CITY OF MELBOURNE HOUSING NEEDS ANALYSIS
FINAL REPORT
Prepared for
JULY 2019
City of Melbourne
Independent insight.
20190171 Final Report 050716
© SGS Economics and Planning Pty Ltd 2019
This report has been prepared for City of Melbourne. SGS Economics and Planning
has taken all due care in the preparation of this report. However, SGS and its
associated consultants are not liable to any person or entity for any damage or loss
that has occurred, or may occur, in relation to that person or entity taking or not
taking action in respect of any representation, statement, opinion or advice
referred to herein.
SGS Economics and Planning Pty Ltd
ACN 007 437 729
www.sgsep.com.au
Offices in Canberra, Hobart, Melbourne, Sydney
City of Melbourne Housing Needs Analysis
i
TABLE OF CONTENTS
ABBREVIATIONS AND KEY TERMS 1
SUMMARY 2
1. INTRODUCTION 9
Background 9
Purpose of this study 10
Principles guiding SGS’s approach to the study 10
Structure of the report 11
2. MEASURING AFFORDABLE HOUSING NEED IN MELBOURNE 12
2.1 Scope and definitions 12
2.2 Method 15
2.3 Current demand for social and affordable housing 15
2.4 Projected demand for social and affordable housing 29
2.5 Projected need by household type and housing service 43
2.6 Synthesis 44
3. WHY SHOULD COUNCIL GET INVOLVED? 45
3.1 Scope 45
3.2 Context 45
3.3 Creating city-wide value 47
3.4 Does a Capital City Council have a ‘special obligation’? 56
3.5 Synthesis 59
4. COUNCIL’S ROLE & POLICY LEVERS 61
4.1 Council’s role in affordable and social housing 61
4.2 The housing assistance spectrum 62
4.3 Policy levers and mechanisms 64
4.4 Implementation and impact 89
4.5 Synthesis 90
5. ECONOMIC CASE FOR INTERVENTION 91
5.1 Property market impacts of inclusionary requirements 91
5.2 Cost benefit analysis of mandatory affordable housing requirements 104
5.3 Synthesis 125
6. POLICY TARGETS FOR CITY OF MELBOURNE 126
6.1 Needs-based target: the residual target method 126
6.2 Precedent-based target 129
City of Melbourne Housing Needs Analysis
1
ABBREVIATIONS AND KEY TERMS
Abbreviation
Term
BCR
Benefit Cost Ratio
CBA
Cost Benefit Analysis
FAR
Floor Area Ratio
FAU
Floor Area Uplift
NPV
Net Present Value
RLV
Residual Land Value
SAH
Social and Affordable Housing
Housing Type
Description
Emergency Shelters /
Crisis Accommodation
Very short term accommodation, which includes additional support for the
resident during their stay.
Transitional Housing
Medium-term accommodation, which often includes support services for
residents.
Supported Housing
Long-term accommodation for people with high needs for support/care (e.g.
people with disability or elderly)
Social Housing
Long-term accommodation, including both public housing (government
owned) and community housing (housing association owned).
Affordable Rental
Housing
Rental housing which is affordable (within 30% of income) for households on
a moderate income or lower
City of Melbourne Housing Needs Analysis
2
SUMMARY
What is affordable housing?
This report focusses on the current and projected need for affordable rental housing in the
City of Melbourne (CoM). Also investigated are the Inner Metro Partnership (IMP) and the
Inner Melbourne Action Plan (IMAP) plus Moonee Valley regions.
The definition of affordable housing used in the report follows that set out in the Planning
and Environment Act, except that home owning or home buying households are excluded.
As shown in the following diagram, the scope of affordable housing adopted here includes but
extends beyond social housing but is nonetheless limited to very low, low and moderate
income rental households.
There is an alarming shortfall in affordable rental housing in the City
There is a current aggregate need for social and affordable housing in the City of Melbourne
for at least 9,436 units. This largely excludes student households and can, therefore, be
regarded as a lower bound estimate.
Current supply, measured by the stock of social housing in the City of Melbourne, is around
3,970 units. Therefore, the City of Melbourne has a deficiency in its social and affordable
All housing in City of Melbourne
Affordable housing
Affordable rental
housing
Social
housing
Available to households on
incomes up to $61k
(singles),
$91k (couples) and $127k
(families)
Rental or ownership tenure
Private or public landlord
(Priority access) available to
households on incomes up to
$29k
(singles), $50k (couples)
and $52k (families)
Stock owned by State or
Registered not for profit
providers
City of Melbourne Housing Needs Analysis
3
housing infrastructure of some 5,500 units. At a nominal acquisition cost of $0.5 million per
unit, this represents a $2.75 billion infrastructure deficit.
As with any other form of infrastructure, the need for social and affordable in the City of
Melbourne will increase with population growth. Future need will also be affected by
property market trends and patterns of income growth. SGS estimates that if there is no
addition to the City’s social and affordable housing stock, the shortfall in these dwellings will
grow to between 16,900 and 29,700 units by 2036 depending on the share of metropolitan
growth in affordable housing need which is assigned to the Melbourne local government area
(LGA).
Our estimates of social and affordable housing need separately identify the requirements of
‘Key Workers’. Depending on the share of the metropolitan pool of required Key Worker
housing which is assigned to the City of Melbourne, the projected need for this sector of
rental accommodation in the City in 2036 ranges between 2,500 and 7,900 dwellings.
To meet total projected demand for social and affordable housing in the City of Melbourne,
between 13.3 per cent and 21.5 per cent of the City’s total dwelling stock in 2036 would need
to be affordable rental housing as per the definition in the Planning and Environment Act.
Currently, affordable rental represents less than 6 per cent of all housing in the City of
Melbourne.
The City of Melbourne has a special role to play in meeting this need
The City of Melbourne has undergone transformative change since the 1990s transitioning
from being largely a location for business and workers to a thriving hub of cultural, social and
economic activity. This change, while positive, has held consequences for the affordability of
housing across the municipality. Those who cannot afford the rising housing costs are forced
to relocate to more affordable locations, increasingly causing a spatial patterning across
metropolitan Melbourne according to wealth and socio-demographic status. For many who
continue to live in the City of Melbourne (for a variety of reasons including, work, education,
social connections etc.), the rising cost of housing places increasing pressure on their health
and wellbeing.
By addressing affordable housing need in the City of Melbourne, Council can generate several
key benefits for its community by:
▪ Mitigating existing and future issues related to key worker retention in the central
city, thereby strengthening local business and overall economic efficiency.
▪ Achieving deeper and more genuine diversity through the provision of a greater
range of housing types, tenures and prices. This is anticipated to attract creative
talent (and business) and enhance Melbourne’s global reputation as a cultural and
creative hub.
▪ Enhancing opportunities for innovation by providing housing suitable for early career
entrepreneurs and research workers within education and research agglomerations.
▪ Addressing social injustice and enhancing equity resulting from locational
disadvantage and spatial socio-economic segregation.
There are several policy levers available to Council but no quick fixes
To address the considerable and rapidly growing shortage of social and affordable housing in
the City of Melbourne, Council would need to resolve these policy questions:
▪ What role to play, from hands-off advocacy through to direct investment in social
housing?
▪ Who to target with this policy effort, from those in or at risk of homelessness through
to ‘key’ and creative workers?
City of Melbourne Housing Needs Analysis
4
▪ How to deliver the adopted social and affordable housing aspirations via regulatory,
partnership and investment levers?
The levers which Council might apply to advance affordable housing supply in the City of
Melbourne can be grouped into three overlapping categories.
The ‘regulation’ group of interventions includes various mechanisms available to Council
under the Planning and Environment Act. These cover both voluntary and quasi-mandatory
arrangements whereby proponents provide affordable and social housing units or cash in lieu
in return for the awarding of development rights.
In the ‘partnership’ group of interventions, Council would work with the private sector or
community sector proponents to help them achieve affordable and social housing outcomes.
Examples include brokerage of partnerships between corporate developers and registered
community housing providers where the former are self-motivated to include affordable
housing in their projects. Similarly, Council might assist private sector proponents trial or
demonstrate innovative projects which improve affordability, like build to rent housing or
providing affordable rental on community trust land. Another important example is where
Council works with the State Government to improve the housing yield from public housing
assets.
The ‘investment’ group of interventions would see Council applying its own assets – whether
this be cash, land or underwriting capacity – to directly generate an expansion of social and
affordable housing in the City. By way of example, Council has, in the past, provided buildings
for permanent or temporary use as homeless accommodation. Providing relief from rates
and various council charges (including infrastructure and open space contributions) is another
form of ratepayer investment in affordable and social housing.
Specific mechanisms in each of these groups are summarised in the following chart.
Investment
Partnerships
Regulation
City of Melbourne Housing Needs Analysis
5
Some of these mechanisms are relatively readily applied in the City of Melbourne because
Council has the authority to move in its own right. Others are dependent on the State
Government and other parties providing the required authorising environment. For example,
there is no current mechanism in the Victoria Planning Provisions for the enforcement of
mandatory inclusion of affordable housing in new developments in the City of Melbourne,
although several policy statements suggest the State Government may consider enabling
reforms in this area.
As well as their capacity for successful implementation within a reasonable period (say two
years), the mechanisms can also differentiate in terms of the quantum of affordable housing
they are likely to generate over. The chart below shows SGS’s assessment of housing yield
versus ease of implementation for each of the listed mechanisms.
The array of policy levers open to Council is extensive, but no single mechanism can be
expected to make a major dent in the level of need by itself. While the State Government has
clarified the planning system can and should have a role in affordable housing provision, it is
PARTNERSHIP
INVESTMENT
REGULATION
Ad hoc voluntary agreements at
Planning Permit stage enforced
via s173 of the Planning &
Environment Act
Voluntary (s173) agreements at
Planning Permit stage backed by
strategic policy built into the
Melbourne Planning Scheme
Mandatory inclusionary
requirements at Planning Permit
stage
Floor area uplift in return for
provision of social and affordable
housing (value capture)
Uniform value capture provisions
incorporated into Planning
Scheme amendment
Planning waivers and concessions
in return for provision of
affordable and social housing
Facilitated redevelopment of
(State) public housing assets
Facilitation of innovative
affordable housing product -
Build to Rent
Facilitation of innovative
affordable housing product -
Rental housing on Community
Land Trust sites
Information and brokerage to
connect developers to registered
social housing providers
Vesting of Council land and
buildings for social and affordable
housing
Provision of an annual or one off
cash investment in social and
affordable housing provision
Waiver of rates and charges to
support social and affordable
housing projects
Establishment of a Trust to
receive and deploy affordable
housing contributions and Council
cash investments
City of Melbourne Housing Needs Analysis
6
yet to endorse mechanisms such as mandatory inclusionary zoning and development licensing
arrangements that could bolster the flow of social and affordable housing in Melbourne.
Intervention by Council is economically warranted
If Council had a means of enforcing affordable housing contributions via the planning system,
and it chose to apply such a tool, the impact on the local property market would depend on
the scale of the mandatory requirement.
Developers establish the maximum price they are willing to pay for a site by deducting their
required margin for profit and risk plus all their costs, including development contribution
liabilities, from their expected disposal value for the newly constructed dwellings and other
floorspace in the planned project. So long as this ‘residual land value’ (RLV) is greater than
the land seller’s minimum acceptable price, the project is viable and will proceed (see left-
hand panel in the diagram below).
Developers are ‘price takers’ not ‘price makers’. If confronted with a mandatory inclusionary
zoning requirement, developers will reduce their offer price for the sites in question. After
this reduction, if the RLV is still greater than the land owner’s minimum price, the project will
remain viable. Conversely, if the land price is pushed below the seller’s minimum acceptable
price, the project will not be feasible on that site and the proponent will need to look
elsewhere for a suitable development opportunity (see right-hand panel in the diagram
below). Over time, as dwelling prices increase, developers may be able to pay higher prices
for land and bring some sites, which were previously unviable for development, back into
consideration.
City of Melbourne Housing Needs Analysis
7
Introducing mandatory inclusion of affordable housing in the City could see the withdrawal of
a proportion of sites that would otherwise be available for development. The question is
whether there would be sufficient sites still available for viable development to fulfil
projected total housing requirements in the City.
SGS’s analysis shows that a mandatory requirement of up to 10 per cent could be supported
without choking off the required housing supply.
The analysis also shows that while some landowners will suffer a loss of value in their
property, mandatory requirements would deliver a strong net benefit for the whole
community.
SGS performed an economic evaluation of mandatory inclusionary affordable housing, on a
per dwelling basis, using conventional cost benefit analysis as prescribed in the State
Government state public finance guidelines. On the cost side, the analysis considered
dwelling construction costs, maintenance and operating costs and reduction in RLV. The
offsetting benefits included health cost savings, reduced domestic violence, reduced costs of
crime, enhanced human capital, worker retention, educational benefits, improved community
pride and social justice, retained cultural value, enhanced social capital and the gain in
housing services.
Over 20 years and using a commercial discount rate of 7 per cent the analysis returned a
benefit cost ratio of more than 3:1. That is, community benefits valued at more than $3 were
generated for each $1 of cost incurred by all parties in the implementation of mandatory
inclusionary requirements.
In this sense, this intervention is economically warranted.
Council requires an ambitious but achievable target for its policy efforts
Depending upon its appetite for involvement in the social and affordable housing supply
problem in the City of Melbourne, Council will be working in partnership with other spheres
of governance to greater or lesser degrees. A supply target for Council’s efforts as part of any
wider response may be required.
This supply target can be set in one of two ways; as a residual of what the other levels of
government deliver versus measured need; and extrapolation of precedents from other local
government policies. Given the scarcity of new supply known to be coming from the State
and Commonwealth Governments, the former approach would leave Council with a very high
target of almost 23,000 additional affordable housing units by 2036. The latter (extrapolation
of precedents) approach yields a range of targets the upper end of which is 8,800 additional
$
Land seller's minimum
acceptable price
Reduction in residual land
value
$
Mandatory AH
Land seller's minimum
acceptable price
City of Melbourne Housing Needs Analysis
8
units by 2036 for social and affordable housing. This would seem to be both ambitious and
realistic, given the leadership role and endowments of a capital city council. In addition, this
report proposes that Council adopt a target for crisis and transitional housing provision of
1,423 beds by 2036.
Broken down by housing type, the targets for the City of Melbourne are summarised as:
▪ Social housing (owned and operated by the State or registered community providers,
and accommodating mainly low and very low income households with marginal
involvement in the workforce)
▪ 7,527 additional dwellings by 2036
▪ Affordable housing (supplied by a number of different providers and various models
and housing low to moderate income households, including Key Workers, with
relatively shallow subsidies)
▪ 1,273 additional dwellings by 2036
▪ Crisis and transitional housing
▪ achieve a stock of 1,423 beds in the City by 2036
Assuming an affordable housing provision rate of 10% operated via some form of mandatory
requirement and further assuming an implementation ramp up period that sees this policy
taking effect from 2021, we have estimated that Council could deliver in the order of 4,300
affordable dwellings via this inclusionary approach. The balance of the 8,800 additional units
might be met via floor area uplift mechanisms, direct investment or through Registered
Housing Associations leveraging gifted stock to acquire additional dwellings.
The task of responding to the need for social and affordable housing in the City is significant.
We have estimated the aggregate requirement for the City of Melbourne local government
area in 2036 as almost 30,000 (additional) dwellings. The combined efforts of Council and
other spheres of government are required to address this challenge.
City of Melbourne Housing Needs Analysis
9
1. INTRODUCTION
This section of the report describes the policy context for this study, outlines the
scope of our work and provides an overview of the report’s structure.
Background
New housing policy for Melbourne
The City of Melbourne (CoM) is continuing to evolve its suite of planning, investment and
advocacy policies for the housing ‘system’ of the municipality. Council wants to see housing
outcomes in line with its vision for a sustainable, inclusive and prosperous Melbourne.
The City’s flagship housing policy document – Homes for People – is due for review, with its
nominated tenure – 2014-2018 – now expired. There have been significant changes in
context since Council adopted this policy. For example, the State Government released the
first ever integrated housing policy for the state – Homes for Victorians (HfV) – in March
2017. The refreshed metropolitan planning strategy – Plan Melbourne – includes a strong
focus on social and affordable housing, committing government to a more proactive use of
the planning system in generating affordable and social housing supply. The Planning and
Environment Act 1987 (the Act) has duly been amended to put beyond doubt that land use
and development regulation in Victoria may be applied to this purpose. As part of this
reform, clear definitions of affordable housing have been disseminated, with relevant income
bands nominated. We are now beginning to see these reforms in practical planning practice.
Amendment C270 (Am C270) to the Melbourne Planning Scheme and GC81 covering
Fishermans Bend variously contain a mix of value capture and voluntary mechanisms whereby
development proponents contribute to social and affordable housing outcomes.
It is fair to say that the housing policy ‘ship is beginning to turn’ in Victoria and Australia.
However, policy settings, and more importantly, investment in social and affordable housing,
at the Commonwealth and State levels remain grossly inadequate.
Commonwealth and state context
The contemporary framework for providing social and affordable housing is vastly different
from that which held sway in Australia and Victoria for many decades following the first
Commonwealth State Housing Agreement struck in 1945. Commonwealth capital funding for
providing social housing has all but withered, with Canberra implicitly favouring ‘safety net’
programs and rental assistance. State Government policy has followed a similar trajectory. It
is only since the adoption of the HfV package (and subsequent election promises from the
current government) that we have seen renewed interest in social housing by the State
Government.
