Planning Incentives Overview

The resources and guidance in the Affordable Housing National Leading Practice Guide and Tool Kit is not designed to be relied upon. Users of the guide should consider the individual circumstances of each project or policy, use other resources and take independent advice.

Introduction to planning incentives

Planning incentives encourage affordable housing provision by reducing costs associated with affordable housing development.

Incentives are valuable to developers because they directly or indirectly reduce the costs associated with development, for instance, by reducing certain development standards, or by expediting approval processes. Incentives can make a project more profitable, for instance, by permitting greater density of development than might otherwise be allowed. They can also help non profit affordable housing providers achieve a higher yield and so facilitate more subsidised affordable housing within an area.

Planning incentives include:

• graduated planning standards that relax controls subject to performance criteria;
• bonus systems that enable additional development capacity for affordable housing development; and
• planning process incentives to facilitate approval of affordable housing proposals.

Graduated planning standards

These are performance-based planning standards (as opposed to flat rate or universal planning standards) that can be used to increase site yield and facilitate the provision of affordable housing in designated areas. They are commonly used in Australia for boarding houses, student accommodation, retirement villages and accessory dwellings.

Examples of graduated planning standards include:

• open space standards that increase proportionally to the size of the dwelling or number of bedrooms
• car parking standards that reflect the location or the needs of future residents of building (such as less car parking for dwellings in centres with services and high quality public transport within walking distance or retirement housing)
• use of plot ratio scales for determining building scale.

Bonus systems

These relax planning standards in exchange for affordable housing in designated areas. Bonus systems are more often used in specific development negotiation and assessment, while graduated planning standards are defined by the planning policy. Developers may be offered additional development capacity for a site through the relaxation of density standards in return for a commitment to provide affordable housing (either on or off site, in cash or in kind).

Examples of incentives via bonus systems for a specific development:

• reduced setback and density restrictions
• reduced private and public open space requirements
• reduced car parking requirements (justified in terms of future need).

Top of page

Planning process incentives

Special processes to speed up the development assessment process can be an incentive to provide affordable housing. Additional incentives might include reduction of or exemption from fees and charges. Examples of planning process incentives include:

• expedited processing of development applications
• a dedicated assessment team
• reduction or exemption of development application fees
• reduction or exemption in infrastructure charges
• reduction or exemption of rates.

There are several ways in which these incentive mechanisms can be used. Incentives can encourage developers to produce housing that is suitable for lower income earners to rent purchase on the private market. For instance, many local councils permit increased the costs of residential development, with a proportion of this offset applied to an affordable housing program. The value of the planning variation or bonus is shared between the developer and the consent authority, who receives a contribution towards affordable housing (either as housing, land or a monetary payment). The bonus development rights scheme developed by Waverley Council discussed below is an example of this approach).

Incentives can be also be used to reduce the cost of development or achieve greater yield for specific affordable housing developments. If a concentration of affordable housing within a particular project was a concern, the affordable housing developer itself might be permitted to sell part of the project to the private sector, thus achieving a mixed tenure development and cross subsidising the affordable component.

Often developers are able to select from available planning incentives or concessions to offset the costs of complying with mandatory affordable housing requirements.

Top of page

To see examples of planning incentives click on the link below

What are planning incentives likely to achieve?

Incentives that make lower-cost market housing (like student accommodation, boarding houses, shop-top housing or seniors housing) more profitable by reducing development standards or expediting planning approvals should result in increased supply within the private market—provided that there are appropriate opportunities for development and suitable levels of demand.

Incentives that reduce costs for affordable housing developers (social housing providers, not-for-profit affordable housing developers and private sector developers that will provide subsidised housing to defined needs groups) should increase the proportion of regulated affordable housing supply within a particular area and strengthen the overall capacity of the affordable housing developers at local and regional levels.

Incentives that seek to share in the profit created by a specified planning bonus (like increased density) by requiring a contribution towards a local affordable housing program will result in a modest amount of dedicated affordable housing within the area—when the bonus represents significant value and development activity in the area is buoyant.

