By Aaron Gadiel,  Partner

The City of Sydney’s proposals to restrict development within Central Sydney should be ringing alarm bells at the Greater Sydney Commission.

On 25 July 2016 the City unanimously approved the draft Central Sydney Planning Strategy for public exhibition.  The City also endorsed an associated ‘planning proposal’.  This followed a 21 July meeting of the Central Sydney Planning Committee — which also unanimously gave the documents its support. This committee meeting was made up of four state government nominees and two City nominees.

However, the formal public exhibition of the planning proposal will not commence until it is endorsed by the Greater Sydney Commission (through a ‘gateway determination’).  It is anticipated that the draft strategy will be exhibited concurrently with the planning proposal.

The draft strategy and the planning proposal have been prepared by the City’s officers behind the scenes.  We are not aware of any consultation with industry or the community about the substance of the proposals.

What is ‘Central Sydney’?

‘Central Sydney’ covers more-or-less the entire central business district (CBD) of Sydney. In general terms, it stretches from the Botanic Gardens and Circular Quay in the north (but excluding the Rocks, Millers Point and Barangaroo) and includes the land between the Sussex Street and College Street spines down to Central Station.  Darling Harbour is not included.

What does the Draft Central Sydney Planning Strategy seek to do?

The draft strategy is a non-statutory strategic planning document.  It does not, in itself, change any planning controls.  However, it sets out the high-level strategic justification for changes to such controls going forward.

Affects all new planning proposals

The City and the Central Sydney Planning Committee have endorsed the nine ‘aims’ of the draft strategy for immediate use in evaluating any planning proposals in Central Sydney.  This means that even though the document is a ‘draft’ it will be used in decision-making now.

One of the nine aims of the draft strategy is a ‘resilient and diverse economy’.  In explaining this aim, the draft strategy says that the City will prioritise space within Central Sydney for commercial, retail and hospitality businesses, ahead of residential investment.

Support for three new areas of major tower clusters

The draft strategy identifies ‘potential’ for three new areas of major tower clusters in locations that are less likely to block sunlight to important places.

The three tower clusters can be roughly described as follows:

• an area centred around Bridge Street;
• an area located around the southern-end of Hickson Road; and
• an area centred around Liverpool Street (between Hyde Park and Sussex Street).

A fourth area of ‘future’ density is also flagged around Harris Street and Quay Street in Haymarket.

However, no actual changes to Sydney Local Environmental Plan 2012 (LEP) provisions are presently proposed to allow for these ‘tower clusters’.  This is at odds with the current floor space ratio provisions of the LEP which seek to ‘provide sufficient floor space to meet anticipated development needs for the foreseeable future’.  The City is conceding that more floor space is required, but is not seeking to include this floor space in the LEP.

Instead, any proponent will need to prepare site-specific ‘planning proposals’ (ie proposals to change height and floor space ratios for specific sites).  This will enable a negotiation between the proponent and the City, but will deprive the proponent of any appeal to the Land and Environment Court (in relation to the extra density or height) if the negotiations break down.  This means that there will be a greater risk that proponents will face arbitrary decision-making by public officials.

The draft strategy only anticipates changes to floor space ratio controls for:

• office premises;
• business premises;
• retail premises;
• hotel accommodation; and
• community and cultural facilities.

Similarly, height controls will only be changed for employment-generating uses.

The process for these site-by-site negotiations will be set out in a new document to be titled ‘Guideline to Preparing Site-Specific Planning Proposals in Central Sydney’.  This document has not yet been prepared.

The City says that the guideline will ‘provide a framework for sharing the planning gain resulting from changes to planning controls to fund infrastructure’.  That is, the City is plainly saying that it wants to use the process to capture some of the uplift in land value that comes about as a result of changes to planning controls.  This will presumably involve ‘voluntary’ planning agreements.

The City’s decision to withhold from the LEP the extra height and floor space associated with these ‘tower clusters’ validates a finding of the Federal Government’s 2010 Henry Tax Review.  This review explained that a permissive ‘value capture’ environment could encourage the public sector to generate revenue by maintaining additional zoning restrictions.  That is, the public sector is no longer incentivised to recognise anticipated future development potential in statutory plans. (It seems that the fixed development contributions that would  ordinarily apply are no longer good enough.)