With the virtual cessation of investment in (net) social housing expansion in the mid 1980s –
save for a temporary surge during the post global financial crisis (GFC) stimulus program of
the Commonwealth – Victoria’s and Melbourne’s housing supply has become dangerously
unbalanced. By any measure – waiting lists, levels of post-rent poverty and the proportion of
social housing to total housing – the shortage of affordable housing in the state is now
counted in the many tens of thousands. To the ordinary citizen, this manifests in escalating
rates of extreme homelessness, i.e. sleeping rough. But this is only the tip of the iceberg, with
large numbers of households suffering dislocation from education and job opportunities,
stress-related mental health illnesses and, indeed, violence.
City of Melbourne Housing Needs Analysis
10
The prospective framework for a revitalised social and affordable housing policy for
Melbourne and the state more generally is starting to become clear, based on the reforms
and initiatives noted above. We can expect or, perhaps, hope for:
▪ A gradual increase in the direct investment by the State and Commonwealth
Governments in social housing provision focussed, initially, on households in extreme
need, for example, those exposed to the risk of family violence
▪ Reinstating models like NRAS, which seek to leverage private investment in
affordable housing by bridging the ‘return gap’ between rents within the means of
moderate and lower income groups and commercially viable rents
▪ Growing use of new commercial models which enable more affordable and secure
rents premised on a change in the cost base, for example, build-to-rent and various
land trust arrangements
▪ Greater use of value capture arrangements such as Am C270 and the GC81 social
housing uplift requirements whereby proponents must purchase additional
development rights above nominated thresholds, through the provision of social
housing and other public benefits
▪ Greater use of affordable housing targets ‘with teeth’ as per the 6 per cent goal in
Fishermans Bend (also applied via GC81), and, perhaps
▪ Applying broad based, mandatory inclusionary zoning, pending the lessons from the
State Government’s piloting of the impacts of such requirements on its own land.
Purpose of this study
The City of Melbourne’s planning for a just, sustainable and prosperity-supporting housing
system in the City needs to anticipate this new policy environment. A good place to start is to
understand the current and projected need for affordable (including social) housing in the
City. With this key parameter established, Council can contemplate the appropriate targets
for affordable housing in the City, the various means by which the targets might be advanced
and the consequences – both positive and negative – of reaching or falling short of these
targets.
The brief issued by Council for this study called for research on these issues, to establish a
sound evidence base on which a new municipal housing policy might be developed.
approach to the study
SGS’s approach to the brief was, in part, guided by the principle that affordable housing
should be treated as a form of essential infrastructure in the planning and city building
process. That is, it should not be characterised as a discretionary social or welfare program.
Affordable housing, including social housing, is critical to the functionality of local labour
markets and it is a pre-requisite for neighbourhoods and cities that are sustainable (in the
social dimension of that word) and resilient. Accordingly, planning for affordable housing
should follow similar disciplines as those applied to other forms of social and economic
infrastructure. It should be based on projected needs taking a suitable long term view.
A second principle guiding our approach to the brief is that of subsidiarity in delivering this
essential infrastructure. As a pre-eminent planning authority for its jurisdiction, the City of
Melbourne must play a key role in identifying, measuring and locating the need for affordable
housing, in the same way it does for other forms of infrastructure. However, how this need is
fulfilled is a shared responsibility across the three spheres of governance.
As outlined above, the housing policy landscape has shifted significantly over the past decade.
The array of affordable housing supply tools available to Council and the actions expected of
it have expanded. This is particularly so in respect of planning mechanisms covering value
capture and various versions of inclusionary zoning. This does not mean, however, that the
City of Melbourne Housing Needs Analysis
11
City of Melbourne can be expected to fully meet identified affordable housing needs from its
policy levers and resources. Ideally, it would play a support role to re-invigorated and greatly
expanded social and affordable housing programs operated by the State and Commonwealth
Governments.
Structure of the report
The report is set out in six chapters. Following this introduction, Chapter 2 provides an
assessment of the need for social and affordable housing in the municipality of Melbourne, as
derived from an analysis of need at the metropolitan level. This discussion covers definitions
of housing need and the assumptions and analytical methods applied by SGS to arrive at a
range of discrete estimates of the shortfall in social and affordable housing in the municipality
as at 2016 and 2036.
Having measured aggregate need for social housing in the City, Chapter 3 explores the
rationale for Council involvement in meeting this need, recognising that this has not been a
mainstream function of local government in Victoria in the past. This rationale is examined
from many perspectives including the value that can be created for the wider City of
Melbourne community were the City to bring about a greater stock of social and affordable
housing versus what might happen under a passive policy scenario. Also canvassed is City of
Melbourne’s special obligation to create opportunities for the most marginalised in the
community given that the City is the beneficiary of disproportionate taxpayer investment in
infrastructure and services. Finally, Chapter 3 outlines the types of households that would
benefit most from a pro-active and escalated City of Melbourne policy on social and
affordable housing provision in the City.
Chapter 4 examines the policy levers and tools Council could apply were it of a mind to
advance affordable and social housing provision in the City. The chapter covers:
▪ an overview of each mechanism/tool
▪ the benefits, scale of impact and drawbacks of each tool
▪ the household types most likely to be benefited by each tool
▪ how the tools might be implemented by Council under current legislation and state
policy settings, and
▪ the subsidy (if any) required to enable the tool to work for various household types.
In contemplating whether, and to what extent, these tools might be applied, Council will be
interested in their impact on development activity in the City and whether they would
generate a net community benefit, that is, the value they create for the City of Melbourne
community and the state as whole is greater than the costs they would generate. These
questions are taken up in Chapter 5 of the report.
Assuming that Council is interested in meeting housing need in the City, while recognising this
need has been allowed to grow to extreme proportions by the State and Commonwealth
Governments, the question arises as to the target the City of Melbourne might adopt (driven
by its own efforts) in expanding this stock of housing in the City by 2036. Various methods by
which the aggregate need identified in Chapter 2 might be scaled down to form a target for
Council’s housing policy are canvassed in Chapter 6. This final chapter also discusses the
types of packages of levers and mechanisms Council would need to apply to meet either a
high or modest municipal target for social and affordable housing.
City of Melbourne Housing Needs Analysis
12
2. MEASURING AFFORDABLE
HOUSING NEED IN MELBOURNE
This section provides an assessment of the need for social and affordable housing
in the municipality of Melbourne, as derived from an analysis of need at the
metropolitan level. This discussion covers definitions of housing need and the
assumptions and analytical methods applied by SGS to arrive at a range of
discrete estimates of the shortfall in social and affordable housing in the
municipality as at 2016 and 2036. The Inner Metro Partnership (IMP) area and
Inner Melbourne Action Plan (IMAP) plus Moonee Valley region are also
examined.
2.1 Scope and definitions
Focus on rental affordability
The focus of this study is the need for affordable and appropriate rental accommodation for
very low, low, and moderate income households in the City of Melbourne.
Mortgage stress and opportunities for households to gain affordable access to home
ownership are not within the scope of this report. This is not to diminish these issues. Rather
this scope delineation recognises the greatly different types of policy responses required to
support home ownership as distinct from securing an adequate supply of accommodation for
households that are effectively confined to the rental market for the time being if not
indefinitely.
A need or a unit of ‘demand’ for social and affordable housing arises when a moderate or
lower income household confronts moderate or severe rental stress, as elaborated in the text
box below. A state of homelessness, including marginal accommodation, signifies a need for
social and affordable housing. Households in existing social housing must also be included in
the demand for this form of housing, particularly in the contemporary context where,
because of severe shortages, social housing is effectively reserved for households on very low
incomes that would otherwise face serious rental stress in the private market.
Transitional versus permanent demand for social and affordable housing
Some households may find themselves in temporary or intermittent rental stress pending
their employment and income circumstances. Others may suffer prolonged or indefinite
rental stress. The measure of demand for affordable and social housing at any given point in
time will include both those in permanent and temporary need. Discounting the measured
requirement for social and affordable housing to account for households in transitional need
would provide misleading results. Those exiting a situation of rental stress will be replaced by
those entering this situation; in other words, a cross-sectional snapshot of demand for social
and affordable housing drawn from, say, Census data on rental stress, embodies the
dynamism in the housing careers of individual households.
That said, a degree of minor discounting – say 5 per cent or 10 per cent - may be justified in
recognition that some households in rental stress at any given time may have options to
autonomously relieve that stress, for example, by relying on their wider family to provide long
term accommodation.
City of Melbourne Housing Needs Analysis
13
Source: SGS Economics and Planning, 2019
Definition of affordable and social housing and relevant income bands
The definition of affordable and social housing used in this report is consistent with that set
out in the Planning and Environment Act 1987:
“affordable housing is housing, including social housing, that is appropriate for the
housing needs of very low, low, and moderate-income households”.
“Social housing”, in turn, is defined in the Housing Act 1983 as housing that is owned by the
Director of Housing (public housing) as well as housing that is owned or managed by
registered housing agencies (community housing).
Community housing providers are also registered and regulated by the state government
through a regulatory framework overseen and implemented by the Registrar of Housing.
The bands constituting the very low, low and moderate income households cited in the
Planning and Environment Act 1987 are established each year by order published in the
Government Gazette. The applicable ranges at the time of writing are set out in Figure 1
overleaf.
What is rental stress?
Rental stress is the situation where a moderate (or lower) income household’s rental
payments are so high that they must sacrifice on life’s necessities such as such as food,
health care, or education.
Moderate housing stress is when a household must spend more than 30 per cent of
their income on rent.
Severe housing stress is when a household must spend more than 50 per cent of their
income on rent.
Affordable housing is appropriate for very low, low and moderate-income households
in rental stress. It is not appropriate for high-income households because high housing
costs are unlikely to impact their ability to pay for necessities.
Housing
Costs
Disposable
Income
Housing
Costs
Disposable
Income
> 30%
Moderate Stress
> 50%
Severe Stress
City of Melbourne Housing Needs Analysis
14
FIGURE 1 OFFICIAL INCOME RANGES – ELIGIBILITY FOR AFFORDABLE HOUSING GENERATED UNDER THE
PLANNING AND ENVIRONMENT ACT 1987
Greater Capital City Statistical Area of Melbourne
Rest of Victoria
Source: Victoria Government Gazette No. S 256 Friday 1 June 2018
Social housing has its own set of income eligibility criteria, enabled by the Housing Act 1983.
These apply state-wide and are reproduced in the following table. Social housing eligibility
limits are somewhat tighter than those for the broader category of ‘affordable housing’ as
defined in the Planning and Environment Act 1987, especially where priority access to
accommodation is being sought by the applicant (see Figure 3).
FIGURE 2 ELIGIBILITY LIMITS – SOCIAL HOUSING
For inclusion on the general social housing wait list (register)
Annual income
Single adult
$52,156
Couple, no dependants
$79,820
Family with one or two parents and dependent children (2)
$107,640
For priority access
Single adult
$29,172
Couple, no dependants
$50,440
Family with one or two parents and dependent children (2)
$52,260
Source: Housing Vic ( https://housing.vic.gov.au/social-housing-eligibility#eligibility-criteria )
City of Melbourne Housing Needs Analysis
15
FIGURE 3 AFFORDABLE HOUSING IN CITY OF MELBOURNE
Source: SGS Economics and Planning, Vic Government websites
2.2 Method
SGS has estimated the ‘current’ (2016) and projected (2036) requirement for social and
affordable housing need in metropolitan Melbourne and in the City of Melbourne using its
Housing Assistance Demand (HAD) Model. The Inner Metro Partnership (IMP) Area (LGAs of
Melbourne, Yarra, and Port Phillip) and the Inner Melbourne Action Plan (IMAP) area plus
Moonee Valley (LGAs of Melbourne, Port Phillip, Stonnington, Yarra, Maribyrnong, and
Moonee Valley) are also examined. The original version of the HAD Model was commissioned
by the State Government to assist in the strategic planning of a range of housing services
including investment in social housing.
The Model is described in Appendix 1.
2.3 Current demand for social and affordable housing
Metropolitan Melbourne
SGS estimates that in 2016, the demand for social and affordable housing across metropolitan
Melbourne exceeded 231,000 households. As shown in Figure 4, this demand includes
individuals who are homeless (20,500), households who currently reside in social housing
(49,000), and households with moderate incomes (or lower) who are experiencing rental
stress (162,000).
All housing in City of Melbourne
Affordable housing
Affordable rental
housing
Social
housing
Available to households on
incomes up to $61k
(singles),
$91k (couples) and $127k
(families)
Rental or ownership tenure
Private or public landlord
(Priority access) available to
households on incomes up to
$29k
(singles), $50k (couples)
and $52k (families)
Stock owned by State or
Registered not for profit
providers
City of Melbourne Housing Needs Analysis
16
FIGURE 4: METROPOLITAN MELBOURNE DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING,
2016
Source: SGS Economics and Planning, 2019
Figure 5 presents a more detailed segmentation of these results, showing that demand for
social and affordable housing represents 13 per cent of all households. Households in the
private rental market earning very low incomes are worst affected, with 22 per cent requiring
assistance and over 60 per cent experiencing severe rental stress.
FIGURE 5: METROPOLITAN MELBOURNE HOUSING MARKET SEGMENTATION, 2016
Other
households
(a)
Moderate
rental
stress
(b)
Severe
rental
stress
(c)
Outside
private
market
(d)
Total
households
(a + b + c + d)
Quantum
of Demand
(b + c + d)
Demand
share of
total
households
Homeless
NA
NA
NA
20,429
20,429
20,429
100%
Living in social
housing
NA
NA
NA
48,978
48,978
48,978
100%
Very low
income
households
300,997
30,359
52,672
NA
384,027
83,031
22%
Low income
households
279,465
35,822
14,837
NA
330,124
50,659
15%
Moderate
income
households
320,328
23,577
4,564
NA
348,470
28,141
8%
Above
moderate
income
households
641,333
NA
NA
NA
641,333
0
0%
All households
1,542,123
89,758
72,073
69,407
1,773,361
231,238
13%
Source: SGS Economics & Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
For all the categories of demand considered above, Figure 6 shows that lone person
households form the largest component of demand, followed by one parent families. This is
particularly true of those suffering severe rental stress. Along with the results shown in Figure
City of Melbourne Housing Needs Analysis
17
5, this indicates that the largest share of demand is comprised of the most vulnerable
households – that is, those who have very low incomes, have lower income generation
potential (being single income households at most), and have dependents (i.e. lone parent
families).
FIGURE 6: DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING (2016) BY HOUSEHOLD TYPE
Note: ‘Other family’ refers to related individuals who are not parents/children (e.g. siblings, grandparents, uncles/aunts)
Source: SGS Economics and Planning
The figures below present the spatial distribution of existing demand for social and affordable
housing across metropolitan Melbourne, disaggregated by the categories considered in Figure
5.
Homeless persons and those living in social housing (Figure 7) are most common in inner
Melbourne (LGAs of Melbourne, Yarra, and Port Phillip) and the outer south east (LGAs of
Greater Dandenong and Casey). However, it is important to note that, compared to other
cohorts, the locations of these groups are not as strongly determined by individual choice.
Rather, factors such as the location of existing social housing stock or homelessness services
play a significant role.
Figure 8, Figure 9, and Figure 10 present the spatial distribution of demand for rental
households in the very low, low, and moderate income groups respectively. In each map, the
size of the bubble represents the quantum of demand, while the shade of the region shows
the share of households (within each income group) which require social and affordable
housing.
Unsurprisingly, the quantum and share of demand for all income groups is greatest in central
Melbourne, and the City of Melbourne in particular. This is best illustrated by Figure 10, which
shows that almost 40 per cent of households on moderate incomes experience rental stress
within the City of Melbourne. This reflects two driving factors; rents which are beyond the
affordable threshold for households on moderate incomes or less, and the decision of many
these households to bear rental stress to live in these areas.
While very low income households have the highest rate of demand within the City of
Melbourne (over 50 per cent), this does not improve significantly in outer municipalities, with
over 20 percent of very low income households requiring social and affordable housing in
both the middle ring and growth areas of Melbourne.
City of Melbourne Housing Needs Analysis
18
FIGURE 7: HOUSEHOLDS LIVING IN SOCIAL HOUSING AND HOMELESS HOUSEHOLDS (INDIVIDUALS) BY LGA
(2016)
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
City of Melbourne Housing Needs Analysis
19
FIGURE 8: VERY LOW INCOME RENTAL HOUSEHOLDS - DEMAND BY LGA (2016)
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
City of Melbourne Housing Needs Analysis
20
FIGURE 9: LOW INCOME RENTAL HOUSEHOLDS - DEMAND BY LGA (2016)
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
City of Melbourne Housing Needs Analysis
21
FIGURE 10: MODERATE INCOME RENTAL HOUSEHOLDS - DEMAND BY LGA (2016)
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
City of Melbourne Housing Needs Analysis
22
City of Melbourne
The demand for social and affordable housing within the City of Melbourne, by income group
and household type are show in Figure 11 and Figure 12. Over 20,000 households or 30 per
cent of all households are in need
1
of housing assistance, which is high when compared to the
metropolitan average of 13 per cent. This is particularly striking when considering the income
profile of the municipality, with 46 per cent of households earning above moderate incomes,
compared to the metropolitan share of 36 per cent.