Advantages

• Planning incentives are voluntary and therefore may attract more developer support than other mechanisms. US experience suggests that voluntary incentives to encourage affordable housing contributions are effective where there is strong political or community opposition to a mandatory requirement.
• Planning incentives can make affordable housing more viable for the non-profit sector or more profitable for the private sector, and so may counterbalance trends towards developing larger or luxurious forms of housing. Incentives for simpler housing forms provide an opportunity to increase the overall supply of lower-cost housing in the market.
• Incentives do not require an up-front subsidy or investment, maximising existing government investment in affordable housing development, or even creating additional revenue (when incentives result in a specific contribution towards a local affordable housing fund).
• By contributing to the strategic planning objectives for an area, incentive structure can promote multiple objectives simultaneously. For instance, if increased density of an existing urban area is an important planning objective,  new development opportunities can be combined with affordable housing requirements if the incentive is sufficiently attractive to result in ‘take-up’. 

Top of page

Limitations

• The voluntary nature of planning incentives means that there is no way to ensure they are actually taken up. US experience shows that voluntary incentives have little overall impact in comparison to mandatory approaches. When combined with mandatory requirements, planning incentives can make affordable housing development far more attractive or viable.
• Incentives that relate to changed or graduated development standards are sometimes perceived as undermining environmental qualities or standards. The approach is considered by some as artificially constraining development by discouraging owners to achieve the ‘highest and best’ use of their land unless they take up the affordable housing incentive. Incentives that reduce existing planning standards should only be used subject to strict assessment criteria that ensure an outcome consistent with overall planning goals.
• Affordable housing built to reduced standards may contribute a one-off benefit or abnormal profit to developers or result in additional costs to long-term owners, tenants and the community in the property’s future-use value unless measures are undertaken to pass the cost reductions on to the target group (low and moderate income earners and if careful consideration is not given to the impact of the reduced standard on amenity and lifecycle costs.
• It is difficult to use incentives effectively in performance-based planning systems where there are no clear rules or standards for compliance. In these cases a mandatory requirement may be more appropriate. Expedited assess¬ments or reduced application fees could still apply to developments by affordable housing developers or meeting affordable housing criteria defined by the local authority.
• It can be time-consuming, expensive and legally complex to administer an incentive system that is designed to collect actual contributions to an affordable housing program, particularly if development activity is slow or the contribution relatively small.

Top of page

To see examples of planning incentives click on the link below

Where will this measure have the greatest impact?

Planning incentives’ scale of impact depends on the type of incentive used and the conditions of the market in which it is implemented.

Incentives that make lower-cost market housing more profitable by reducing development standards or expediting planning approvals are likely to have the greatest impact in high-value market contexts where low-cost housing development opportunities would be limited or have marginal viability.

The likely impact of this measure in a particular area depends on the controls that currently exist, the opportunities for development, and levels of demand. The approach may be most effective if designed in consultation with local developers whose product targets the lower and moderate level of the market, or specific niches like student accommodation, boarding houses, or seniors housing. Inner and middle-ring housing markets—where land values are higher and where there is a greater imperative to achieve higher density, parking, or open space savings—are likely to be the most suitable market context for this measure.

Incentives that reduce costs for affordable housing developers are likely to be effective in all market scenarios and geographic areas. Like many of the measures discussed, the scale of impact will be greatest where intervention relieves existing planning processes that have been overly complex, slow or involve expensive compliance costs.

Incentives that seek to share in the profit created by a specified planning bonus (like increased density) by requiring a contribution towards a local affordable housing program depend on buoyant market activity and high land values. Clear processes for calculating the bonus and contribution requirement and for administering the affordable housing donation are needed for effective implementation.

How to use these measures

1. Identify overall goals you wish to encourage in an area, such as greater density in certain locations, more mixed-use developments or redevelopment of under-used sites.
2. Identify potential levers to encourage this type of development.  These could be graduated standards, planning bonuses, or planning process incentives, or some combination of these. 
3. If using the incentive to obtain an affordable housing contribution, calculate the value of the incentive for the developer, using a standard formula for development costs and estimation of increased market value.
4. Require a defined proportion of this enhanced value as a contribution for affordable housing to be made as a condition of planning approval.
5. Unlike mandatory requirements for affordable housing contributions, which should be specified up front, it may be preferable to negotiate the value of incentives on a case by case basis.  Otherwise, the incentive itself might increase the value of the land in line with the increased development opportunity.   

To see examples of planning incentives click on the link below

Click on the link below to determine whether this planning mechanism is recommended for your environment

Top of page