Advantages
Disadvantages
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 voluntary negotiated agreements
Voluntary negotiated agreements for affordable housing contributions are often made between a developer and planning authority (local council or state government). While not required for development approval, a proponent may seek to negotiate an affordable housing outcome for a concession or subsidy of some type.
Voluntary negotiated agreements work like incentives but typically apply on a site by site basis or in relation to a specific development. Often planning controls are being established in tandem with the actual proposal for the site (sometimes described as a ‘master planning’ process), so the fixed planning requirements usually needed for an incentive framework might not have been established.
Large developments of this nature typically involve much negotiation between the proponent and the planning authority so it is within this context that affordable housing contributions might also be sought. The contributions recognise the significant increase in value associated with planning approval for the development (‘betterment’ or ‘windfall gain’). While not directly calculated according to prescribed formula, in this context the affordable housing contribution gives something back to the community in return for the significant profit associated with their favourable planning decision.
Examples of incentives used in voluntary negotiated arrangements:
- reduction of other infrastructure payment requirements to offset amount provided for affordable housing
- concession in other development application fees or related charges
- pre-purchase commitments (for example, to purchase housing that will be managed by a social housing provider)
- assistance with financing costs
- promotional or marketing assistance
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To see examples of voluntary agreements click on the link below
What is this measure likely to achieve?
In theory, voluntary negotiated agreements should maximise the affordable housing contribution in a particular development, while retaining profitability for the developer. In practice, between one and 15 per cent of completed dwellings or project value seem to be the norm in Australia, depending on the specific nature of the development and whether it involves government land.
Negotiated agreements for affordable housing can be a way of achieving access to land and or housing for the affordable housing sector, before the cost of securing this land inflates. Affordable housing developers seldom have the scale needed to compete effectively for attractive housing sites on the private market. This is especially so during times of rapid market escalation, or following a significant process of urban redevelopment or renewal. Negotiated agreements are opportunities to overcome this barrier to affordable housing development.
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Advantages
- Negotiated agreements are voluntary, so it is easier to obtain developer support to the overall approach than might be the case if they were introduced as a mandatory requirement.
- They are flexible, and their terms can be adjusted to the particular site, development, and opportunities for affordable housing.
- The negotiation process offers a way of accommodating details that are difficult to be anticipated in advance, like market changes.
- There is no need for legislative change to use this mechanism, and their application does not depend on the demonstration of strict legal tests to demonstrate validity.
- As this type of planning for mixed tenure development generally relies on a level of public subsidy (either land or capital funding), it can operate counter-cyclically, during periods of market downturn, with the affordable housing component providing security for the overall development.
Disadvantages
- Negotiated agreements are voluntary, so cannot be enforced or required.
- Negotiations may be time-consuming and can delay the planning approval process. Delays in residential approvals may indirectly exacerbate housing affordability problems and have direct costs for some specific developments.
- As the contribution is not known up front at the time the land is purchased, there is a lack of certainty for the developer who is not able to adjust the land acquisition cost to reflect the planning burden. This lack of certainty is likely to reduce the overall amount that can be secured through a contribution.
- The negotiation process is complex and requires skilled planning authority staff, familiar both with development economics and affordable housing requirements.
- Affordable housing is likely to be one of many competing objectives for development contributions through the negotiation process. Without a fixed contribution requirement, affordable housing might be ‘traded off’ in favour of another priority, for instance, a recreational facility.
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Where will this measure have the greatest impact?
This approach is useful when major changes to planning controls are requested for residential developments in new or established areas. The scale of impact of the negotiated approach depends on the size of the project and the amount of affordable housing or financial contribution available in each specific case.
Modeling in the US and the UK shows that the characteristics of the specific market can dramatically affect the affordable housing contribution sustainable by an individual development. Even within a metropolitan region this amount might range from a zero contribution to a 50 per cent or higher contribution where planning approval is valuable and land costs are high. Viable contribution amounts might also change over time with market fluctuations.
Another factor that might influence the scale of impact of this mechanism is the way in which the affordable housing component is provided. One approach that can be effective in lower-value markets is to require that a proportion of the new housing developed (perhaps 15 per cent or higher) be available to affordable housing providers at a sub-market price. This reduces risk for housing developers while still securing affordable housing in new development areas.
To see examples of voluntary agreements click on the link below
How to use this measure
- Identify potential development/redevelopment sites.
- Calculate potential value of increased development potential, according to a standard method that is available for public scrutiny.
- Introduce a policy indicating the approach for seeking planning agreements involving affordable housing as a basis for negotiation.
To see examples of voluntary agreements click on the link below
Click on the link below to determine whether this planning mechanism is recommended for your environment
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