Figure 13 to Figure 16 present the same analysis for the Inner Metro Partnership (IMP) region
and Inner Melbourne Action Plan (IMAP) region plus Monee Valley. Existing need within these
areas is less acute (although still greater than the metropolitan average), with 24 per cent and
20 percent of households in need of housing assistance within the IMP and IMAP regions
respectively.
FIGURE 11: CITY OF MELBOURNE HOUSING MARKET SEGMENTATION BY INCOME GROUP, 2016
Other
households
Moderate
rental
stress
Severe
rental
stress
Outside
private
market
Total
households
Quantum
of
Demand
Demand
share of total
households
Homeless
NA
NA
NA
1,725
1,725
1,725
100%
Living in social
housing
NA
NA
NA
3,970
3,970
3,970
100%
Very low income
households
6,049
772
5,706
NA
12,526
6,477
52%
Low income
households
4,318
1,998
2,217
NA
8,533
4,215
49%
Moderate income
households
6,570
2,985
897
NA
10,452
3,882
37%
Above moderate
income households
31,392
NA
NA
NA
31,392
0
0%
All households
48,328
5,755
8,820
5,695
68,598
20,269
30%
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
FIGURE 12: CITY OF MELBOURNE HOUSING MARKET SEGMENTATION BY HOUSEHOLD TYPE, 2016
Other
households
Moderate
rental
stress
Severe
rental
stress
Outside
private
market
Total
households
Quantum
of
Demand
Demand
share of total
households
Couple family with
children
5,818
377
279
377
6,852
1,033
15%
Couple family with
no children
14,574
1,322
1,151
276
17,323
2,749
16%
One parent family
2,092
246
337
882
3,556
1,464
41%
Other family
1,921
400
555
99
2,975
1,054
35%
Group household
6,268
1,366
2,458
209
10,301
4,033
39%
Lone person
household
17,655
2,044
4,039
3,853
27,590
9,935
36%
All households
48,328
5,755
8,820
5,695
68,598
20,269
30%
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
1
Note that this includes 1,725 homeless persons and 3,970 households already living in social housing
City of Melbourne Housing Needs Analysis
23
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
FIGURE 13: INNER METRO PARTNERSHIP (IMP) REGION HOUSING MARKET SEGMENTATION BY INCOME
GROUP, 2016
Other
households
Moderate
rental
stress
Severe
rental
stress
Outside
private
market
Total
households
Quantum
of
Demand
Demand share
of total
households
Homeless
NA
NA
NA
3,690
3,690
3,690
100%
Living in social
housing
NA
NA
NA
11,540
11,540
11,540
100%
Very low
income
15,093
1,754
8,616
NA
25,464
10,371
41%
Low income
11,374
4,100
3,790
NA
19,264
7,890
41%
Moderate
income
17,022
5,837
1,667
NA
24,526
7,504
31%
Above
moderate
income
84,085
NA
NA
NA
84,085
0
0%
All households
127,575
11,691
14,073
15,230
168,569
40,994
24%
CoM share of
IMP Region
38%
49%
63%
37%
41%
49%
Source: Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
FIGURE 14: INNER MELBOURNE ACTION PLAN (IMAP) PLUS MOONEE VALLEY HOUSING MARKET
SEGMENTATION BY INCOME GROUP, 2016
Other
households
Moderate
rental
stress
Severe
rental
stress
Outside
private
market
Total
households
Quantum
of
Demand
Demand share
of total
households
Homeless
NA
NA
NA
5,201
5,201
5,201
100%
Living in social
housing
NA
NA
NA
17,570
17,570
17,570
100%
Very low
income
33,404
3,617
12,663
NA
49,683
16,280
33%
Low income
26,446
7,225
5,306
NA
38,978
12,532
32%
Moderate
income
36,253
8,558
2,203
NA
47,014
10,761
23%
Above
moderate
income
146,081
NA
NA
NA
146,081
0
0%
All households
242,185
19,400
20,172
22,771
304,528
62,343
20%
CoM share of
IMAP (plus
Moonee Valley)
20%
30%
44%
25%
23%
33%
Source: Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
City of Melbourne Housing Needs Analysis
24
FIGURE 15 INNER METRO PARTNERSHIP (IMP) REGION HOUSING MARKET SEGMENTATION BY HOUSEHOLD
TYPE, 2016
Other
households
Moderate
rental stress
Severe rental
stress
Outside
private
market
Quantum of
Demand
Demand
share of total
households
Couple family
with children
19,807
742
575
1,064
2,381
11%
Couple family
with no children
38,134
2,596
1,939
843
5,378
12%
One parent
family
6,233
651
700
2,760
4,111
40%
Other family
3,261
599
702
263
1,564
32%
Group
household
15,623
2,551
3,547
436
6,534
29%
Lone person
household
44,517
4,551
6,610
9,865
21,026
32%
All households
127,575
11,691
14,073
15,230
40,994
24%
CoM share of
IMP Region
38%
49%
63%
81%
49%
0%
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
FIGURE 16 INNER MELBOURNE ACTION PLAN (IMAP) PLUS MOONEE VALLEY HOUSING MARKET
SEGMENTATION BY HOUSEHOLD TYPE, 2016
Other
households
Moderate
rental stress
Severe rental
stress
Outside
private
market
Quantum of
Demand
Demand
share of total
households
Couple family
with children
53,630
1,532
1,039
1,623
4,194
7%
Couple family
with no children
68,796
4,374
2,912
1,296
8,582
11%
One parent
family
15,074
1,412
1,274
4,178
6,864
31%
Other family
5,358
868
877
404
2,148
29%
Group
household
23,676
3,809
4,506
641
8,956
27%
Lone person
household
75,650
7,406
9,564
14,629
31,599
29%
All households
242,185
19,400
20,172
22,771
62,343
20%
CoM share of
IMP Region
20%
30%
44%
56%
33%
0%
Source: SGS Economics and Planning, based on ABS Census 2016 and VIF 2016
Note: Other households includes both rental households who are not in rental stress and non-rental households, and does
not contribute to demand for social and affordable housing
These results are a robust estimate of the number of households within the categories which
constitute demand for affordable housing. However, this likely includes households who meet
the definition of being in rental stress but do not need to forego life’s necessities such as
food, health care and education, and therefore do not necessarily contribute to demand for
affordable housing. Examples of households that might fall into this category could include:
City of Melbourne Housing Needs Analysis
25
▪ Students with relatively low incomes but few other expenses or those who can draw on
savings or family support for the limited time during which they complete their education
▪ Working holiday makers (e.g. those who choose to pay high housing costs for the benefits
it provides, and often in the short term), and
▪ Households that are only temporarily in rental stress.
Determining which of these households genuinely contribute to demand for social and
affordable housing is difficult as more detailed information about incomes, external
assistance and expenditure are not available.
Students households, housing stress and demand for housing assistance
A consequence of having several major universities and vocational education and training
(VET) institutes in the City is that students form a large component of residents. In 2016, the
38,700
2
tertiary students living in the City constituted 32 per cent of the resident population.
Eighty-nine per cent of students study full-time. Most tertiary students reside in rental
properties as group households, while lone person households and couples with no children
are the next most common household types (see Figure 17). A significant number of students
(4,700 or 12 per cent) also reside in non-private dwellings. These are college residences,
boarding houses, and hotels/motels.
FIGURE 17: COUNT OF TERTIARY STUDENTS BY HOUSEHOLD TYPE IN THE CITY OF MELBOURNE (2016)
Source: SGS Economics and Planning, based on ABS Census 2016
While many households containing students experience rental stress (based on the
comparison of rental costs to incomes) it is likely that not all need of housing assistance. The
incomes of students may be supplemented by support from universities or family or from
savings. Furthermore, it might be argued that some students choose temporary rental stress
willingly while completing studies to advance their careers. Accurately determining which
student households genuinely require affordable housing is difficult, due to the limitations of
available data to measure these characteristics. Figure 18 displays the locations of students
who live in private dwellings
3
in the City. This map suggests concentrations of students
residing in the CBD, City North, Parkville, and Kensington.
2
ABS Census 2016
3
While not explicitly addressed in Census definitions, purpose-built student accommodation (PSBA) is most likely recorded
as private accommodation
City of Melbourne Housing Needs Analysis
26
FIGURE 18: LOCATION OF TERTIARY STUDENTS LIVING IN PRIVATE DWELLINGS (2016)
Source: ABS Census 2016
Figure 19 shows students living in non-private dwellings, with the greatest concentration in
Parkville which includes the University of Melbourne residential colleges. Students in these
non-private dwellings are not included in the estimation of households in rental stress
City of Melbourne Housing Needs Analysis
27
FIGURE 19: LOCATION OF TERTIARY STUDENTS LIVING IN NON-PRIVATE DWELLINGS (2016)
Source: ABS Census 2016
City of Melbourne Housing Needs Analysis
28
Demand for social and affordable housing net of student households
The counts of student households in rental stress by household type are shown in Figure 20.
It is estimated that over 11,000
4
households with students in the City of Melbourne are in
rental stress. Consistent with Figure 17, which reports the living arrangements of the entire
student population, lone person households and group households make up the largest share
of tertiary student households in rental stress.
As discussed above, some of these households may not require affordable housing despite
being in rental stress. However, this distinction is both difficult to define and to measure.
Research conducted for the City of Sydney, which included student surveys and interviews
with student advocacy groups, found evidence supporting the need for affordable housing for
students. The findings highlight both the short and long term benefits (or disbenefits of a lack
of affordable housing options), such as:
▪ Students being productive members of the community, who contribute to the local
vibrancy and provide key services (e.g. hospitality, retail, childcare). A lack of
affordable housing options reduces their ability to live and work in the City
▪ High rent means that students have to work more, leaving less time to study. This has
negative impacts on their resilience, their mental health, and their ability to finish
their studies or study enough – directly opposing why they’re here
▪ Education is one of Australia’s top three international exports. Ensuring a competitive
housing offer is key to maintaining this
The final column of Figure 20 provides an adjusted measure of demand for social and
affordable housing which assumes that, for student households, only those containing
children require housing assistance
5
.
Based on this assumption, approximately 9,450 households of all types in the City of
Melbourne need social and affordable housing.
Although the base demand estimate (column 1) is likely to overstate demand, the adjusted
estimate, excluding the majority of student households, is highly conservative and could be
interpreted as the absolute lower bound estimate of true demand.
While assessing the detailed housing assistance needs of students, and government’s role in
providing this assistance, is beyond the scope of this study, it can be stated that student
demand is at most 11,000 dwellings. This means that the total existing demand for social and
affordable housing in the City of Melbourne lies between 9,400 and 20,000 dwellings.
4
See Appendix 2 for further detail
5
See Appendix 2 for further detail
City of Melbourne Housing Needs Analysis
29
FIGURE 20: HOUSEHOLDS IN RENTAL STRESS IN IN THE CITY OF MELBOURNE ADJUSTED FOR TERTIARY
STUDENTS (2016)
Demand for social
and affordable
housing
Tertiary student
households in rental
stress
Discount applied to
adjust demand total
Adjusted demand for
social and affordable
housing
Couple family
with children
1,033
228
0
1,033
Couple family
with no children
2,749
1,778
1,778
971
One parent
family
1,464
197
0
1,464
Other family
1,054
923
923
131
Group household
4,033
3,787
3,787
246
Lone person
household
9,935
4,345
4,345
5,590
All households
20,269
11,258
10,833
9,436
Source: SGS Economics and Planning, based on ABS Census 2016
2.4 Projected demand for social and affordable housing
Metropolitan Melbourne
Metropolitan Melbourne is expected to grow by almost 770,000 households between 2016
and 2036. Driven by an ageing population, lone person households will contribute the largest
share of this change, with a growth of over 240,000 households.
FIGURE 21: HOUSEHOLDS BY TYPE, 2016 - 2036
Source: SGS Economics & Planning, based on ABS Census 2016 and VIF 2016
City of Melbourne Housing Needs Analysis
30
FIGURE 22: FORECAST DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING, METROPOLITAN
MELBOURNE, 2016 - 2036
2016
2036
Change
AAGR
Couple family with children
29,274
39,282
10,008
1.5%
Couple family with no children
33,711
49,631
15,920
2.0%
One parent family
40,488
59,075
18,588
1.9%
Other family
5,266
7,026
1,760
1.5%
Group household
20,892
26,560
5,668
1.2%
Lone person household
101,608
156,467
54,859
2.2%
Total
231,238
338,040
106,802
1.9%
Very low income
152,438
223,573
71,135
1.9%
Low income
50,659
73,394
22,735
1.9%
Moderate income
28,141
41,073
12,932
1.9%
Total
231,238
338,040
106,802
1.9%
Source: SGS Economics and Planning, based on ABS Census 2016, VIF 2016, and City of Melbourne household forecasts
Assuming no changes to the existing market structure
6
(such as the distribution of incomes
and rents and the efficiency of matching between rental properties with households),
demand for social and affordable housing will grow by 107,000 over the 20-year period. By
2036, this will represent 13.3 per cent of all households. Figure 22 segments this demand
twice, once by household type and once by income group. Under this baseline scenario, the
greatest need will be expressed by lone person households and those on very low incomes.
A third segmentation of demand, which will influence the nature of social and affordable
housing required, is the presence of household members with special needs due to a
disability or mental health condition. These households are more likely to require greater
access to health services, public transport, and may require specialist dwelling forms.
These special needs households satisfy the following criteria
7
:
▪ They have one or more household members who, due to disability or mental illness,
are ‘profoundly limited in core activities’ (i.e. a person is unable to do, or always
needs help with a core-activity task such as communication, mobility or self-care)
▪ Have a low income (defined as falling within the bottom 40
th
percentile of equivalised
household income)
▪ Occupy a dwelling under a rental or rent-free tenure. This includes households
currently in social housing but excludes those in life-tenure arrangements such as
retirement villages (as these are similar to home ownership).
This does not represent all households with a member who has a disability, but rather the
groups which will be most vulnerable to homelessness, and in need of housing support with
special considerations.
Between 2016 and 2036 demand from this group will increase in line with population growth,
from 19,000 to almost 28,000 households. Although lone person households form the largest
component of this demand, a large share is also formed by one parent families.
6
Further detail provided in Appendix 1
7
These households are assumed to be a subset of the overall demand measured previously (i.e. 100 per cent overlap) and
cannot be further segmented by income groups. This is due to the use of an external data source to measure disability and
mental health conditions. Further detail provided in appendix
City of Melbourne Housing Needs Analysis
31
FIGURE 23: FORECAST DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING DUE TO DISABILITY
OR MENTAL HEALTH CONDITION, METROPOLITAN MELBOURNE, 2016 - 2036
2016
2036
Change
AAGR
Couple family with children
1,998
2,724
726
1.6%
Couple family with no children
411
649
238
2.3%
One parent family
7,587
10,762
3,175
1.8%
Group household
213
314
101
2.0%
Lone person household
8,876
13,349
4,473
2.1%
Total
19,084
27,797
8,713
1.9%
Source: SGS Economics and Planning, based on ABS Survey of Disability, Aged, and Carers (2015) and VIF 2016.
City of Melbourne Housing Needs Analysis
32
Distribution scenarios
The forecast demand for 338,000 social and affordable housing could be accommodated
across metropolitan Melbourne in a range of ways, based on factors such as maximising the
opportunities available to tenants, cost minimisation to providers, or integration with private
dwelling stock. This section considers four different approaches to distributing future
demand. The first is to simply weight the distribution of social and affordable housing to align
with the future population distribution; the second also uses a weighting method but carries
out the distribution for each household type in turn; the third also uses a household type
specific weighting method but excludes less accessible parts of the city from the distribution;
and the fourth includes a separate distribution procedure for the identified ‘Key Workers’
within the overall group of households forecast to be in need of affordable housing.
Each of these distribution scenarios are explained in the following pages.
Scenario 1 – Household (total) weighted distribution
Scenario 1 allocates future demand for social and affordable housing in alignment with the
total number of households across the municipalities of Melbourne. This results in the City of
Melbourne accommodating 6.2 per cent of metropolitan demand. This distribution will result
in spatial integration between social and affordable housing and households in the private
market and can be interpreted as a ‘fair share’ scenario.
Scenario 2 – Household (by type) weighted distribution
Scenario 2 refines the method used in Scenario 1. Here, future demand for social and
affordable housing generated by each household type is considered separately. The demand
for each household type is distributed in alignment with the number of households of that
type across the municipalities of Melbourne. This still represents a ‘fair share’ scenario but
avoids the misalignment of household types
8
that occurs under scenario 1.
Scenario 3 - Household weighted distribution in accessible locations
This scenario assumes that the future demand for social and affordable housing will be
excluded from areas of Melbourne which have a poor
9
level of accessibility to jobs and
services
10
. This is achieved using a measure known as effective job density, as shown below.
8
E.g. Casey has the greatest share of households in 2036, which are primarily family households. On the other hand, lone
person households form the greatest share of demand for social and affordable housing across metropolitan Melbourne.
Under Scenario 1, Casey would be allocated an inappropriately large amount of lone person household demand, which will
not occur under Scenario 2
9
Areas with an EJD in the lowest 25
th
percentile are excluded
10
This is based on the current (2016) state, and not a modelled future scenario (e.g. including future infrastructure)
City of Melbourne Housing Needs Analysis
33
FIGURE 24: EFFECTIVE JOB DENSITY (2016)
Source: SGS Economics and Planning
Figure 24 illustrates accessibility across metropolitan Melbourne in 2016, showing that the
central city and inner east perform best, while the western and northern growth areas have
poorer access to jobs and services.
