Government incentives have failed to entice property developers to build affordable housing in Australia’s most overpriced market, leading to the construction of just 1,287 affordable homes, or roughly 0.5% of total supply, in eight years.
The finding, contained in a significant study by the Australian Housing and Urban Research Institute (Ahuri), has prompted renewed criticism of the New South Wales government’s efforts to combat the housing affordability crisis in Sydney.
The city was rated the second “least affordable” in the world behind Hong Kong and surging house prices, stagnant wages and decade-long waits for social housing are putting enormous strain on low-income groups. The crisis has seen homelessness soar to record levels across the state, jumping from 33.9 homeless people per 10,000 people in 2006 to 50.4 in 2016, according to Australia’s most recent census.
The Homelessness NSW chief executive, Katherine McKernan, said the Ahuri study was another sign that the state’s efforts to tackle housing affordability had failed.
“The approach that’s taken thus far clearly isn’t working, even in an environment where the economy is going well,” McKernan said. “If that was to change, I don’t want to think about what it might mean.”
The research analysed the different ways inclusionary planning systems were stimulating new affordable housing construction in NSW, South Australia, the United States and United Kingdom.
South Australia introduced a requirement in 2005 that 15% of housing in significant residential developments be made affordable upon rezoning, including in urban renewal and greenfield developments.
The system has led to the construction of 2,009 homes with a further 3,476 currently in development, accounting for about 17% of all housing output in South Australia.
Similar schemes had proved successful in the UK and US, the study found, particularly when developers knew the requirements well in advance, and when they were combined with government grants, planning bonuses, subsidies and other incentives.
NSW, however, has placed its faith more in incentives schemes, most notably the 2009 “density bonus” that offers developers increased floorspace in return for affordable rental housing.
Despite higher population growth, the study found that the bonus and other incentive schemes had delivered just 1,287 affordable units, between 0.5% to 1% of total supply in Sydney from 2009 to 2017.
NSW also uses voluntary planning agreements between authorities and developers as a means of encouraging the construction of affordable housing.
But the study found just four registers – those in Canada Bay, Leichhardt, Ryde and Penrith – included provisions for affordable housing. Even in those voluntary agreements, the “number of units or monetary contribution was relatively small”.
The University of Sydney professor Nicole Gurran, who led the study, said the evidence showed clearly that governments should not rely solely on incentives and voluntary measures to drive affordable housing growth.
“It’s certainly not enough,” Prof Gurran told Guardian Australia. “Our study has shown that you don’t get a lot of affordable housing when you’re relying just on voluntary incentives mechanisms.
“It’s not to say they shouldn’t be part of the mix, they’re probably best paired with mandatory requirements, as are used in other jurisdictions.”
The NSW government has identified the significant housing affordability problems facing the state. It has embarked on a program of social and affordable housing construction, known as “Communities Plus”, which aims to build 23,000 social and 500 affordable homes within a decade.
A second program aims to build 3,400 social and affordable homes across the state over the next four years. The NSW government says it has also increased its investment in homelessness services and programs by 43% over four years.
The NSW Federation of Housing Associations CEO, Wendy Hayhurst, said the voluntary planning agreements were flawed, due to their voluntary nature and lack of any compliance.
Hayhurst said she had anecdotal reports of developers promising to build or fund affordable housing under the agreements but failing to follow though.
“It’s a voluntary agreement, so what some of our providers have said … is that to get a project over the line, some developers – and they won’t be the well-known developers – will sign an agreement with a community housing provider, and the community housing provider will say they will manage it when it is built,” Hayhurst said.
“That’s the last they ever hear of it. Who knows how many of those things happen but it is voluntary and there is no compliance regime.”