Can Inclusionary Zoning Expand Affordable Housing?

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Wednesday, December 9th, 2015
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Inclusionary zoning could serve as a highly effective means of expanding the affordable housing stock of Australia’s major cities without incurring burdensome additional costs for taxpayers.

As property prices continue to surge in tandem with ongoing population gains, the creation of more affordable housing situated within reasonable proximity of jobs and amenities has become an urgent issue for Australian cities. According to Fred Batterton of Studio B Architects, lack of affordable housing stock bodes poorly for the future of major urban centres such as Melbourne, given the indispensable role that it plays in the effective functioning of modern cities.

“For a city to succeed it needs to house those with lower income skills as well as those able to afford housing at a higher cost. But many people in Melbourne are unable to live near their work due to soaring rents or house prices that are beyond their salary levels,” he said.

While economists and urban development pundits are voicing their concerns about surging home prices with increasing frequency, Batterton points out that a proven solution that does not depend on government largesse already lies at hand in the form of inclusionary zoning.

“If I said that we could provide lots of housing for poorer people without state or federal funding, you would wonder why this has not been done before,” said Batterton. “But in simple terms this is possible and has already been done elsewhere. The UK has done this for the past 16 years, several US states have this in place and South Australia now requires affordability for 15 per cent of new development.”

Inclusionary zoning refers to the allocation of a certain percentage of new residential developments to affordable housing by means of local government planning ordinances, in order to ensure that people with low to moderate incomes aren’t excluded from the home property market.

Batterton describes how inclusionary zoning could have been applied in the Melbourne inner city with reference to the Fishermans Bend development, which he describes as a “missed opportunity” for better residential property planning.

“When any property is rezoned to residential there would be a requirement through the planning process for, say, 15 per cent of the proposed homes to be transferred to a registered housing association for rent. These are non-profit organisations that will allocate houses to people on a low income register who rent at an agreed rate below open market rent,” he said.

“Because this requirement is known before rezoning, the land value is depressed to about 85 per cent of the full open market land value for housing. Since the new residential value is greater than any other land use, this is not a major impost.

“This leaves the value of the land transferred to the housing association at close to zero – experience in the UK shows that affordable rents can cover the financing of construction over a period of about 25 years, although they can’t cover land cost as well.”

According to Batterton, inclusionary zoning can produce much-needed affordable housing stock free of any detrimental impacts upon other members and stakeholders of society.

“The Property Council of Australia says that inclusionary zoning is subsidised by the remaining 85 per cent properties that aren’t allocated to affordable housing, but this hasn’t been the case elsewhere,” he said.

“The ability to provide these houses comes from the land value. Instead of agricultural land increasing in value by perhaps 10 times when rezoned residential, it grows by 8.5 times. When industrial land is rezoned as residential, it too has a substantial increase in value.

“No one suffers from this – landowners still receive a generous windfall, developers can still build 100 per cent of apartments on a site while transferring 15 to 30 per cent to a housing association for rental, and society avoids ghettos by achieving integration – this is logical on so many levels.

“We will have created houses for low income people everywhere. The city’s army of cleaners, shop assistants, nurses and many others need not travel huge distances to work from cheaper suburbs, reducing stress on transport and improving everyone’s quality of life.”

Batterton points out that while inclusionary zoning could be a convenient and economical cure-all for the issue of affordable urban housing that leaves taxpayer funds untouched, it can only be successful if political leaders show enough mettle to apply it consistently throughout their jurisdictions.

“Here is the crunch – it requires political will. It needs to be mandatory for all residential rezoning in the State so that there is a level playing field. All developers bidding for a site would be playing the same game with the same rules,” he said.

“What is the alternative? Land costs continue to inflate pushing up housing costs out of the reach of many Victorians. Eventually Melbourne could price itself out of the international market as basic services become too costly. If the State or Federal government subsidise affordable housing from taxes it is an expensive drop in the ocean of housing need and is paying someone for the windfall land value of development.”

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