommodation, shorter term incentives will be required to support immediate construction of new affordable homes.

“This analysis underscores what the industry has been telling Government for a long time now – there is no silver bullet to fix housing affordability.

“Reform to the planning system is the crucial foundation on which all other solutions rest. Planning reform, coupled with short-term support measures leading to a phased introduction of a robust, consistent and transparent system to deliver the density outcomes needed is the achievable roadmap we have laid out,” Ms Evans said.

“The much-anticipated Victorian housing statement must deliver a longer-term road map, with ongoing industry consultation, to put policies in place that incentivise ongoing investment in this critical part of the housing market.

“The property industry is ready and willing to have the conversations required to find a solution to the housing crisis and bring relief to the many Victorians suffering through it,” she said.