Confused about ‘affordable housing’? This is what it means – and what it doesn’t

Across the country, Australians are grappling with the prohibitively high cost of housing, and governments are implementing policies designed to boost housing supply and diversity.

But when we say diversity, what does that mean? On one level, it means we need a healthy mix of freestanding homes, one-bedroom apartments, larger apartments for families, townhouses and other kinds of properties. There is a market for many kinds of homes.

Policymakers now consider best practice to combine different housing types in each major development.Credit: Oscar Colman

It also means we need a diverse supply of housing types: private market housing, public housing, subsidised housing, student accommodation, build-to-rent and many others. But the differences between these are not always clear or well understood.

Policymakers often talk about “social and affordable housing”, and ways to boost their supply. These terms are sometimes used interchangeably, but they are, in fact, quite different.

What is social housing?

In NSW, social housing is an umbrella term for housing targeted at people on low and very low incomes. It captures public housing managed by the government, community housing managed by non-government organisations, and Aboriginal housing managed by both.

Public housing is generally managed by the Department of Communities and Justice. Tenants will typically pay 25 to 30 per cent of their household income in rent, though this can vary.

In 2020, community housing providers managed about 45,000 properties in NSW – about a third of the state’s social housing. This includes non-profit housing associations, co-operatives, churches and other organisations.

Social housing now accounts for less than 5 per cent of housing stock in NSW. The waiting list for social housing in NSW, which has slowly risen each month since June, sits at 57,930. The median waiting time for general applicants has climbed to 26.6 months. For those on the priority list, it is three months.

What is affordable housing?

This term might be the most slippery to understand. Generally speaking, capital A “affordable housing” is housing that is discounted to meet the needs of a range of low to moderate income households. The vast majority of the time we are talking about rentals.

As a basic rule, housing is considered affordable if the rent is less than 30 per cent of the tenant’s gross household income. If you are spending more than 30 per cent of your money on rent, you are in rental stress.

In Sydney’s expensive property market, that’s not unusual for carers, cleaners, checkout operators, hospitality workers and a whole range of vital professions “needed to keep cities viable”, as Shelter NSW chief executive John Engeler says. Such people normally wouldn’t qualify for social housing, but they may be eligible for affordable housing.

An affordable housing development by Nightingale and Fresh Hope Communities under construction in Marrickville in August 2023.Credit: Wolter Peeters

In some cases, affordable housing might be priced based on the occupant’s ability to pay, or it may be calculated as a discount on the market rate. “Affordable housing” could differ between areas, and what’s affordable to one person might not be affordable to another.

According to the Community Housing Industry Association, there were just over 10,000 affordable housing tenancies in NSW in 2021. “There’s currently not that much of it,” Engeler says.

In NSW, if affordable housing is mandated as part of a state-managed development, it is generally required to be managed by an accredited provider for at least 15 years from construction. However, local councils may have different affordable housing regimes.

How does this work in practice?

These schemes usually require a developer to contribute to affordable housing either by cash, in-kind (by dedicating units in the development to be affordable housing managed by an accredited provider), or by handing over a piece of land.

Each council sets its contribution framework; in the City of Sydney, for example, the current rate is 1 per cent of the total floor area used for non-residential purposes and 3 per cent of the total floor area used for residential purposes, charged at $10,611 a square metre.

On a building with 10,000 square metres of residential floor area, the contribution would be $10,611 multiplied by 300 square metres, or $3,183,300 (though exemptions and adjustments are available).

Documents said that as of July 2022, the City had collected about $378 million in such levies and built 1427 affordable housing units in the local government area, with 641 dwellings in the pipeline and another 701 expected in future.

The state government has its own affordable housing policies. Labor came to office promising that any redevelopment of public land would contain at least 30 per cent social and affordable housing.

Recently, it rejigged the Coalition’s planned redevelopment of Waterloo Estate, in Sydney’s inner-south, to increase the proportion of social and affordable homes from 34 per cent to 50 per cent.

It has also promised that as part of its state-led rezoning of eight priority precincts around Metro and rail hubs, up to 15 per cent of homes will be reserved as affordable housing in perpetuity. This exceeds the standard 15-year minimum, and was a key request from groups such as Shelter NSW.

Clarity needed

Recognising the confusion and inconsistency surrounding the term, NSW Housing Minister Rose Jackson is campaigning for a nationally consistent definition of what affordable housing means.

She put the item on the agenda of the November Housing and Homelessness Ministerial Council meeting, which brings together state and federal counterparts. They agreed to bring a paper to the next meeting on “a nationally consistent approach to affordable housing”.

Elements they will try to settle are whether “capital A” affordable housing must be delivered by a non-profit or whether private providers are OK, and whether the rent should be calculated as a discount on the market price or set at a percentage of the tenant’s income.

Jackson acknowledges agreement may not be reached but believes it is worth a try. “The [federal] Housing Australia Future Fund has a funding stream for affordable housing. But they don’t have a clear definition of what they’re actually funding,” she says.

NSW Housing Minister Rose Jackson is campaigning for a national definition of “affordable housing”.Credit: Edwina Pickles

Engeler says the gold standard definition is that people should be paying no more than 30 per cent of their income on rent. “What we want to see is nobody being put in rental stress.”

What is build-to-rent housing?

The build-to-rent model is where developers – usually large ones such as Mirvac or Meriton – build an apartment block and then, rather than selling the properties, retain ownership and lease out the units to tenants. If you live there, your landlord is the developer. Such buildings typically offer a range of amenities and services geared towards renters.

BTR is in its relative infancy in Australia, accounting for about 0.2 per cent of residential property construction compared with 12 per cent in the United States, where build-to-rent family homes are also common.

Governments are offering incentives for BTR developments, most recently in NSW, where the state government moved to allow more build-to-rent projects in the commercial precinct of Macquarie Park. And in its recent mid-financial year economic update, the federal government said it would lower the commercial foreign investment application fee for build-to-rent projects.

Several applications for large BTR projects in Sydney are in the planning pipeline, while Minor Hotels and Argentum Group cut the ribbon on a $20 million project in Rockdale on Thursday.

What about the rest?

Engeler says other types of housing shouldn’t be forgotten. For example, the 50 per cent of the Redfern-Waterloo redevelopment now slated as private market housing could incorporate something more “clever”.

“It could include build-to-rent with some affordable housing in it, some student accommodation, rent-to-buy, shared equity, seniors’ living, aged care and other types of non-market housing,” Engeler says. “We’ve gone from pretty ordinary to good – that would make it excellent.”

These days, policymakers say best practice is to combine different housing types – public, private, affordable and student accommodation, for example – in the one development, rather than having buildings exclusively dedicated to social housing.

“Best practice is what we call tenure neutral, where no one can tell whether you rent or own, who you pay rent to, or whether you have a mortgage, by looking at your building, your balcony or your letterbox,” Engeler says.

“What we’re missing is family-friendly apartments. We need places where people can rent for a long time on low incomes with kids, third bedrooms and pets, and have the same sense of ownership as if it were always theirs.”

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