As a result, the independent Henry Tax Review warned public authorities against permissive value capture policies.   It concluded that withholding development potential pending site-by-site agreement to ‘value capture’ arrangements:

• is likely to be inefficient; and
• will prevent land being devoted to its most productive use (at least in the short run).

Ministerial direction sought

The City will also be asking the Planning Minister, Rob Stokes, to issue a direction restricting any change to the LEP.  The direction would require any new additional floor space in Central Sydney to be employment generating floor space.  That is, the direction would be aimed at preventing LEP amendments to facilitate new residential accommodation in Central Sydney.  (This appears to be an attempt to get around the City’s apparent intention not to comply with the metropolitan plan, see below.)

What does the planning proposal seek to do?

The City’s decision not to amend the LEP to release the development potential for its three new ‘tower cluster’ areas, has not prevented it from pursuing other changes to the LEP.  These are set out in the document ‘Planning Proposal: Central Sydney’.  This was endorsed by both the councillors and the Central Sydney Planning Committee at the same time as the draft strategy.

With two exceptions, the planning proposal is about introducing new rules to further restrict or prohibit development in Central Sydney.

Increases in development potential

The proposed LEP changes that increase development potential are:

• A proposed increase to the height of some land generally located between Hickson Road/Sussex Street and Kent Street (from 80 metres to 110 metres).

• An increase in the permitted floor space ratio for hotel or motel accommodation, community facilities or child care centres on the western edge of Central Sydney from 11:1 to 11.5:1.

Reductions in development potential

The other proposed LEP changes — adverse to development — can be briefly summarised as follows:

• A reduction in the floor space ratio for residential accommodation and serviced apartments in part of the ‘city core’ and ‘midtown’ area (roughly stretching from King Street in the north to Belmore Park in the south, bounded by Hyde Park and Wentworth Avenue in the east to George and Kent streets in the west).  This reduces the permissible floor space ratio for these development types from 14:1 to 12.5:1.

• A reduction in the floor space ratio for residential accommodation and serviced apartments in the western edge of Central Sydney from 11:1 to 10:1.

• A reduction in the floor space ratio for residential accommodation and serviced apartments in the southern portion of Central Sydney from 9:1 to 7.5:1.

• Sites under 1,000 square metres would be unable to be developed with a floor space ratio greater than 8:1. It would not be possible to vary this requirement even if it is unreasonable or unnecessary in particular circumstances (that is, clause 4.6 would not apply).

• A cap on floor space for residential accommodation and/or serviced apartments in buildings above 55 metres in height.  The cap would limit this type of floor space to 50 per cent.  The cap would not be able to be varied — even if it could be demonstrated to be unreasonable or unnecessary in a particular case (ie clause 4.6 of the LEP would not apply).

• A change in the B8 metropolitan zone objectives (which generally covers the Central Sydney land) to say that residential and serviced apartment accommodation are only to be ‘permitted’ as part of affordable housing and/or mixed use development —  and then only when it ‘complement[s] the primary role of the zone as a centre for employment’.  This may make it more difficult to secure approval for a building that is predominantly residential — even if the building is under 55 metres in height.

• An existing performance-based provision of the LEP to governs the development of buildings taller than 55 metres on site area of less than 800 square metres is to be changed.  The existing provision will be converted into a blanket ban preventing the development of such buildings on any site of 1,000 square metres or less.  New restrictions will be imposed on the development of such buildings on larger lots.  The restrictions will include new requirements that the building ‘will not adversely impact’  wind conditions, key views and the free movement of air.  The ban/requirements would not be able to be varied — even if they could be demonstrated to be unreasonable or unnecessary in a particular case (ie clause 4.6 of the LEP would not apply).

• The realisation of some permitted floor space ratio will be linked to the achievement of BASIX (water and energy efficient) targets that are higher than those presently in-place.  New requirements of ecologically sustainable office development will also be introduced.

• There will be changes to the rules concerning sun access planes and overshadowing of some public places.

• New public view protection planes will be introduced.  These are likely to reduce the potential to develop some sites.