WHAT IS EFFECTIVE JOB DENSITY?
EJD indicates the accessibility to jobs in a given area based on the location of
jobs, both in the area and how long it takes to get to other jobs across
Melbourne. It is linked to the transport networks and infrastructure, a high EJD
can be a result of having a large pool of employment nearby or being well
connected to more distant employment.
For a given spatial zone,
Where:
−
−
−
−
−
−
City of Melbourne Housing Needs Analysis
34
FIGURE 25: SCENARIO 3 - DISTRBUTION OF DEMAND FOR LONE PERSON HOUSEHOLDS (2036)
Source: SGS Economics and Planning
In Scenario 3, the geographic scope for allocating demand is restricted by excluding areas
which have an EJD in the lowest quartile. Next, demand for social and affordable housing is
allocated based on the relative quantum of households (i.e. all households, regardless of
whether they require affordable housing) within this area. Figure 25 presents this restricted
geographic scope (i.e. the yellow shaded area has relatively low accessibility), and the
weighting distribution for lone person households
11
within the area.
Scenario 4 – Key worker adjusted distribution
This scenario is designed to allocate demand for affordable housing in a manner which
prioritises the needs of Key Workers. That is, it attempts to predict the demand for social and
affordable housing spatially to align with the workplaces of Key Workers.
An integral component of this analysis is the definition of what constitutes Key Workers.
While the term ‘key worker’ is widely used, it has no accepted definition, and its use can lead
to confusion. It is often interpreted as referring to workers that provide essential services
(e.g. police officers, fire services, nurses and teachers). However, unless early in their career,
workers in these occupations are unlikely to fall within the very low, low or moderate
household income bands, particularly where they reside with another income earner. Non-
11
Each of the other 5 household types use their corresponding distributions
City of Melbourne Housing Needs Analysis
35
tertiary educated key workers – such as child carers, hospitality workers, cleaners, delivery
drivers and chefs – are more likely to have lower incomes and experience housing stress.
It is therefore difficult to identify Key Workers based on observable characteristics (e.g.
occupation). It could be argued that all workers are ‘key’ in some aspect, whether it be to the
wellbeing of their firm, industry, or local economy/community where they are employed.
Therefore, the objective of this fourth scenario can be viewed as solving a two-step problem:
▪ Of the households in need of housing assistance, which include Key Workers and how
can they be identified?
▪ In what locations across metropolitan Melbourne, is social and affordable housing
required to cater for the needs of these Key Worker households?
While individuals across all three income groups (very low, low, and moderate) may be
engaged in the workforce from time to time, it is likely that those in the ‘Moderate income’
category derive most of their earnings from employment, and are the individuals implied by
the term Key Worker. Those in the lower income categories are more likely to depend on
other sources of income (e.g. government assistance, pension, superannuation) and therefore
are less likely to work full time. In Greater Melbourne (GCCSA), 68 per cent of individuals
(aged over 20 and not studying) earning a moderate income were employed full time,
compared to only 33 per cent for those earning a low income and just 4 per cent for those
earning a very low income (ABS Census 2016). Therefore, in the following analysis it has been
assumed that all moderate income households contain Key Workers.
For context, Appendix 3 provides additional analysis of the income characteristics of Key
Workers, using a selected group of occupations. This illustrates the dispersed income
distributions for occupations which are often referred to as Key Worker, with some
(particularly essential services such as teachers/emergency services) primarily earning above
moderate incomes. Note that the analysis is conducted for lone persons, as the income
characteristics of other household types are difficult to determine (e.g. a moderate income
couple family household may have one member earning an above moderate income while
the other earns a very low income).
This scenario applies the same assumptions as Scenario 3 for those in-need households in the
Very Low and Low income categories but adopts an employment-weighted distribution for in-
need households in the Moderate income category. As a result, those locations which host a
large shares of moderate income jobs have been assigned a higher share of the total social
and affordable housing demand which stems from moderate income households. This
allocation of demand from moderate income households has been derived via the following
process:
▪ Establish the existing relationship between income groups and industry classifications
(1-digit ANZSIC 2006), shown below in Figure 26
▪ Apply this distribution to SGS’s employment by industry forecasts, which will reflect
changes to both the spatial and industry distribution of employment in Greater
Melbourne. A continuing transition to a knowledge and service-sector dominated
economy will result in two key outcomes for the City of Melbourne:
▪ An increased concentration of employment, as agglomeration effects intensify,
will result in the Melbourne LGA containing 19 per cent of employment in 2036,
compared to 13 per cent in 2016
▪ Income profiles of those who work in the City of Melbourne will change in
response to the shift towards the knowledge intensive economy
▪ Use the resulting forecast of moderate income jobs to distribute metropolitan
demand for social and affordable across LGAs.
City of Melbourne Housing Needs Analysis
36
FIGURE 26: INCOME DISTRIBUTION BY INDUSTRY (GREATER MELBOURNE)
Very Low
Income
Low Income
Moderate
Income
Above
Moderate
Income
Agriculture, Forestry and Fishing
20%
26%
27%
26%
Mining
3%
5%
16%
76%
Manufacturing
9%
18%
33%
40%
Electricity, Gas, Water and Waste Services
3%
8%
26%
63%
Construction
9%
15%
29%
47%
Wholesale Trade
9%
16%
32%
43%
Retail Trade
36%
24%
23%
17%
Accommodation and Food Services
50%
22%
20%
8%
Transport, Postal and Warehousing
9%
17%
34%
40%
Information Media and Telecommunications
9%
9%
21%
60%
Financial and Insurance Services
4%
9%
24%
63%
Rental, Hiring and Real Estate Services
10%
16%
30%
44%
Professional, Scientific and Technical Services
8%
10%
22%
59%
Administrative and Support Services
22%
24%
28%
26%
Public Administration and Safety
5%
9%
25%
60%
Education and Training
17%
16%
23%
44%
Health Care and Social Assistance
15%
23%
29%
33%
Arts and Recreation Services
31%
18%
23%
28%
Other Services
23%
25%
30%
23%
Total
17%
18%
26%
39%
Source: ABS Census 2016
City of Melbourne
The City of Melbourne is forecast
12
to accommodate an additional 193,000 people or 88,000
households between 2016 and 2036, resulting in a total of 341,000 people and 157,000
households in 2036. The results of applying the four scenario distribution methods are
summarised in Figure 27. Of the four scenarios, Scenarios 3 and 4, which prioritise locations
which have high accessibility and Key Worker employment respectively, show the most
demand for social and affordable housing.
12
Source: City of Melbourne forecasts
City of Melbourne Housing Needs Analysis
37
FIGURE 27: TOTAL DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING SCENARIOS BY LGA (2036)
Source: SGS Economics and Planning, based on ABS Census 2016, VIF2016, and City of Melbourne household forecasts
City of Melbourne Housing Needs Analysis
38
Figure 28 and Figure 29 disaggregate the demand
13
allocated to the City of Melbourne by
household type. These indicate that:
▪ Scenario 1 results in demand for 21,000 social and affordable housing dwellings
within the City of Melbourne by 2036, or 13.3 per cent of the total dwelling stock in
the City of Melbourne
▪ Scenario 2 results in demand for 26,000 social and affordable housing dwellings
within the City of Melbourne by 2036, or 16.6 per cent of the total dwelling stock in
the City of Melbourne
▪ Scenario 3 results in higher demand within the City of Melbourne, and lower demand
within most Growth Area municipalities (see Figure 27). In this case, there will be
demand for 30,000 social and affordable housing dwellings within the City of
Melbourne by 2036, or 19.2 per cent of total dwelling stock in the City of Melbourne
▪ Scenario 4 results in demand for almost 34,000 social and affordable housing
dwellings within the City of Melbourne, or 21.5 per cent of total dwelling stock. This
is the highest across the four scenarios
▪ Once existing stock has been accounted for, between 16,900 and 29,700 additional
social and affordable housing dwellings will be required between 2016 and 2036
depending on which of the scenarios is applied.
Of this demand, over 50 per cent is for lone person households, which is a result of the
relatively high share of this household type forecast within the municipality. Group
households also form a large component, as a common housing choice for those who work in
the CBD and surrounding precincts. While households with dependents form a relatively small
share of demand, between 2,500 and 6,000 households, they will likely require a higher depth
of subsidy due to their dwelling requirements and the expenses of dependents.
FIGURE 28: DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING BY HOUSEHOLD TYPE IN THE
CITY OF MELBOURNE (2036)
Scenario 1 (2036)
Scenario 2 (2036)
Scenario 3 (2036)
Scenario 4 (2036)
Couple family with
children
2,423
850
1,053
1,681
Couple family with no
children
3,061
3,288
3,972
4,814
One parent family
3,643
1,621
2,002
2,269
Other family
433
851
970
993
Group household
1,638
5,221
5,698
5,563
Lone person household
9,650
14,179
16,444
18,320
Total
20,848
26,009
30,139
33,640
Demand as per cent of
total households in
CoM
13.3%
16.6%
19.2%
21.5%
Existing Social Housing
Stock
3,970
3,970
3,970
3,970
Source: SGS Economics and Planning, based on ABS Census 2016, VIF2016, and City of Melbourne household forecasts
13
Note that the demand scenarios are derived from a metropolitan estimate which include student households. However,
at a metropolitan scale, students do not comprise a large share of households in need of assistance. This means that the
impact on the scenario estimates for the City of Melbourne is small (unlike the present-day analysis of the City of
Melbourne presented in the prior section)
City of Melbourne Housing Needs Analysis
39
FIGURE 29: DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING IN THE CITY OF MELBOURNE
(2036)
Source: SGS Economics and Planning, based on ABS Census 2016, VIF2016, and City of Melbourne household forecasts
Figure 30 segments the results by income groups. Very low income households comprise the
largest component of demand across all scenarios for the City of Melbourne, IMP region and
IMAP region.
While low income households form the second largest component of demand in the City of
Melbourne for scenarios 1 to 3, this is not the case under scenario 4. The municipality has the
highest concentration of employment within metropolitan Melbourne, with this
agglomeration expected to intensify in the future. The objective of scenario 4, which is to
align demand for social and affordable housing with the workplaces of Key Workers, therefore
results in the largest allocation being to the City of Melbourne.
An important observation to note is that the share of demand (relative to total households) is
lower in all scenarios (13.3 per cent to 21.5 per cent) than the estimated share in 2016 (30
per cent). This reflects the fact that the distributional assumptions used for each scenario do
not preserve existing patterns such as the high rate of social housing in City of Melbourne
(relative to other municipalities) or the choice of some cohorts to bear rental stress. As
discussed above, the measured number of households in rental stress may include groups
such as students or working holidaymakers, some of whom will have high housing costs
relative to incomes yet are not in housing stress and therefore do not contribute to demand
for social and affordable housing
14
.
14
Note that although the issue is present for the metropolitan forecast of demand, the impact on the City of Melbourne is
less acute than that reported in section 2.3. This is because these households have been distributed across all LGAs
City of Melbourne Housing Needs Analysis
40
FIGURE 30: DEMAND (HOUSEHOLDS) FOR SOCIAL AND AFFORDABLE HOUSING BY INCOME GROUP IN THE
CITY OF MELBOURNE, INNER METRO PARTNERSHIP REGION, AND INNER MELBOURNE ACTION PLAN (IMAP)
REGION PLUS MOONEE VALLEY (2036)
Scenario 1
(2036)
Scenario 2
(2036)
Scenario 3
(2036)
Scenario 4
(2036)
Very low
income
IMP Region
26,089
30,608
35,591
35,591
IMAP (plus Moonee Valley)
42,649
48,398
56,661
56,661
City of Melbourne
13,789
16,158
18,787
18,787
Low income
IMP Region
8,565
11,020
12,734
12,734
IMAP (plus Moonee Valley)
14,001
16,949
19,716
19,716
City of Melbourne
4,527
6,054
6,993
6,993
Moderate
income
IMP Region
4,793
6,859
7,870
10,820
IMAP (plus Moonee Valley)
7,835
10,348
11,942
13,426
City of Melbourne
2,533
3,798
4,360
7,860
Total
demand
IMP Region
39,447
48,487
56,194
59,145
IMAP (plus Moonee Valley)
64,485
75,695
88,319
89,804
City of Melbourne
20,848
26,009
30,139
33,640
Demand
share of total
households
IMP Region
13.3%
16.4%
19.0%
20.0%
IMAP Region
13.3%
15.6%
18.2%
18.5%
City of Melbourne
13.3%
16.6%
19.2%
21.5%
Existing
social
housing
stock
IMP Region
11,540
11,540
11,540
11,540
IMAP (plus Moonee Valley)
17,570
17,570
17,570
17,570
City of Melbourne
3,970
3,970
3,970
3,970
Source: SGS Economics and Planning, based on ABS Census 2016, VIF2016, and City of Melbourne household forecasts
City of Melbourne Housing Needs Analysis
41
Age and disability
In addition to identifying the quantum of demand, the typology of affordable housing
required will be an important consideration when planning future supply. Figure 31, which
presents the forecast population by age for the City of Melbourne, highlights the effect of an
ageing population, which sees the 65+ year old age group growing fastest within the
municipality. This trend is reflected in the results above, which show high demand stemming
from lone person households and couple families with no children.
FIGURE 31: POPULATION BY AGE IN THE CITY OF MELBOURNE
2016
2036
Change
AAGR
0-19 years old
21,459
56,635
35,176
5.0%
20-40 years old
90,236
168,812
78,576
3.2%
40-65 years old
26,359
83,261
56,902
5.9%
65+ years old
9,986
32,014
22,028
6.0%
Total Population
148,040
340,722
192,682
4.3%
Source: City of Melbourne, 2018
For the City of Melbourne to provide for households with a disability at the same rate as the
metropolitan average, in the order of 1,650 (scenario 1) to 2,000 (scenario 2) dwellings would
be required by 2036
15
. Over 70 per cent of these will be lone person households. Note that
the households considered in this section are those with profound disabilities, meaning that
they likely have more specialised requirements than the accessibility standards preferred by
affordable housing in general.
For those with limited mobility, the ability to perform common tasks such as carrying
shopping into the home, cooking a meal, using the bathroom or accessing items from high
shelves may be unnecessarily limited by the physical design of their home. The Liveable
Housing Design guidelines were introduced in 2010 to address this issue and encourage those
in the residential design and construction industry to make homes safer for people of all ages
and capabilities, particularly the elderly and those with limited mobility. A summary of the
design principles from the Liveable Housing Design guidelines is presented in the break out
box below.
15
Derived using the metropolitan forecast of disability demand (Figure 23) and the assumptions that the ratio of disability
demand to the quantum of total demand (by household type) is the same in the City of Melbourne.
THE LIVEABLE HOUSING DESIGN GUIDELINES
1) There is a safe, continuous, step-free pathway from the street entrance and/or
parking area to a dwelling entrance that is level
2) There is at least one level entrance into the dwelling to enable home occupants to
easily enter and exit the dwelling
3) Where the parking space is part of the dwelling access, it should allow a person to
open their car doors fully and easily move around the vehicle
4) Internal doors and corridors facilitate comfortable and unimpeded movement
between spaces
5) The entry level has a toilet to support easy access for home occupants and visitors
6) The bathroom and shower is designed for easy and independent access for all home
occupants
City of Melbourne Housing Needs Analysis
42
7) The bathroom and toilet walls are built to enable grabrails to be safely and
economically installed
8) The bathroom and toilet walls are built to enable grabrails to be safely and
economically installed
9) Where installed, stairways are designed to reduce the likelihood of injury and enable
future adaptation
10) The kitchen space is designed to support ease of movement between fixed benches
and to support easy adaptation
11) The laundry space is designed to support ease of movement between fixed benches
and to support easy adaptation
12) There is space on the entry level that can be used as a bedroom
13) Light switches and powerpoints are located at heights that are easy to reach for all
home occupants
14) Home occupants can easily and independently open and close doors and safely use
tap hardware
15) The family/living room features clear space to enable the home occupant to move in
and around the room with ease
16) Window sills are installed at a height that enables home occupants to view the
outdoor space from either a seated or standing position
17) Floor coverings are slip resistant to reduce the likelihood of slips, trips, and falls in
the home.
City of Melbourne Housing Needs Analysis
43
2.5 Projected need by household type and housing service
As alluded to above, the measured current and projected need for affordable housing in the
City of Melbourne encompasses the requirements of very low income households requiring
homelessness services through to Key Workers who have secure employment but are unable
to find affordable rental accommodation. In Figure 36 we discuss a continuum of housing
services to meet the needs of this spectrum of households. The following table presents our
findings of total affordable housing need in the City as at 2036, broken down by their likely
housing service requirements.
