By Aaron Gadiel, Partner

The NSW Government made two key changes to the state’s planning law on 20 April 2018.  One change fixes an emerging problem for development proponents.  The other change introduces new uncertainties for residential developers.

The good news for proponents is that the government has effectively neutered a recent decision of the Land and Environment Court.  This decision had prevented developers from strata subdividing new apartment buildings in key areas of Sydney.

The more testing news for proponents is the government’s formal tick-of-approval to the roll-out of mandatory (local council driven) ‘affordable housing’ schemes.  These schemes have the potential to cover large swathes of Sydney’s inner and middle ring suburbs.

Overcoming the Land and Environment Court’s minimum lot size ruling

In December 2017 Mills Oakley published an article explaining the decision of the Land and Environment Court in DM & Longbow v Willoughby City Council.  The article is available here.

As our article explained, the Court’s decision created a serious difficulty.  The problem arose out of the Court’s interpretation of clause 4.1 in the ‘Standard Instrument’.  The Standard Instrument is the legal document that sets out the standard provisions for modern local environmental plans (LEPs).

Until last year, a common view was that:

• Clause 4.1 regulated minimum lots sizes, other than those created by a strata subdivision or community title subdivision.
• The additional optional ‘community title schemes’ clause allowed local councils to set a minimum lot size for community title lots.
• The Standard Instrument did not explicitly provide for any regulation of the minimum lot sizes for strata lots.
• Local councils could regulate the minimum lot size of strata lots by a customised-local provision if it was considered necessary.

In essence, the effect of the court decision in DM & Longbow was that in Willoughby — and in some other areas — new strata plans could not be approved if the proposed individual strata lots do not comply with a LEP’s minimum lot size requirements.

The Government has now amended the Standard Instrument to address this problem.   The offending subclause has been re-worded to restore the previous commonly-accepted view.

That is, the minimum lot sizes mandated under clause 4.1 in Standard Instrument-compliant LEPs do not now prevent development consent being granted for the creation of smaller lots within a strata-titled development.

This change has immediate effect in relation to all land governed by Standard Instrument-compliant LEPs.  Generally speaking, it will apply to pending (as well as new) development applications.

Strangely, the government has not made an equivalent change to state environmental planning policies that incorporate the same problematic wording of clause 4.1 (but are not technically ‘Standard Instrument’ compliant plans).  This means that the problem has not been addressed in, for example, the areas subject to a precinct plan under the State Environmental Planning Policy (Sydney Region Growth Centres) 2006.

The government has also unilaterally made a change to the Willoughby Local Environmental Plan 2012 (the WLEP).  This change has extended the operation of a local provision the WLEP titled ‘Minimum subdivision lot size for dual occupancies’.  The effect of that change is that — in the WLEP area — the minimum lot size will apply to strata subdivisions for dual occupancies in certain circumstances.  No equivalent change has been made to any other LEP.

‘Affordable housing’ scheme roll-out

In December 2017 Mills Oakley published an article on proposals by the NSW Government to dramatically expand the scope of the State Environmental Planning Policy No 70—Affordable Housing (Revised Schemes) (SEPP 70) across Sydney.  Our article is here.

As our article explained, the proposal would pave the way for conditions to be imposed on development consents — in additional local government areas — that either:

• compulsorily acquire of a portion of new housing stock (with no compensation); or
• require the payment of cash to avoid that acquisition.

On 20 April 2018, the Government made the final decision to identify five additional local government areas as being in need of ‘affordable housing’ under SEPP 70.  These are:

• Randwick City Council;
• the balance of Inner West Council (ie the former Ashfield and Marrickville local government areas, Leichhardt already being included);
• Northern Beaches Council;
• City of Ryde Council; and
• City of Canada Bay.

This means that the proportion of Sydney’s inner area that is susceptible to ‘affordable housing’ schemes under SEPP 70 has been more-or-less doubled — from 33 per cent to 67 per cent.  The proportion of Sydney’s middle ring susceptible to such schemes has been increased — from 5 per cent to 20 per cent.

The extension of SEPP 70 will not have an immediate consequence.  However, it is the official ‘green light’ for local councils in those areas to submit planning proposals to amend their LEPs.  These proposals would seek to establish specific ‘affordable housing’ schemes.

An example of how a new scheme might work is set out in the Inner West Council’s Affordable Housing Policy dated November 2016.  The policy provides for a 15 per cent ‘Affordable Housing Contribution’ within new release areas, brownfield and infill sites, and major private and public redevelopments.  The policy is directed at developments that meet a threshold of 20 units or 1,700 square metres in gross floor area.  The proposed ‘15 per cent’ is not a proportion of development profits.  It is 15 per cent of gross floor area of the development.

The planning proposals (setting out the new ‘affordable housing’ schemes) will need to be approved by either:

• the Greater Sydney Commission; or
• the Planning Minister,

before any local environmental plan can be changed.

Essentially, now that SEPP 70 has been amended to apply to these additional local government areas, there is a likelihood that an ‘affordable housing’ scheme will follow in due course.

Having said this, the government has flagged that it will not approve local council schemes that will adversely impact on the supply of housing.  This means, for example, that the Inner West Council’s 15 per cent scheme may not be supported by the Minister for Planning.

However, the Minister’s administrative policy does not legally bind the Greater Sydney Commission.   A policy statement has not been issued by the Greater Sydney Commission in this regard.  The Commission is not bound by government policy that is not set out in the Greater Sydney regional plan A Metropolis of Three Cities.  It is possible that the Commission will decide to approve a local council affordable housing scheme that is not supported by the Planning Minister.

There is a lack of clarity about how the new local council driven ‘affordable housing’ schemes under SEPP 70 will sit with the new forthcoming state government ‘affordable rental housing targets’.  A Metropolis of Three Cities says that ‘affordable rental housing targets’ of 5-10 per cent of new residential floor space will be applied in ‘defined precincts prior to rezoning’.

Local council driven SEPP 70 schemes work to benefit very low to moderate income households (anywhere up to 120 per cent of the median household income for the Greater Sydney — ie up to $109,200 according to 2016 census data).

However, the new, separate, state government driven scheme will only be for very low and low-income households (anywhere up to 80 per cent of the median household income for the Greater Sydney, ie up to $67,600 per annum in 2016/17).

It might have been thought that the state government scheme would displace local council SEPP 70 schemes (and local council demands for ‘voluntary’ planning agreements relating to ‘affordable housing’).

However, A Metropolis of Three Cities says that the state government’s ‘Affordable Rental Housing Target’ will ‘work alongside’ and ‘not impede’ the operation of ‘existing’ planning controls that address affordable housing, including SEPP 70.

Additionally, A Metropolis of Three Cities  says that the target does not preclude councils from ‘negotiating’ additional affordable housing for moderate-income households where need has been identified in a local housing strategy and the proposed target has been subject to ‘viability testing’. This seems to confirm that local council schemes might be applied (in some circumstances) on-top of the state government’s own ‘affordable housing’ scheme.