• New ‘affordable housing’ levies will be introduced:
  • For non-residential development amount of the levy will be $48.71 (plus indexation) per square metre between June 2018 and May 2020 inclusive.  This will increase to $97.41 (plus indexation) per square metre from June 2020.
  • For residential development amount of the levy will be $146.12 (plus indexation) per square metre between June 2018 and May 2020 inclusive.  This will increase to $292.24 (plus indexation) per square metre from June 2020.

More floor area will be counted than used for ‘gross floor area’ calculations for floor space ratio.  In general terms, corridors, lifts, stairs, storage, plant rooms and balconies will be included.  As a result, it is likely that the levies, once fully phased in, will be more than $20,000 (plus indexation) per two- bedroom apartment.  This will be on top of levies payable under ‘section 94’ and any voluntary planning agreement.  The City anticipates that these funds will, over time, pay for 300-520 ‘affordable housing’ (ie rent control) units.

• The State Environmental Planning Policy (Affordable Rental Housing) 2009 would no longer apply to the Central Sydney area.  This means that Central Sydney would no longer benefit from the in-fill affordable housing provisions that (in some circumstances) allow a 20 per cent bonus in floor space.

Inconsistency with the metropolitan plan?

New provisions inserted into the Environmental Planning and Assessment 1979 in January.  These provisions require all Sydney councils (including the City of Sydney) to give effect to the state government’s metropolitan plan (A Plan for Growing Sydney) when preparing planning proposals.

However, it seems that this planning proposal is inconsistent with the metropolitan plan.

The metropolitan plan:

• ‘focuses on removing the barriers which impede the delivery of more housing’;

• requires the ‘acceleration of housing supply’, particularly in and around centres;

• requires the delivery of more housing through targeting urban renewal around centres (including the Sydney CBD), providing more homes closer to jobs and boosting productivity;

• nominates the Sydney CBD as ‘a preferred destination for both residential and office development’ (bold added); and

• says there should be capacity for additional mixed-use development (including housing) in the precincts that make up ‘Global Sydney’ (which includes ‘Central Sydney’).

The metropolitan plan does support the investigation of a potential ‘commercial core’ in the Sydney CBD.  However, it also says that any ‘commercial core’ area must be targeted to the right place.  The planning proposal effectively treats the whole CBD as a commercial core area.

The metropolitan plan envisages that the Central District Plan, to be released in draft form later this year, will set five year local housing targets that ‘maximise’ the opportunity to grow the housing supply.  However, the City’s planning proposal will plainly reduce the future supply of housing.  It does not even attempt to quantify the extent of the loss.  There is no sign that the City has applied the Department of Planning and Environment’s ‘urban feasibility model’ before proposing these reductions in residential development potential.

Strangely, there is no recognition by the City in its planning proposal (or the draft Central Sydney Planning Strategy) of the metropolitan plan’s declaration that ‘locating new housing in or near centres’ will:

• make it easier for people to get to jobs and services; and
• take pressure off congested roads.

Presumably —if the loss of future dwelling production resulting from the planning proposal was modelled — it would also be possible to work out how many extra workers would need to travel into the CBD on the city’s transport network as a result of the loss of CBD housing.  However, this important analysis does not appear to have been carried out.

This appears to be a high-profile example of a local council-driven planning proposal that fails to meet the new statutory requirement to ‘give effect’ to the metropolitan plan.

The challenge for the Greater Sydney Commission

All eyes will now be on the Greater Sydney Commission.

Even though the City of Sydney was charged with ‘giving effect’ to the metropolitan plan when it prepared its planning proposal, the legislation gives the job of enforcing this obligation to the Greater Sydney Commission, rather than the courts.

The Commission has the power to do this by blocking or changing the planning proposal when it makes its gateway determination.

It will be interesting to see how the Commission will handle this apparent challenge to the authority of the metropolitan plan so early in its tenure.

The City has said that it is expecting a speedy ‘gateway determination’ from the Commission in September/October this year, paving the way for public exhibition by the City in November/December.

This is an early opportunity for the Commission to signal how it will be using the new powers given to it by the state government.   Will it be prepared to confront the City of Sydney?  Or will past history re-assert itself — allowing the metropolitan plan to gradually fade away?