FIGURE 32 OVERVIEW OF AFFORDABLE HOUSING NEED – CITY OF MELBOURNE 2036
Needs category
Crisis/Transitional
Housing
Social Housing
Affordable Housing
Income bands (total pre-
tax household income)
All income groups
- Singles: $0 - $40,340
- Single parents: $0 -
$84,720
- Couples with children
and other family types:
$0 - $84,720
- Couples without children
and group households:
$0 – 60,520
- Singles: $40,340 - $60,510
- Single parents: $84,720 -
$127,800
- Couples with children and
other family types: $84,720
- $127,800
- Couples without children
and group households:
$60,520 – 90,770
Typical household types
- Households
experiencing an
adverse shock or
crisis
- Households at risk of
homelessness
- Households with
intermittent
engagement in the
workforce or below
moderate incomes
- ‘Key Worker’ households
- ‘Creatives’ with
intermittent and multiple
portfolio work
- Moderate income
households who derive
income through workforce
engagement
Projected
total need
(beds or
dwelling
units) in City
of
Melbourne
in 2036
(including
existing
stock of
social
housing)
Scenario 1
1,423 (beds)
18,315 (dwellings)
2,533 (dwellings)
Scenario 2
1,423 (beds)
22,211 (dwellings)
3,798 (dwellings)
Scenario 3
1,423 (beds)
25,780 (dwellings)
4,360 (dwellings)
Scenario 4
1,423 (beds)
25,780 (dwellings)
7,860 (dwellings)
Housing services
required
- Emergency
shelters / crisis
accommodation.
- Transitional /
supported
housing
- Social housing (public
housing and community
housing)
- Affordable rental housing
other than that included in
social housing - could be
operated by NFPs and
private sector under special
agreements
- Affordable home ownership
/ shared home ownership
Source: SGS Economics & Planning Pty Ltd
This alignment is based on the following key assumptions:
▪ Crisis or Transitional Housing comprises supported short-term accommodation
programs. They will be required even in the absence of housing affordability issues,
as one-off crises will occur, causing individuals/households to require assistance
which acts as a steppingstone to more permanent tenure (e.g. social housing or
City of Melbourne Housing Needs Analysis
44
private rental). Therefore, this represents a net addition to the demand for social and
affordable housing estimated in the sections above
▪ The analysis above forecasts demand for transitional housing at a Victorian level
based on the current expressed demand for transitional housing (AIHW
specialist homelessness services collection data, 2018), and the assumption that
the rate of demand (with respect to total population) remains constant. The
demand forecast for the City of Melbourne is then allocated based on the LGA’s
current share of clients who are (or at risk of) homeless
▪ Social Housing is a significantly subsidised form of assistance, which will typically seek
to limit rental payments based on the income of tenants. Social housing is short and
long-term rental housing that is owned and run by the government or not-for-profit
agencies. It is made up of two types of housing, public housing and community
housing
▪ This analysis assumes that the ‘very low’ and ‘low’ income households who are
forecast to require housing assistance will drive demand for social housing. Note
that this is likely a conservative estimate, as some ‘moderate’ income
households may also be unable to afford a slightly discounted market rent
▪ Affordable Housing requires the lowest level of subsidy, while still being more
affordable than the market rental rate (e.g. 80 per cent of the market rate).
▪ This analysis assumes that ‘moderate’ income households who are forecast to
require housing assistance will drive demand for affordable housing
2.6 Synthesis
There is a current aggregate need for social and affordable housing in the City of Melbourne
of at least 9,436 units. This figure largely excludes student households and can, therefore, be
regarded as a lower bound estimate. An upper bound estimate which includes student
households reaches 20,269 units. Current supply, as measured by the stock of social housing,
is around 3,970 units. The City of Melbourne, therefore, has a deficiency in its social and
affordable housing infrastructure of around 5,500 units. At a nominal acquisition cost of $0.5
million per unit, this represents a $2.75 billion infrastructure deficit.
As with any other form of infrastructure, the need for social and affordable in the City of
Melbourne will increase with population growth. Future need will also be affected by
property market trends and patterns of income growth. SGS estimates that if there is no
addition to the City’s social and affordable housing stock, the shortfall in these dwellings will
grow to between 16,900 and 29,700 units by 2036 depending on the share of metropolitan
growth in affordable housing need which is assigned to the Melbourne LGA. An approach
prioritising provision for Key Worker households (i.e. scenario 4) indicates that within this
overall pool of need for affordable housing in the City there will be a requirement for up to
7,860 Key Worker housing units (i.e. dwellings) by 2036.
City of Melbourne Housing Needs Analysis
45
3. WHY SHOULD COUNCIL GET
INVOLVED?
Social and affordable housing has traditionally been the policy province of the
State and Commonwealth Governments. What might justify Council involvement
in meeting at least part of the need measured in the previous Chapter? The
policy rationale for the City of Melbourne’s involvement is examined from several
perspectives in this Chapter. This includes the value that can be created for the
wider municipal community were the City to bring about a greater stock of social
and affordable housing versus what might happen under a passive policy scenario.
Also canvassed is the City of Melbourne’s special obligation to create
opportunities for the most marginalised in the community given that the City is
the beneficiary of disproportionate taxpayer investment in infrastructure and
services. This Chapter also notes the unique opportunity which the City has to
improve the welfare of particular groups of at-risk households.
3.1 Scope
Set out below is a review of Australian and international literature relevant to two key
questions raised explicitly or implicitly in Council’s brief to SGS:
▪ Why should the City of Melbourne be interested in the provision of social and
affordable housing? What value could such an ambition deliver to the municipality,
and to metropolitan Melbourne and the state of Victoria more broadly?
▪ In recognition of the unique attributes of a Capital City Council, does the municipality
have a special opportunity or obligation to engage with social and affordable
housing? Is the argument for Council involvement in social and affordable housing
stronger than that for other metropolitan municipalities?
3.2 Context
Before going to these substantive questions, it is useful to outline the changing role of the
central city in the modern Australian metropolis and the implications for housing and social
geography.
The rise of the 21
st
Century City
In recent decades, cities across the world have undergone intensive processes of
regeneration to assert themselves within the global marketplace and attract footloose capital
and investment.
16
17
18
19
Such processes have been driven by localised policies encouraging
repopulation of the urban core through the promotion of residential development and urban
living. Frequently employed in combination with strategies to stimulate retail regeneration
16
Adams, R. (2008), ‘From Industrial City to Eco-Urbanity: The Melbourne Case Study’, Planning News, 34(1): 6-11.
17
Bromley, R., Tallon, A. and Roberts, A. (2007), ‘New Populations in the British City Centre: Evidence of social change from
the census and household surveys’, Geoforum, (38): 138-154.
18
Dingle, T. and O’Hanlon, S. (2009), ‘From Manufacturing Zone to Lifestyle Precinct: Economic restructuring and social
change in inner Melbourne, 1971-2001’, Australian Economic History Review, 49(1).
19
Rérat, P. (2012), ‘The New Demographic Growth of Cities: The case of reurbanisation in Switzerland’, Urban Studies,
49(5): 1107-1125.
City of Melbourne Housing Needs Analysis
46
and historic conservation, these policies have been underpinned by broader social and
economic changes. These changes include increasing exposure of national economies to
international markets, the decline of manufacturing and concurrent growth in business
services, increasing family fragmentation and diminishing household sizes, and rising concerns
for sustainability in the face of urban sprawl.
20
21
Melbourne, Australia’s second largest city with a population of 4.5 million, has been an active
participant in this transformative urban trend, seeking to distinguish itself as a ‘21
st
Century
City’.
22
23
24
Spurred by the continuing construction of ‘inappropriate international style
developments, the invasion of the automobile, the destruction of heritage areas, and the
decline of the central city’, policies were adopted in the early 1990s at both state and local
government levels with a vision to transform Melbourne’s struggling Central Business District
(CBD) into a thriving place to live and play after dark.
25
26
These policies are considered to have been a resounding success, with the population of the
City of Melbourne increasing from approximately 34,000 in 1991 to 179,307 in 2019, and the
total number of dwellings rising from 14,000 in 1993 to 82,673 at present.
27
Supporting retail
and hospitality industries have also recorded significant growth, with the number of bars,
cafes and restaurants in the CBD increasing from 580 in 1998 to 3,025 in 2017.
28
29
These
figures far surpass initial projections, and it is predicted that this trend of rapid growth is likely
to continue with 340,722 residents and 156,665 households forecast for the year 2036.
30
Housing affordability and the geography of disadvantage
However, despite widespread acclaim, the continuing transformation of central Melbourne
has not held positive consequences for all. The ongoing processes of gentrification have
contributed to a significant housing affordability problem with a broad range of social and
economic consequences.
31
32
The location preferences of households are complex, linked to a broad array of factors
including household wealth, the requirements of life-cycle stage, health and disability status,
personal identity or desire to progress personal goals (for example career advancement).
33
34
35
36
However, the ability of a household to execute preferences based on these factors is
highly dependent on the resources that they control. While those with considerable wealth
20
20
Bromley, R., Tallon, A. and Roberts, A. (2007), ‘New Populations in the British City Centre: Evidence of social change
from the census and household surveys’, Geoforum, (38): 138-154.
21
Bradbury, M., Peterson, M., and Liu, J. (2014), 'Long-term dynamics of household size and their environmental
implications', Population & Environment, 36(1): 73-84.
22
State Government of Victoria (1995), Living Suburbs: A policy for Metropolitan Melbourne into the 21
st
century,
Melbourne: State Government of Victoria.
23
Adams, R. (2008), ‘From Industrial City to Eco-Urbanity: The Melbourne Case Study’, Planning News, 34(1): 6-11.
24
Engels, B. (2000), ‘City Make-Overs: The place-marketing of Melbourne during the Kennett years, 1992-99’, Urban Policy
and Research, 18(4): 469-494.
25
Adams, R. (2008), ‘From Industrial City to Eco-Urbanity: The Melbourne Case Study’, Planning News, 34(1): 3.
26
State Government of Victoria (1995), Living Suburbs: A policy for Metropolitan Melbourne into the 21
st
century,
Melbourne: State Government of Victoria.
27
City of Melbourne (2018), Population forecasts;
https://msd.unimelb.edu.au/__data/assets/pdf_file/0004/2720740/vertical-living-kids.pdf ;
https://www.melbourne.vic.gov.au/SiteCollectionDocuments/future-living-discussion-paper.pdf
28
Adams, R. (2008), ‘From Industrial City to Eco-Urbanity: The Melbourne Case Study’, Planning News, 34(1): 3.
29
City of Melbourne (2017), ‘Accommodation and Food Services Statistics’, Melbourne: City of Melbourne. Retrieved 14
January n2019 from: http://melbourne.geografia.com.au/industries/anzsic/H
30
.id (2019), City of Melbourne: Population, households and dwellings. Accessed 14 January 2019 from:
https://forecast.id.com.au/melbourne/population-households-dwellings
31
Randolph, B., & Holloway, D. (2004), ‘The suburbanization of disadvantage in Sydney’, Opolis, 1(1): 49–65
32
Atkinson, R., Wulff, M., Reynolds, M., and Spinney, A. (2011), ‘Gentrification and displacement: The household impacts of
neighborhood change’, Australian Housing and Urban Research Institute. Melbourne: AHURI.
33
Cooper Marcus, C. (1995), House as a Mirror of Self: Exploring the deeper meaning of home, Berkeley: Conary Press.
34
Karsten, L. (2007), ‘Housing as a way of life: Towards an understanding of middle-class families’ preference for an urban
residential location’, Housing Studies, 22(1): 83-98.
35
Yuen, S. and Appold, B. (2007), ‘Families in Flats, Revisited’, Urban Studies, 44(3): 569-589.
36
Baker, E., Bentley, R., Lester, L. and Beer, A. (2016), ‘Housing affordability and residential mobility as drivers of locational
inequality’, Journal of Applied Geography, 72: 65-75.
City of Melbourne Housing Needs Analysis
47
and income may have the opportunity to choose a residential location that best meets their
needs, low-income households inevitably have fewer choices, with the affordability of
housing a key consideration.
37
Highly localised house price differentiation sees many low
income households pushed down the affordability gradient, from the highly-priced inner city
areas to comparatively affordable locations closer to the urban fringe. These locations are
frequently defined by poor connectivity to services and employment, and poorer quality
physical and social environments (as may be reflected by lower housing prices).
For those lower-income groups who choose to remain in the central city (for work, education,
access to services or social connections - or all the above), the high cost of housing places a
disproportionate burden on household finances. The experience of living in housing stress –
whereby >30 per cent of household income is spent on rent - has substantial implications for
individual and household wellbeing, as well as for broader community cohesion and
productivity.
Housing affordability and the City of Melbourne
In recognition of the growing issue of housing affordability in the central city, the resulting
potential for negative social, economic and environmental outcomes, and the previous lack of
appropriate action at the State and Commonwealth Government levels, the City of
Melbourne is contemplating a proactive approach in addressing this issue within its municipal
jurisdiction, as well as opportunities to advocate to state and local governments for action
across the metropolitan area.
The City’s lapsing housing policy – Homes for People – was adopted in 2014 with a vision for
the central city to be a place where housing is affordable, well-designed and meets diverse
needs. This policy sought to be holistic, understanding the important role housing plays in the
health and wellbeing of residents and communities. In particular (and amongst other actions),
the strategy suggested the inclusion of a proportion of dwellings as affordable housing on
land owned by Council, and incentives for the provision of affordable housing through
development bonuses (such as seen through Amendment C270 and at Fishermans Bend – see
Section 4).
3.3 Creating city-wide value
Expanded availability of social and affordable housing brings benefits not only to the people
who are provided with a secure home or removed from housing stress. It also creates value
for the economic, social and cultural environment of the central city and wider community.
Research into the impacts of increased social and affordable housing supply note the
following key benefits:
▪ improved community cohesion and wellbeing
▪ improved competitiveness through more efficient local labour markets
▪ greater capacity for business and social innovation, and
▪ stronger city culture and branding.
Community inclusion and diversity
Community inclusion
Wiesel et al. (2017) note the extent to which the contemporary planning discourse has
consistently justified the uneven allocation of resources across metropolitan areas to enhance
economic productivity.
38
In many cities, government investment in infrastructure has been
targeted to regions with the highest economic growth potential, with these well-endowed
37
Ibid.
38
Wiesel, I., Lui, F. and Buckle, C. (2017), ‘Locational disadvantage and the spatial distribution of government expenditure
on urban infrastructure and services in metropolitan Sydney (1988-2015)’, Journal of Geographical Research, 56(3): 285-
297.
City of Melbourne Housing Needs Analysis
48
areas (typically the CBD or central city) often correlated with high housing costs and poor
affordability.
39
40
Those who cannot secure affordable housing in these areas are required to find housing in an
alternative location; frequently in parts of the city that are defined by significantly poorer
access to employment, services, transport, lower amenity and higher levels of social
‘dysfunction’.
41
42
Such processes act to create areas of both concentrated advantage and disadvantage across
the metropolitan region. Berry (2003) notes the way this process of locational disadvantage
effectively traps or locks people in areas and contributes to cyclical processes of “decline and
deprivation”.
43
There is a significant body of literature exploring the consequences of locational disadvantage
and social segregation. The costs to individuals include poor psychological and wellbeing
outcomes. Local communities suffer in terms of reduced social capital and cohesion, and
increased rates of crime and violence. Meanwhile, the broader metropolitan and regional
communities can see decreased productivity and rising fiscal costs to government
44
People who are unable to find suitable affordable, appropriately located, housing and who
remain in housing stress or insecure housing situations disproportionately suffer from a broad
range of poor health, educational and social outcomes including
45
:
▪ poor self-esteem and sense of self-worth, stress and poor mental health
▪ higher rates of depression, substance abuse and risk of suicide
▪ experience of financial hardship and poverty
▪ diminished educational performance for young people
▪ reduced rates of secure and ongoing employment, and decreased participation in
employment related assistance and job training programs
▪ living in poor quality, poorly designed, overcrowded and unsanitary housing
conditions (featuring, for example, mould and noise exposure)
▪ social exclusion and isolation.
In exploring deep and persistent disadvantage in Australia, McLachlan, Gilfillan and Gordon of
the Productivity Commission found that this condition imposes a range of costs on the people
who experience it, those near to them and the broader community. They devised a model for
estimating the totality of this cost as shown in the following diagram. Alleviating
disadvantage by providing social and affordable housing, for example, can be expected to
conversely generate value for the host society
46
.
39
Ibid.
40
SGS Economics and Planning (2019), Rental Affordability Index, Melbourne: SGS Economics and Planning. Accessed 14
January from: https://www.sgsep.com.au/publications/rental-affordability-index
41
Wiesel, I., Lui, F. and Buckle, C. (2017), ‘Locational disadvantage and the spatial distribution of government expenditure
on urban infrastructure and services in metropolitan Sydney (1988-2015)’, Journal of Geographical Research.
42
Berry, M. (2003) ‘Why is it important to boost the supply of social housing in Australia’, Urban Policy and Research 24(1),
413-435.
43
Ibid.
44
Berry, M. (2003) ‘Why is it important to boost the supply of social housing in Australia’, Urban Policy and Research 24(1),
413-435.
45
Phibbs, P. and Young, P. (2005), Housing assistance and non-shelter outcomes. Retrieved from Australian Housing and
Urban Research Institute: https://www.ahuri.edu.au/research/final-reports/74; Ravi, A., & Reinhardt, C. (2011). The social
value of community housing in Australia Retrieved from Australia: Net Balance.
