Developing Units Including Affordable Housing

Hi Everyone,

I've consulted architects on potentially building units on a site that I own in Sydney. Current council controls would allow for approx 20 units to be built on my site. However if I were to comprise Affordable Housing the council would permit approx 30 units.

The downfall with Affordable Housing is that half the units have to be kept by the developer for 10 years rented at 20% under market value. Some of the options I have include.

DA 20 units and sell as DA approved site. (No Affordable Housing)
DA 30 units and sell as DA approved site (50% Affordable Housing)

DA 20 units, JV with a developer and sell 20 units (say 10 each)
DA 30 units (incl Affordable Housing), JV with a developer and sell 15 units. We could sell half and keep half each or I don't mind keeping 15 units for 10 years.

Any thoughts?
Cheers,
Darren.
 
thats a personal choice
they all seem great depending on what the figures are for each option

mind if i ask what council? and how big your block is and zoning?
 
Sutherland shire council
block size is 1400sqm
Zoning R4, 1.2FSR, Height 16m

not sure on tax incentives would have to enquire further. True each option has potential. Might enquire with some builders.
 
do you get any tax incentives by renting the affordable housing for under market value like the nras etc?

Sounds like NRAS to me. 15 of them would be pretty great cherry on a development project - $150-170k p.a. for 10 years in positive cash flow from refundable tax offsets.
 
AHSEPP ( Affordable Housing Special Environmental Planning Policy ) 2009 and NRAS are different beasts, but share the 10/20 component. ie 10 years/20% rental discount. That is where the similarity ends though...

In a nutshell - developers use AHSEPP to generate much greater yield ( ie extra apartments, townhouses etc) on a site - This is what's in it for the developer - extra yield from the site in exchange for making a % available for affordable housing. And for Government? Extra affordable housing delivered, with dispensations made to a developer to give them more yield on a site than they would normally allow.

However, the first point of difference between AHSEPP and NRAS is that it's a NSW policy, not FED policy. It is applied for via local councils during the DA process. Secondly, there is NO TAX CREDIT paid to developers for offering the affected dwellings at a 20% discount; their 'compensation" so to speak, is being allowed to build extra stock. In your case, you are being allowed to build 30 instead of 20, as long as you offer 15 of them back at a 20% discount for 10 years. Yours is a prefect example of the significant extra yield you can get from a site using AHSEPP

However, developers hoping to sell AHSEPP stock with a built in /mandatory 20% rental discount for 10 years find they have a problem... first and foremost, as you have outlined, the dwellings MUST be used for INV purposes because of the DA requirements to offer it at 20% below market rent for 10 years. So they cant be sold to Owner occupiers for 10 years. Simple as that. OK you say- investors can buy them... But what investor will buy something with a built in 20% lower yield for 10 years, and no tax credit to compensate?

It leaves developers with 2 choices - developers wanting to sell have to offer significant discounts (but they're selling a lot of extra stock they wouldn't have otherwise been able to build, so it's still quite profit able) or hold the stock. I see a lot of it, and to be honest - almost all the developers who use the AHSEPP just hold on to the stock. Great way to build a "free" portfolio off the back of NSW Govt policy. You would be amazed at how significant a percentage of ALL new NSW stock is built these days with some AHSEPP making up the project. I would say that more than 50% of developments I am offered to sell ( and I am offered a lot) use AHSEPP. Developers arent fools, word got around about the NSW policy and it's just free stock basically, so they're happy to sit on it for 10 years and earn 20% less rent- after all, they have no debt on it after selling off the non AHSEPP stock at full freight.


NRAS , as you all know, also requires a 20% discount for 10 years, but it is voluntary not mandatory, isnt a DA requirement and owners ( investors) are compensated with a tax free credit. So of course, the 20% rental discount doesn't bother an NRAS investor as they are paid far more in tax free credits than they lose in rent.

So can the two policies work together?

Yessir! Smart developers have used AHSEPP over recent years to get the extra yield from the project, then they've added NRAS to that extra stock so that they can either hold it in an extremely CF+ manner, or so they can sell it at full freight . I have seen plenty of this.

This would have worked brilliantly for you, and I could have helped you secure the 15 NRAS incentives had you posted before December 22 last year, but that was the deadline to make transfer requests ... so whilst NRAS is still around , you can no longer secure the incentives. The deadline for moving incentives between sites has passed. Shame about that. You would have had an extremely profitable project with NRAS.

The link above only covers infill... can also be used for granny flats, student accommodation, boarding houses. I am seeing a number of AHSEPP Boarding Houses approved and being built around Guildford, Granville, Auburn - with NRAS as the icing. Just pure pots of cash flow gold for those developers. Money for jam.

As you own the site, I'd sit a while - we have a serious affordability issue and a chronic shortage of affordable rental accommodation, so wait and see if our PM makes it past 1 term. If Labor gets back in, and most certainly if the Greens have any say ( NRAS and Housing affordability is one of their cornerstone issues) there will be an NRAS 2.0 or something similar - so you could do very well out of that if it materialised. No chance at all with Tony in the chair though.


Sorry if this bored or irritated you TMNT :)
 
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