46
McLachlan, R., Gilfillan, G. and Gordon, J. (2013) Deep and Persistent Disadvantage in Australia, Productivity Commission
Staff Working Paper
City of Melbourne Housing Needs Analysis
49
FIGURE 33 PROCESS FOR CALCULATING THE COSTS OF DISADVANTAGE
Source: McLachlan, Gilfillan and Gordon (2013)
City of Melbourne Housing Needs Analysis
50
THE RENTAL AFFORDABILITY GRADIENT AND LOCATIONAL DISADVANTAGE IN MELBOURNE
Several research projects have explored the spatial patterning of rental affordability and disadvantage in
Melbourne. Hulse et al. (2012) note that historically the bulk of affordable rental accommodation (and rental
accommodation generally) was in the inner city. However, gentrification has seen the inner and middle suburbs
take on a new life, with associated impacts on property values and rents. SGS’s analysis of rents in Melbourne
show:
▪ Rents at any distance from the CBD are significantly higher now than a decade ago.
▪ The increase in rents over the decade have been greater in inner locations, and
▪ Outer urban rents relative to those in the inner city are more affordable in relative terms than they were
a decade ago.
This is supported by SGS’s recently released Rental Affordability Index which shows a concentration of
unaffordable rental housing in the central city, and more affordable housing towards the city fringes.
Source: SGS Economics and Planning 2018
Through surveys, focus groups and interviews, Burke and Pinnegar (2007) explored the trade-offs that Australians
within the private rental market make when choosing housing. They found that the greatest number of people
compromise on price (i.e. accepting higher rents), while 24 per cent move to an area that they would not
otherwise choose, to find affordable housing. They also found that 81 per cent of long-term renters move
frequently – once every three years – and that 29 per cent move because they must not because they want to.
Other analysis by SGS shows that locations that have higher levels of rental affordability correlate with lower
levels of access to employment, poor transport connectivity and significantly higher concentrations of
disadvantage.
Noting similar patterns, Burke and Pinnegar (2007) opine that, with some exceptions, lower-income older renters
are unlikely to be able to ever improve their circumstances and alleviate their affordability position.
City of Melbourne Housing Needs Analysis
51
Community diversity
As discussed above, significant costs to the community arise from the segregation and
concentration of communities of disadvantage across the city. In contrast to this, a long line
of academic work has explored the potential benefits that arise from the creation of places
that support diverse and inclusive communities.
Fainstein (2010) notes that diversity extends beyond simply the acceptance of differences in
others, to the social composition of places, with Rolnik (2014) emphasising housing diversity
(including diversity of tenure, type and price) as a crucial element in stimulating broader
socio-demographic diversity.
47
48
The merits of diversity in the city first came to popular consciousness through the writings of
Jane Jacobs (1961), who argued that a mix of people of different cultures, social class, life-
cycle stage, and immigration status are important for fostering interaction and trust between
different people, as well as promoting economic opportunity. In the words of Jacobs (1961:
14):
“places that are diverse offer fertile grounds for the plans of thousands of people”.
In contrast, Jacobs says that:
“no diversity offers little hope for growth, in the form of both personal and economic
development”.
These ideas have been taken up by many urbanists and expanded on in various ways. A
recurrent central principle is that diversity maximises “exchange possibilities”, both economic
and social, and brings significant benefits for people and places.
49
Some authors have suggested that some forms of community diversity (predominantly racial
or ethnic diversity) has a negative effect on social cohesion by reducing the collective sense of
belonging and social solidarity.
50
Ariely (2014) notes that this is typically the consequence of
differences in defining a concept as complex and multi-dimensional as ‘social capital’ or ‘social
cohesion’. Nevertheless, belief in the positive outcomes of diversity in cities continues to
prevail in academic writing and professional practice.
47
Fainstein, S. (2010), The Just City, Ithaca: Cornell University Press.
48
Rolnik, R. (2014), ‘Place, Inhabitance, and Citizenship: The right to housing and the right to the city in the contemporary
urban world’, International Journal of Housing Policy, 14(3): 293-300
49
Hirt, S. (2012), The urban wisdom of Jane Jacobs, New York: Routledge.
50
Ariely, G (2014), ‘Does diversity erode social cohesion? Conceptual and methodological issues’, Political Studies, 62(3).
City of Melbourne Housing Needs Analysis
52
Driving competitiveness
Labour market functioning
Concerns for the lack of social and affordable housing frequently stem from a social welfare
or equity perspective, as highlighted in the discussion above. Somewhat less prevalent is
consideration of the consequences of high housing costs for urban economic growth,
particularly in the central city. This is despite a clear and widely investigated recognition by
policymakers, researchers and industry professionals of the macro-economic impacts of
housing.
51
52
Policy discussion and academic research regarding the consequences of ‘spatial mismatch’ for
the productivity of urban areas has attracted renewed attention in recent years.
53
54
Initially
conceived by Kain (1968) in reference to the processes of the suburbanisation of employment
occurring at the time, the spatial mismatch theory laments the increasing disjuncture
between the location of jobs growth and concentrations of socially and economically
51
Van den Nouwelant, R. Crommelin, L., Herath, S. and Randolph, B. (2016), ‘Housing affordability, central city economic
productivity and the lower income labour market’, Melbourne: Australia Housing and Urban Research Institute (AHURI).
52
SGS Economics and Planning (2012), ‘Understanding the property and economic drivers of housing’, Melbourne: SGS
Economics and Planning.
53
Spiller, M. (2013), ‘Affordable housing: the productivity dimension’, The Quarterly Magazine, Melbourne: SGS Economics
and Planning.
54
SGS Economics and Planning (2013), ‘Understanding the property and economic drivers of housing’, Melbourne: SGS
Economics and Planning.
CREATING A MORE DIVERSE RENTAL PROFILE IN MONTREAL, CANADA
The City of Montreal adopted the ‘Strategy for inclusion of affordable housing in new
residential projects’ in August 2005.
The primary goals of the strategy were to:
▪ provide a mix provide housing for a mix of different income brackets in all new
large housing developments
▪ promote social mix as a condition of sustainable development
▪ avoid social segregation and break the cycle of poverty, and
▪ enable people to stay in their neighbourhood.
The policy sought to achieve these goals by facilitating the development of social
housing, and also by stimulating the production of affordable housing for first time
homeowners.
The Mayor of Montreal was a key supporter of the strategy, calling for an inclusive city
as a way for providing a better quality of life for all Montrealers.
The strategy established guidelines that all new large residential development are to
provide a minimum of 30 per cent of the new units as affordable housing – 15 per cent
in social housing and 15 per cent in affordable rental or affordable ownership. The
strategy targets developments of 200 and more units, with the particulars of the
guidelines intended to respond to local conditions rather than creating a mandatory
requirement.
Case study content adapted from Inclusionary Housing Canada (2019), Canadian: Case studies. Accessed 12
February 2019 from: http://inclusionaryhousing.ca/2016/05/25/case-studies-canadian/
City of Melbourne Housing Needs Analysis
53
disadvantaged workers, and the associated impacts on economic prosperity and social
wellbeing.
55
56
57
In the contemporary Australian context, a significant body of literature has documented a
clear trend, whereby lower income households are increasingly being displaced (either
relatively or absolutely) from inner city locations largely as a result of ongoing processes of
gentrification, urban renewal and related housing cost increases.
58
This spatial mismatch has
55
Kain, J.F. (1968), 'Housing segregation, negro employment, and metropolitan
decentralization', The Quarterly Journal of Economics, vol. LXXXII, no. 2,
pp.175–197.
56
Van den Nouwelant, R. Crommelin, L., Herath, S. and Randolph, B. (2016), ‘Housing affordability, central city economic
productivity and the lower income labour market’, Melbourne: Australia Housing and Urban Research Institute.
57
Yates, J., Randolph, B. and Holloway, D. (2006), Housing affordability, occupation and location in Australian cities and
regions, AHURI.
58
Randolph, B. and Tice, A. (2014), 'Suburbanizing disadvantage in Australian cities: Sociospatial change in an era of
neoliberalism', Journal of Urban Affairs, 36(1): 384–399.
INVESTIGATING THE IMPACT OF AFFORDABLE HOUSING ON PRODUCTIVITY
Several local and international studies have sought to explore the links between housing
costs and the productivity of key industries. This includes research undertaken by the
Australian Housing and Urban Research Institute (AHURI) investigating the impact of
housing costs on businesses that are largely reliant on lower wage rate workers in
central areas of Australia’s major cities (Sydney, Perth, Melbourne, Brisbane, Darwin).
56
This study found that low income, central city workers in Australia are spatially
separated from their jobs to a much greater degree than metropolitan workers in
general (found to be roughly double that of metro-wide median). Six industries were
identified as likely to be affected by a shortage of low income central city workers based
on a combination of the total number of low income workers, reliance on these workers
and competition for these workers outside of the central city. These include hospitality,
support services (travel and recruitment agency), professional services (legal and
accounting), finance-insurance and government services. This research showed that
while employers in these industries were aware of the issues, the burden was largely
seen to be borne by employees with little consequence for businesses. It was felt that a
number of mitigating factors, such as higher salaries, amenities and “buzz” of the central
city, accessibility and the large supply of short-term workers (students and foreign
workers), helped to thicken the supply of low-income workers in the city. While not
quantified, the study identified a shortage of supply of low income workers to support
the hospitality industry – particularly tourism and accommodation.
This finding is reinforced by Yates et al. (2006) who found that hospitality workers and
sales assistants experienced the greatest levels of housing stress. These workers are
more likely to be in lower skilled, casual and part time occupations that offer less
opportunity for career progression.
57
Research examples drawn from the UK have shown some evidence of recruitment issues
and associated impacts on productivity due to local housing costs. Tym (2003) found
evidence of recruitment difficulties in the public sector sometimes prompting actual or
contemplated disinvestment in the region as a result.
1
Propper and van Reenen (2010)
found that some areas of high housing costs had poorer performing hospitals as a result
of difficulties in retaining quality medical staff, while Gordon and Monastiriotis (2007)
found that the combination of high house prices in economically successful areas
with a public sector pay structure which is unresponsive to this (or very unevenly so)
leads to a qualitative 'crowding out' of public sector work such as that of teachers,
leading to lower quality provision.
City of Melbourne Housing Needs Analysis
54
been considered in the annual State of Australian Cities (SOAC) report for some years now,
with the most recent report noting:
“Australia’s cities are increasingly characterised by the significant spatial divide between
areas of highly productive jobs and the areas of population-based services, reflected
through the price premiums associated with houses that have better access to the city
centre”.
59
This has been conceptualised as a concern for the economic productivity of cities due to a
thinning of the local labour market of the central city area, whereby a decline in the total
diversity of workforce pool (i.e. fewer low income workers) will result in poor labour
matching. This, in turn, is seen to lead to labour market shortages, staff retention (and hence,
retraining) problems and reductions in economic productivity and efficiency.
60
In the context
of the central city, the SOAC report goes on to state that:
“Ensuring that Australia’s most productive regions – the inner areas of cities – remain
unconstrained, efficient and productive is critical. With such dense economic activity
occurring within these relatively small areas, even minor inefficiencies can have a major
impact on Australia’s national economy and remedying those inefficiencies can reap large
economic benefits”.
61
While there is somewhat limited direct evidence to support the notion that employers in
high cost areas cannot attract key workers because of housing affordability, there is
evidence to support the claim that those who work in inner city areas and live there
experience significantly greater housing affordability problems.
62
In choosing to work in high-cost housing areas, such as the central cities, many of the studies
discussed above have noted the extent to which low income and key workers make trade-offs
between location, housing cost and transport accessibility. Some accept longer commutes for
cheaper rent while others suffer housing stress to maintain continuity of work and access to
other opportunities.
A significant body of literature also demonstrates the extent to which each of these
conditions can contribute to lost labour productivity through adverse impacts on individual
health and wellbeing, including increased stress and mental ill-health, capped career
progression, reduced ability to upskill and diminished workforce participation.
63
64
City culture and branding
As mentioned in the introductory statements above, cities and regions in advanced
economies face significant international competition for the attraction of footloose resources,
jobs and capital.
65
Such processes have been driven by globalisation and the resultant
loosening of trade barriers, more efficient and integrated global transportation and
communication systems and the emergence of new competitive markets.
66
Indeed, these
processes of business attraction have been described as essentially a zero sum game whereby
59
Department of Infrastructure and Regional Development (2015) State of Australian
Cities 2014–2015: Progress in Australian regions, accessed 30 Sep 2015,
http://infrastructure.gov.au/infrastructure/pab/soac/files/2015_SoAC_full_report
.pdf. pp. 41.
60
Van den Nouwelant, R., Commelin, L., Herath, S. and Randolph B. (2016), ‘Housing affordability, central city economic
productivity and the lower income labour market’, Australia Housing and Urban Research Institute (AHURI).
61
Ibid, 64.
62
Van den Nouwelant, R. Crommelin, L., Herath, S. and Randolph, B. (2016), ‘Housing affordability, central city economic
productivity and the lower income labour market’, Melbourne: Australia Housing and Urban Research Institute.
63
Ravi, A., & Reinhardt, C. (2011), ‘The social value of community housing in Australia’, Melbourne: Net Balance.
64
Phibbs, P. and Young,, P. (2005), ‘Housing assistance and non-shelter outcomes’, Melbourne: Australian Housing and
Urban Research Institute: https://www.ahuri.edu.au/research/final-reports/74
65
Cleave, E., Arku, G., Sadler, R. and Gilliland, J. (2016), ‘The role of place branding in local and regional economic
development: Bridging the gap between policy and practicality’, Regional Studies, Regional Science, 2(1), pp.207-228.
66
Ibid.
City of Melbourne Housing Needs Analysis
55
places continually divert economic resources from competitors as businesses relocate to the
place that offers them the best opportunity for success.
67
In this climate of growing international visibility and competition, cities are seeking strategies
to promote themselves as a location of choice for investors and knowledge workers.
International research explores the factors that underly economic growth and performance
within this context.
68
69
These factors include investment in public infrastructure, city size,
depth of human capital, social capital, location and reputation.
70
71
In the context of cities, reputation (frequently used interchangeably in the literature with
place branding) is understood by Delgado-Garcia et al. (2016), as the “aggregation of a single
stakeholder’s perceptions of the capacity of the city to meet demands and expectations of
many city stakeholders”, noting that different stakeholders use different informational cues
to generate their expectations about a place.
Berry (2003) notes how cities that maintain an external reputation for diversity, multi-
culturalism and tolerance are highly competitive in attracting business investment,
managerial staff and knowledge workers, as well as tourism. This concept is reflected in
Florida’s (2002) discussion of the ‘creative class’, who are knowledge and creative workers
that are drawn from a range of social minority groups (including gays and lesbians), and who
tend to locate in cities that rate highly on the so-called ‘Bohemian and Diversity Indices’.
Recent research by Hassen and Giovanardi (2018) supports this assertion, demonstrating how
the city of Leicester has successfully redefined itself and its reputation in terms of diversity
and inclusivity in order to reinvigorate its transitioning, post-manufacturing, economy.
Within this context of reputation building, the provision of housing to accommodate diverse
communities is seen as crucially important. Berry (2003), notes that:
“The reality – or even the public perception – of communities rent by polarising differences,
visible poverty and homelessness, souring crime and an impoverished public realm raises
strong barriers to the influx of investors…Housing markets, if unchecked, can play a major
role in this dynamic” (emphasis added).
72
Emphasised consistently in the literature, however, is that any effort to promote a city’s
reputation for diversity must be based on the genuine attributes of a place in order to be
sustainable over the long term.
73
Cities that do not satisfy the expectations associated with
their reputation will ultimately erode it.
74
Supporting innovation
Innovation (the creation of new things and new kinds of work) and clustering (geographic
concentrations of interconnected companies and institutions) are essential for economic
success and urban development.
75
76
The notion of clustering has a long lineage in urban economic theory, with the location
decisions and organising behaviours of firms tied closely to factors such as the availability of
67
Ibid.
68
Wæraas, A. (2015), ‘Making a difference: Strategic positioning in municipal reputation building’, Local Government
Studies, 41(2), pp.280–300.
69
Aula, P., & Harmaakorpi, V. (2008), ‘An innovative milieu – A view on regional reputation building: Case study of the Lahti
urban region’, Regional Studies, 42(4), pp.523–538.
70
Delgado-Garcia, J., Quevedo-Puente, E. and Blaco-Mazagatos, V. (2017), ‘The impact of city reputation on city
performance’, Regional Studies, 52(80), pp.1098-1110.
71
Ibid.
72
Berry, M. (2003) ‘Why is it important to boost the supply of social housing in Australia’, Urban Policy and Research 24(1),
413-435.
73
Hassen, I. and Giovanardi, M. (2018), ‘The difference in ‘being diverse’: City branding and multiculturalism in the
Leicester Model’, Cities, 80, pp.45-52
74
Ibid.
75
Jacobs, J. (1969). The economy of cities. New York: Random House.
76
Jacobs, J. (1984). Cities and the wealth of nations: Principles of economic life. New York: Random House.
City of Melbourne Housing Needs Analysis
56
resources, including labour and office space, and other factors such as accessibility, local and
national tax regimes and rent levels.
77
More recently discussed and as brought to popularity by Florida (2002), the ability to access
‘creative workers’ has emerged as a significant factor in the locational decisions of firms.
78
These individuals are increasingly seen as critical in stimulating innovation, breaking ‘path
dependency’ and motivating the creation of innovation clusters.
While the definition of creative workers continues to be contested, this group is said to
include skilled workers in the design, knowledge intensive, information-rich industries of the
‘new economy’.
79
Florida (2014) identifies the occupational categories belonging to the
creative class as; entertainment and media; computer and mathematical sciences;
management; law; architecture and engineering; medicine; finance; life, physical and social
sciences; education and the super creative occupations including university professors,
thought leaders, actors, dancers, musicians, novelists, artists and poets.
80
It is evident from the occupational categories listed above that the creative class
encompasses a diverse demographic. It is likely to include both the corporate elite as well as
the up-and-coming entrepreneur or artist.
Berry (2003) notes that supporting such diversity in turn requires the provision of a range of
housing opportunities, including a mix of housing types, tenures, sizes and prices. Berry warns
that:
“Successful regional economies cannot afford to turn their backs on young, creative
workers at the beginning of their careers who are struggling to get a foothold in the local
housing market”.
81
Evidence from the Netherlands has demonstrated that failure to achieve affordable housing
in creative clusters and cities can have negative consequences, where high housing prices and
long waiting lists for affordable housing options has restricted the entry of young starters and
creative talent into the local housing market.
82
83
There is some debate, however, as to whether or not the creation of places attractive to the
tastes of the creative classes ultimately results in processes of gentrification, growing
unaffordability and intolerance of some social groups.
84
85
3.4
Like other capital city councils, the City of Melbourne enjoys a privileged infrastructure
endowment. Its special features include:
▪ being situated at the confluence of metropolitan and Victorian transport networks
▪ being the home of the state’s key cultural and civic attractions and facilities including
State Parliament, key sporting arenas (MCG, Rod Laver Arena, Etihad Stadium), the
National Gallery of Victoria and Melbourne Performing Arts Centre
77
Musterd, S. Bontjem, M., Chapain, C. Kovacs, Z. and Murie, A. (2007), ‘Accommodating creative knowledge. A literature
review from a European perspective’, Amsterdam: The University of Amsterdam.
78
Florida, R. (2002), The rise of the creative class, New York, NY: Basic Books.
79
Ibid.
80
Ibid.
81
Berry, M. (2003) ‘Why is it important to boost the supply of social housing in Australia’, Urban Policy and Research 24(1),
413-435.
82
Musterd, S. Bontjem, M., Chapain, C. Kovacs, Z. and Murie, A. (2007), ‘Accommodating creative knowledge. A literature
review from a European perspective’, Amsterdam: The University of Amsterdam.
83
Musterd, S., M. Bontje and W. Ostendorf (2006), ‘The changing role of old and new centres: The case of the Amsterdam
region’, Urban Geography, 27(4), pp.360-387.
84
Atkinson, R. (2004), ‘The evidence on the impact of gentrification: New lessons for the urban renaissance?’, European
Journal of Housing Policy, 4(1), pp.107-131.
85
Atkinson, R. and Easthope, H. (2007), The consequences of the creative class: The pursuit of creative strategies in
Australia’s cities’, State of Australian Cities paper.
City of Melbourne Housing Needs Analysis
57
▪ key health and educational institutions (University of Melbourne, RMIT, Victoria
University, Royal Melbourne Hospital, Royal Women’s Hospital, Royal Children’s
Hospital, Peter McCallum Cancer Centre)
▪ the Parkville National Employment and Innovation Cluster and the planned
Fishermans Bend National Employment and Innovation Cluster
▪ hosting several areas designated as major urban renewal precincts, carrying on the
major investments historically made by state governments in Southbank and
Docklands.
This endowment, and the City of Melbourne’s implied leadership role, may justify a level of
Council involvement in social and affordable housing that extends beyond what might be
expected of non-capital city councils.
The City is accessible and service-rich; a responsibility to share
The City of Melbourne is the beneficiary of much greater infrastructure and service
investment by the State and Federal Governments than any other municipality by virtue of its
strategic location at the geographic, cultural and economic heart of metropolitan Melbourne.
This disproportionate level of investment has meant that the City is highly accessible, provides
a diverse array of employment opportunities, is endowed with well-maintained public open
space and provides plentiful opportunity for residents to engage in the social and cultural life
of the city.
Increasing the number of social and affordable dwellings in the municipality would allow a
broader and deeper mix of the Victorian community to benefit from these many positive
attributes of the City. Sharing a taxpayer-funded pool of public realm benefits that would
otherwise be increasingly ‘monopolised’ by higher income groups or households with less
constrained choices is important to perceived fairness and equity across the metropolitan
area.
High land values can absorb the cost of providing social and affordable housing
The heavy taxpayer investment in central city infrastructure and services is a key reason for
the relatively high land values which prevail in the City of Melbourne.
This high publicly underwritten land value means that the central city can better support
planning interventions to provide more social and affordable housing, regardless of whether
these provisions are mandatory requirements or voluntary agreements.
As discussed in Chapter 5, higher land prices in the City mean that development is more likely
to be able to absorb the additional cost of providing affordable housing without impacting
development feasibility or market functioning at the aggregate level.
The City has an existing reputation of policy leadership
As a capital city council, the City of Melbourne has as strong history and reputation in leading
social, environmental and economic policy across the state, Australia and even
internationally.
Many local governments look to the City for guidance in setting policy direction and content.
In recent decades, specific policies that have been influential and widely replicated include:
▪ Postcode 3000
▪ urban forest strategy, and
▪ heritage conservation policies.
Housing affordability is a significant issue across Victoria, requiring action from many levels of
government. As a council with a prominent position and reputation in the state, the City of
Melbourne has a unique capacity to prompt other local governments to follow suit.
City of Melbourne Housing Needs Analysis
58
Benefit multipliers for particular socio-economic groups
Aside from the imperative to provide fairer access to the endowment of the central city as
described above, providing social and affordable housing in these parts of the metropolis can
generate enhanced benefits for particular demographic groups, compared to housing them
(affordably) in middle ring or outer suburbs. These groups include:
▪ low income older adults
▪ Indigenous Australians
▪ homeless, and
▪ long term unemployed people and people at risk of long term unemployment.
Low income older adults who rely on public transportation to reach necessary health services
would benefit disproportionately from living in the City of Melbourne compared to a
traditional single-family home or apartment in a car dependent suburb.
As people age and lose their vision and ability to drive, their need to live in places well
serviced by transit or within walking distance of local amenities increases
86
. Besides rides
from family and friends, public transport is likely to be their only reasonable transportation
option to access necessary health services and infrastructure.
These benefits are further multiplied for pensioner households who are also long-term
residents in City of Melbourne as they are more intensively affected by social changes around
them (i.e. loss of friendships and community networks).
Indigenous Australians continue to be one of the most vulnerable groups in Australia
87
. Data
from the ABS found:
▪ The average life expectancy for Indigenous Australians was approximately 10 years
less than that of non-Indigenous Australians
88
▪ More than half of the Indigenous population in Australia were not employed in 2012-
2013
89
▪ More than half of Indigenous Australians over the age of 15 had some form of
disability in 2008
90
, and
▪ Indigenous Australians are 15 times more likely to be in prison compared to non-
Indigenous adults
91
.
Many of these disadvantages stem from extreme levels of discrimination and trauma as a
result of colonisation, including the associated violence and loss of culture and land, as well as
subsequent policies such as the forced removal of their children. In many indigenous families
and communities, this trauma continues to be passed from generation to generation with
devastating effects
92
.
The City of Melbourne acknowledges elements of the disparity experienced by many
Indigenous Australians in its Reconciliation Plan 2015-2018. This Plan seeks to celebrate
Indigenous arts and culture and encourage the employment of Indigenous Australians in the
municipality. Actions in the Plan include:
“Seek to increase the number of Aboriginal and Torres Strait Islander people
employed within the City of Melbourne municipality and beyond”
86
Knopf-Amelung, S. (2013) Aging and Housing Instability: Homelessness Among Older and Elderly Adults
87
https://www.humanrights.gov.au/education/face-facts/face-facts-aboriginal-and-torres-strait-islander-peoples
88
3302.0.55.003-Life Tables for Aboriginal and Torres Strait Islander Australians
89
Department of Prime Minister and Cabinet, Australian Government, Closing the Gap, Prime Minister’s Report 2014
90
4704.0-The Health and Welfare of Australia's Aboriginal and Torres Strait Islander Peoples (Disability and Social
Inclusion), October 2010
91
Australian Bureau of Statistics, 4512.0-Corrective Services, Australia, December quarter 2013 (March 2014).
92
Australian Human Rights Commission (2018) Close the Gap: Indigenous Health Campaign
City of Melbourne Housing Needs Analysis
59
“Celebrate and acknowledge Aboriginal and Torres Strait Island arts and culture”
“Ensure Aboriginal and Torres Strait Islander peoples are represented in relevant
Council funded events”
The Plan has a vision to encourage “participation of Aboriginal and Torres Strait Islander
peoples in the social and economic advantages that Melbourne offers”. Expanding affordable
housing opportunities for this group in the City is an obvious way of advancing this Council
policy objective.
Also noteworthy is the fact that the City of Melbourne occupies particularly significant land at
the mouth of the Yarra River. Enabling more Indigenous people to resume direct contact with
this land through residency would unlock unique cultural and social justice benefits not
achievable elsewhere.
Homelessness encompasses a spectrum of severity that may last only a short time for more
individuals, while others many experience many years of deprivation. Whether short or long
term, homelessness is one of the most severe forms of disadvantage and social exclusion that
a person can experience. Homelessness results in significant social and economic costs not
just to individuals and their families, but also to communities and the nation as a whole
93
.
For these individuals, homelessness makes it difficult to engage in education and training and
can leave people vulnerable to violence, victimization, long term unemployment and chronic
ill-health. Some health problems are a consequence (and sometimes a cause) of
homelessness, including poor nutrition, substance misuse, and poor mental health
94
. Those
experiencing homelessness are often excluded from participating in social, recreational,
cultural and economic opportunities in their community.
A study by AHURI found people who are homeless are less likely to be employed, more likely
to be imprisoned, and impose a disproportionate demand on publicly funded medical
facilities
95
.
The rich network of services available in the central city offers the opportunity for more
effective responses to the challenge of homelessness.
Similarly, the multiple opportunities for education, training, part time work and mentoring in
the central city means that long term unemployed people are likely to gain a disproportionate
lift in their prospects for engagement in the workforce.
Improved access to work, education and leisure opportunities will provide a benefit
‘multiplier’ to those marginalised groups who suffer multiple forms of disadvantage, in
addition to experiencing housing stress or insecurity and assist in breaking cycles of
vulnerability.
3.5 Synthesis
The City of Melbourne has undergone transformative change since the 1990s transitioning
from being largely a location for business and workers to a thriving hub of cultural, social and
economic activity. This change, while positive, has held consequences for the affordability of
housing across the municipality. Those who cannot afford the rising housing costs are forced
to relocate to more affordable locations, increasingly causing a spatial patterning across
metropolitan Melbourne according to wealth and socio-demographic status. For many who
continue to live in the City (for a variety of reasons including, work, education, social
93
SGS (2017) Last Resort Housing
94
Australian Human Rights Commission. Homelessness is a human rights issue [online article]. 2008.
https://www.humanrights.gov.au/our-work/rights-and-freedoms/ publications/homelessness-human-rights-issue
95
Zaretzky K, Flatau P, Clear A, et al; Australian Housing and Urban Research
Institute. The cost of homelessness and the net benefit of homeless programs: a national
study. Findings from the Baseline Client Survey (AHURI Final Report No. 205).
Melbourne: AHUR, 2013. https://www.ahuri.edu.au/research/final-reports/205
City of Melbourne Housing Needs Analysis
60
connections etc.), the rising cost of housing places increasing pressure on their health and
wellbeing.
Addressing affordable housing in the City is likely to result in several key benefits to the wider
community by:
▪ Mitigating existing and future issues related to key worker retention in the central
city, thereby strengthening local business and overall economic efficiency.
▪ Achieving deeper and more genuine diversity through the provision of a greater
range of housing types, tenures and prices. This is anticipated to attract creative
talent (and business) and enhance Melbourne’s global reputation as a cultural and
creative hub.
▪ Providing enhanced opportunities for innovation by providing housing suitable for
early career entrepreneurs and research workers within education and research
agglomerations.
▪ Addressing social injustice and enhancing equity resulting from locational
disadvantage and spatial socio-economic segregation.
There are also several specific benefits for particularly vulnerable groups whose experience
and risk of homeless, insecure housing and housing stress can be reduced. These include:
▪ increase in savings for other important household needs (i.e. nutritious food and
education)
▪ a stable environment (particularly for children) contributing to improved educational
outcomes and life prospects
▪ access to more suitable jobs and critical community services
▪ improved mental and physical health, improved quality of life and independence
(potentially freeing up family and friends to work), and
▪ creation of social and cultural capital that can only be formed in the central city
because of its taxpayer-funded endowment.
City of Melbourne Housing Needs Analysis
61
4. ICY
LEVERS
Recognising the substantial unmet need for social and affordable housing in the
City, and assuming that Council wants to play a part in addressing this problem, a
number of policy questions arise. Council must decide where it will operate on
the spectrum between ‘hands off’ advocacy through to direct investment of
ratepayer assets in the creation of affordable and social housing in the
municipality. The focus of Council’s efforts – from addressing homelessness to
creating opportunities for creative workers on moderate incomes – also needs to
be resolved. Once these matters are agreed, Council will be able to apply a range
of levers to advance its adopted objectives for social and affordable housing.
These mechanisms come with varying relevance and strengths and weaknesses
depending on Council’s agreed policy focus.
4.1
There are many forces and institutions driving housing affordability outcomes in the City of
Melbourne which are beyond the direct purview or influence of Council. These relate to
general economic conditions across the state and nation, monetary policy settings and the
dynamics of the housing cycle.
Nevertheless, Council is an important agent in the production of housing within its
jurisdiction. It can have a significant impact in this area in its own right and a bigger impact
through partnership with other Councils, institutions and the private sector.
It is useful to consider the potential contribution of Council as to local housing affordability
and affordable housing outcomes as falling into ‘three tiers’ (see Figure 34).
The first tier relates to running an efficient planning and development control system so that
the supply side of the market can respond as smoothly as possible to local demand. Were the
City of Melbourne to confine itself to this tier, it would be taking an entirely ‘hands off’ role in
the provision of social and affordable housing in the City, seeing this as exclusively the
province of State and Commonwealth Governments.
The second tier would see the Council going further in its policy efforts by facilitating local
affordable housing supply. This could occur, for example, by brokering partnership deals
between local providers and community-based groups. Council would also rigorously apply
whatever regulatory powers it has to induce social and affordable housing provision by
others, including applicants for permits under the Planning and Environment Act. Activity
under this tier would see Council take a strong advocacy position in favour of social and
affordable housing backed by a well-articulated policy and strategy.
Moving to the next tier, the Council itself becomes a direct agent of social and affordable
housing supply, investing ratepayer funds and other assets to this end.
As illustrated in Figure 35, a continuum of at least 6 optional roles for Council can be
identified based on the cumulative application of various tier based policy elements. Where
Council positions itself on this continuum will depend on the City of Melbourne’s appetite for
risk and the priority it places on this particular social issue.
City of Melbourne Housing Needs Analysis
62
FIGURE 34: THREE-TIERED APPROACH FOR THE PROMOTION OF AFFORDABLE HOUSING
Source: SGS Economics and Planning Pty Ltd
FIGURE 35: CONTINUUM OF ROLES FOR COUNCILS IN AFFORDABLE HOUSING
Source: SGS Economics and Planning Pty Ltd
4.2 The housing assistance spectrum
In addition to determining where Council wants to situate itself on the role continuum
discussed above, the CoM must resolve its priorities as to which groups of households in need
City of Melbourne Housing Needs Analysis
63
of social and affordable housing should be the focus of a municipal policy on these matters, as
distinct from the policies of the State and Commonwealth Governments.
A further continuum can be identified relating to targeted household types and the depth of
subsidy required to meet their housing needs. A version of this continuum is shown in Figure
36.
FIGURE 36: HOUSING CONTINUUM
Source: id, adapted from AHURI
On the left of the continuum are the types of housing which require the deepest explicit or
implicit subsidy from Government. These include crisis (emergency shelters and transitional
housing) and social rental housing. These types of housing are made affordable for
households with no income or very low levels of income experiencing severe disadvantage,
homelessness, exposure to family violence, disability or health issues necessitating an urgent
change in accommodation.
As noted in Chapter 2, social housing includes public housing owned and managed by the
State Government and housing owned and/or managed by state-registered housing
agencies
96
. Government-owned social housing typically accommodates households with the
highest need for housing assistance. Rents are typically less than 25 per cent of the gross
income of very low to low income households.
97
Affordable rental housing (sometimes referred to as community rental housing) is delivered
and managed primarily by housing agencies. It typically accommodates a slightly broader
group of households than Government owned social housing, ranging from high needs to low
through to moderate income earners.
While public housing and community housing both accommodate those who are facing
housing stress, community housing organisations can also specialise in assisting specific
groups, such as those with a disability, the elderly or women escaping domestic violence.
Affordable home ownership/shared ownership describes types of housing made affordable
for low to moderate income earners through various forms of shared-equity. That is, the
home buyer shares the capital cost of purchasing a home with an equity partner, such as a
not-for-profit trust or a community housing provider.
The housing supply continuum also includes various categories of market housing. These
include special needs private affordable rental housing directed at certain target markets such
as boarding houses and student accommodation. This housing may be eligible for
government subsidies.
Private market rental housing and home ownership can also satisfy the technical definition of
affordable when rents or mortgage payments are less than 30 per cent of households’
incomes. However, in the context of rising property prices and slow growth in wages and
96
Housing Associations and Community Housing Providers
97
Housing VIC (2019) http://www.housing.vic.gov.au/public-housing
City of Melbourne Housing Needs Analysis
64
government income support, the share of market housing that meets this criterion is
declining.
4.3 Policy levers and mechanisms
Overview
Depending on the role it wishes to play and the household types it wishes to assist, the City of
Melbourne can apply a wide array of ‘levers’ to achieve affordable housing outcomes. These
broadly fall into three overlapping categories (Figure 37).
FIGURE 37 COUNCIL INTERVENTIONS
Source: SGS Economics and Planning Pty Ltd
The ‘regulation’ group of interventions includes various mechanisms available to Council
under the Planning and Environment Act. These cover both voluntary and quasi-mandatory
arrangements whereby proponents provide affordable and social housing units or cash in lieu
in return for the awarding of development rights. More generally, Council routinely applies
its planning (regulatory) function in the maintenance of an efficient local housing market, by
ensuring that there are no undue constraints on the generation of housing supply.
In the ‘partnership and brokerage’ group of interventions, the Council might work with
private sector or community sector proponents to help them achieve affordable and social
housing outcomes. Examples include brokerage of partnerships between corporate
developers and registered community housing providers where the former are self-motivated
to include affordable housing in their projects. Similarly, Council might help private sector
advocates trial or demonstrate innovative projects which improve affordability, like build to
rent housing or the provision of affordable rental on community trust land. Another
important example is where Council works with the State Government to improve the
housing yield from public housing assets.
The ‘investment’ group of interventions would see Council applying its own assets – whether
this is cash, land or underwriting capacity – to directly generate an expansion of social and
affordable housing in the City. By way of example, Council has, in the past, provided buildings
for permanent or temporary use as homeless accommodation. Providing relief from rates
and various Council charges (including infrastructure and open space contributions) is another
form of effective ratepayer investment in pursuit of affordable and social housing objectives.
Mechanisms drawn from the three categories (see Figure 38) can be applied in tandem and in
various combinations. For example, Council might facilitate private sector innovation in ‘build
to rent’ by providing a rate rebate.
Some of the tools are more suitable at addressing particular categories of need across the
housing supply continuum than others. This is highlighted in Figure 39. The actual yield of
housing from any of these mechanisms within a given category in the housing supply
continuum is partially dependent on the income group which Council (or partner agency)
Investment
Partnerships
Regulation
City of Melbourne Housing Needs Analysis
65
targets. If moderate income groups are targeted – such as key workers - the implicit or
explicit subsidy required to bridge their affordability gap will be smaller. This will mean that
the application of the mechanism in question will generate more housing other things equal
compared to targeting lower income groups.
In Figure 40 we elaborate on the mechanisms currently, or prospectively, practised by local
governments across Victoria and Australia to improve social and affordable housing
outcomes. Further detail and case studies for selected mechanisms are provided in the
following pages.
FIGURE 38: LEVERS AND MECHANISMS TO ADVANCE SOCIAL AND AFFORDABLE HOUSING IN THE CITY OF
MELBOURNE
Source: SGS Economics and Planning Pty Ltd
PARTNERSHIP
INVESTMENT
REGULATION
Ad hoc voluntary agreements at
Planning Permit stage enforced
via s173 of the Planning &
Environment Act
Voluntary (s173) agreements at
Planning Permit stage backed by
strategic policy built into the
Melbourne Planning Scheme
Mandatory inclusionary
requirements at Planning Permit
stage
Floor area uplift in return for
provision of social and affordable
housing (value capture)
Uniform value capture provisions
incorporated into Planning
Scheme amendment
Planning waivers and concessions
in return for provision of
affordable and social housing
Facilitated redevelopment of
(State) public housing assets
Facilitation of innovative
affordable housing product -
Build to Rent
Facilitation of innovative
affordable housing product -
Rental housing on Community
Land Trust sites
Information and brokerage to
connect developers to registered
social housing providers
Vesting of Council land and
buildings for social and affordable
housing
Provision of an annual or one off
cash investment in social and
affordable housing provision
Waiver of rates and charges to
support social and affordable
housing projects
Establishment of a Trust to
receive and deploy affordable
housing contributions and Council
cash investments
City of Melbourne Housing Needs Analysis
66
FIGURE 39 SUITABILITY OF THE TOOLS VERSUS CATEGORIES IN THE HOUSING SUPPLY CONTINUUM
Source: SGS Economics and Planning Pty Ltd
City of Melbourne Housing Needs Analysis
67
FIGURE 40 AFFORDABLE HOUSING LEVERS AND MECHANISMS - OVERVIEW OF APPLICABILITY AND EFFICACY -
Examples
Benefits
Drawbacks
Scale of impact
Type of households assisted
Implementation
Regulation
Ad hoc voluntary
agreements at
Planning Permit
stage enforced via
S173 of the Planning
& Environment Act
> Readily available
under current
legislation. >
Development sector
is building a better
understanding of
Council
requirements
> Very labour
intensive; customised,
case by case
agreements required
> Can only be
enforced if the
proponent agrees.
Requirements unlikely
to survive if
challenged at VCAT
> Does not provide
clear expectations or
level playing field for
developers.
> CoM is not always
the Responsible
Authority
> Likely to produce only
small volumes of social and
affordable housing. > This
flow will be even lower if
Council targets the high
needs / very low income end
of the housing continuum.
Potentially relevant to the
full housing continuum
Can be implemented
immediately in CoM. Council is
already negotiating affordable
housing contributions on an ad
hoc basis, but officers do not
have the benefit of clear
authorising policy from Council
Regulation
Voluntary (s173)
agreements at
Planning Permit
stage backed by
strategic policy built
into the Melbourne
Planning Scheme
Approved
Fishermans Bend
6 per cent
affordable
housing target
> Provides a
stronger case to
'insist' on developer
agreement.
Planning permit
conditions likely to
be more robust at
VCAT >
Requirements of
developers can be
'codified' and
telegraphed in the
strategic policy
(Fishermans Bend
provides an
example). Because
proponents can
estimate their
> Ultimately, can only
be enforced if the
proponent agrees
> Untested, but could
generate a moderate flow of
affordable housing,
depending on Council's
preferred focus on the
housing continuum
Potentially relevant to the
full housing continuum
Implementation can commence
immediately with the
preparation of a Scheme
amendment, using the model
established by Fishermans Bend.
Final adoption of the amendment
could take between 12 months
and two years.
City of Melbourne Housing Needs Analysis
68
Examples
Benefits
Drawbacks
Scale of impact
Type of households assisted
Implementation
affordable housing
exposure in
advance, there
transaction costs
can be reduced.
> If the policy is
incorporated in the
Planning Scheme, it
could be applied
regardless of
whether the CoM is
the Responsible
Authority.
Regulation
Mandatory
inclusionary
requirements at
Planning Permit
stage
Not available in
Victoria (NSW
example - Ultimo
Pyrmont
Affordable
Housing Scheme)
> Immune from
appeal at VCAT
> Requirements of
developers would
be codified and
discoverable in
advance of site
purchase by
developers, thereby
reducing transaction
costs.
> Not available in the
current Victoria
Planning Provisions
(VPP)
> Were this mechanism to be
available, the housing yield
could be moderate to high,
depending on Council's
preferred focus on the
housing continuum
Potentially relevant to the
full housing continuum
Not available within the current
VPP. Would require discrete
State Government action to
introduce an Affordable Housing
Overlay or a Particular Provision
for incorporation of affordable
housing in all relevant
development with a cash in lieu
option (as per open space
requirements)
City of Melbourne Housing Needs Analysis
69
Examples
Benefits
Drawbacks
Scale of impact
Type of households assisted
Implementation
Regulation
Floor area uplift in
return for provision
of social and
affordable housing
(value capture)
Am 270
Melbourne
Planning Scheme
and Fishermans
Bend Social
Housing for Floor
Area Uplift
Scheme
> Principle of public
benefit in return for
floor area uplift now
well established in
Victorian planning
practice. It is
already embedded
in the Melbourne
Planning Scheme via
Am C270.
> There is the
potential to extend
the model to other
growth areas in the
City and include a
more ambitious
value capture
regime.
> Can apply
regardless of
whether CoM is the
Responsibility
Authority
> Some critics of Am
C270 claim it is
'complex'. (The
equivalent Fishermans
Bend scheme is
simpler but less
flexible)
> Depending on how
the public benefit
obligation is specified,
there could be little
incentive for
developers to opt for
provision of affordable
housing. At present,
under AmC270 most
developers opt to
include office
floorspace as this is an
admissible public
benefit in that
Scheme.
> Low given current
calibration of the public
benefit to floor area uplift
ratio.
> AmC270 is yet to deliver
any social housing after 2
years of operation.
Potentially relevant to the
full housing continuum
Can be implemented
immediately using established
models. These can be
recalibrated to improve social
and affordable housing yield
Regulation
Uniform value
capture provisions
incorporated into
Planning Scheme
amendment
Am C088 Hobsons
Bay Planning
Scheme (though
this process led to
very low value
capture rate 5
per cent of
dwellings to be
offered to
affordable
housing providers
at 25 per cent
discount)
> It should be
possible to require a
substantial
contribution for
public benefit,
including affordable
housing, when land
is being up-zoned. >
There are several
examples across
Melbourne where
this has been
attempted.
> There is still strong
resistance to value
sharing because land
traders factor in a
speculated value uplift
into their transactions.
> Potentially high for any
given site.
Potentially relevant to the
full housing continuum
> Arden Macaulay could produce
significant social and affordable
housing under this mechanism,
but there are many other public
sector calls on this prospective
value uplift.
City of Melbourne Housing Needs Analysis
70
Examples
Benefits
Drawbacks
Scale of impact
Type of households assisted
Implementation
Regulation
Planning waivers
and concessions in
return for provision
of affordable and
social housing
> Waivers of
parking
requirements
where there is
discretion under
the Planning
Scheme
> Has a long history
of practice across
Victoria / Australia
> Conceptually flawed
in that some public
benefits are sacrificed
to achieve another
(social and affordable
housing)
Likely to be small and erratic
Potentially relevant to the
full housing continuum
> Can be implemented
immediately, via adoption of
suitable Council guidelines
around what discretionary
requirements may be waived or
relaxed.
Partnership
Facilitated
redevelopment of
(State) public
housing assets
> There are some
significant Director
of Housing holdings
in the City which
may be able to
sustain higher
housing yield
> State Government
projects to redevelop
public housing estates
in partnership with
the private sector
have proven
controversial
> Could be high for individual
sites but moderate to low
across the City as a whole
> Very low income
households
> Would require a partnership
MoU with State Government
Partnership
Facilitation of
innovative
affordable housing
product - Build to
Rent
> There is latent
private sector
interest in build to
rent
> The level of subsidy
required to induce
Build to Rent is
unclear
> Could be substantial,
especially if institutional
investment in Build to Rent is
mobilised via tax breaks and
other subsidies
> Moderate income
households
> In principle, there is no
impediment to immediate
implementation. > Council could
improve the viabilty of Build to
Rent by advocating for new
definitions and zonings for this
use, thereby implicitly reducing
land values
Partnership
Facilitation of
innovative
affordable housing
product - Rental
housing on
Community Land
Trust sites
> CoM could apply
lessons from many
examples of this
approach in other
jurisdictions
> Labour intensive;
each project would
likely require a
customised
agreement
> Likely to be very low
Potentially relevant to the
full housing continuum
> In principle, there is no
impediment to immediate
implementation.
City of Melbourne Housing Needs Analysis
71
Examples
Benefits
Drawbacks
Scale of impact
Type of households assisted
Implementation
Partnership
Information and
brokerage to
connect developers
to registered social
housing providers
> This is a low risk /
low cost option for
Council
> By itself, this
mechanism could be
seen as tokenistic
> Likely to be very low
> Low income households
> In principle, there is no
impediment to immediate
implementation.
Investment
Vesting of Council
land and buildings
for social and
affordable housing
> Tangible evidence
of Council
commitment to
boosting social and
affordable housing
> Likely to be
administratively
costly, requiring
considerable
investment in project
management
> By itself, likely to be low
Potentially relevant to the
full housing continuum
> As demonstrated by City of Port
Phillip and others, Council could
proceed now.
Investment
Provision of an
annual or one off
cash investment in
social and
affordable housing
provision
City of Port Phillip
'In our Backyard'
policy
> Opportunity to
leverage Council
cash flows via
housing agency
borrowings >
Administratively less
onerous than land
dedications
> Council would need
to gauge ratepayer
appetite for such a
scheme
> By itself, likely to be low
Probably very low income
households and homeless
> As demonstrated by City of Port
Phillip and others, Council could
proceed now.
Investment
Waiver of rates and
charges to support
social and
affordable housing
projects
> Administratively
simple > More likely
to win popular
support
> Hidden subsidy - less
accountable
> By itself, likely to be low
Probably very low income
households and homeless
> In principle, there is no
impediment to immediate
implementation.
Investment
Establishment of a
Trust to receive and
deploy affordable
housing
contributions and
Council cash
investments
> Tangible evidence
of Council
commitment to
boosting social and
affordable housing
> Could be seen to be
duplicating other
instruments already
available for funds
pooling (e.g. the trusts
set up by other
relevant agencies)
> The Trust itself would not
generate housing
Potentially relevant to the
full housing continuum
> In principle, there is no
impediment to immediate
implementation.
City of Melbourne Housing Needs Analysis
72
Regulatory levers
Ad hoc voluntary agreements - S173 of the Planning & Environment Act
Under Section 173, the Planning and Environment Act provides a general purpose tool
whereby proponents can enter into binding agreements with the permit issuing authority
about any (lawful) matter. These agreements typically ‘run with the land’, so that subsequent
purchasers of the property in question carry the same legal obligation to comply with the
agreement.
As noted, S 173 is a general purpose tool – it is not specifically designed to advance social and
affordable housing objectives, though it can be used for this purpose.
Agreements made under S 173 must be just that, genuine agreements. A permit issuing
authority cannot coerce a proponent into committing to certain actions or development
contributions, including for social and affordable housing. There is a long history of failed
attempts by Councils to enforce ‘one sided’ agreements when proponents have challenged
these conditions at VCAT. Having said this, some proponents may be motivated to enter into
agreements to undertake works or provide contributions they otherwise would be disinclined
to undertake or provide simply to de-risk their projects and save time.
Voluntary S 173 agreements have been used on numerous occasions to enforce various forms
of affordable and social housing conditions where the parties have, indeed, found common
ground. These conditions can range from the transfer of dwellings to a registered housing
agency at zero cost or a discounted price through to a time limited reservation of a certain
number of dwellings at a discounted rent.
In judging the appropriateness or otherwise of proposed S173 agreements, VCAT addresses
itself to the lawfulness and planning merits of what the approval authority is proposing. Until
recently one of the common points of contention in these matters was the question of
whether it is fair or reasonable for planning approvals to venture into the territory of social
and affordable housing as, arguably, these fall exclusively into the policy domain of State and
Commonwealth Government redistributive programs.
A counter argument has been that ‘sustainability’ under planning legislation and regulations is
defined broadly to include social as well as ecological and built form matters. In this context,
it is appropriate for planning authorities to require proponents to modify their projects in the
interests of improved social sustainability, including through contributions to the local social
and affordable housing stock.
Amendments to the Planning and Environment Act, undertaken in 2017 and coming into
force on June 1 2018, have resolved this area of contention, at least to a degree. The Act now
has a specific objective “to facilitate the provision of affordable housing in Victoria”. The
same amendments introduced a definition of ‘affordable housing’, as discussed in 2.1 of this
report.
These amendments mean that the City of Melbourne can seek to enter into ad hoc
agreements for various forms of social and affordable housing contributions with greater
confidence.
Voluntary agreements backed by strategic policy in the Melbourne Planning Scheme
Notwithstanding the advance offered by the 2017 amendments to the Planning and
Environment Act, Councils do not have ‘carte blanche’ to prosecute affordable and social
housing conditions in their development approvals. Recent VCAT proceedings underline the
requirement for Councils to have a sound ‘strategic basis’ for any affordable and social
housing requirements they might seek to agree with proponents.
City of Melbourne Housing Needs Analysis
73
For example, the proponents of a 31 level / 382 apartment development 826 Whitehorse
Road, Box Hill successfully appealed against the Council’s proposed S173 agreement for ‘10
dwellings as social or affordable homes to be used by a housing authority’.
In handing down its decision, VCAT (2019) noted “The Whitehorse Planning Scheme has
general state and local policy to support and encourage affordable housing. …. These are
broad aspirational policies of the planning scheme, not specific policy or provisions directed to
this site. They do not provide a nexus to directing a specific number of dwellings being
transferred or secured for affordable housing in order to achieve an acceptable outcome, or
net community benefit.”
VCAT further noted that more specific provisions existed in other planning schemes, and they
had much clearer parameters about when a benefit was needed.
The revised planning rules adopted by the State Government for Fishermans Bend in October
2018 provide an example of these ‘specific provisions’ to back voluntary agreements.
The Fishermans Bend Framework (2018) sets out the Victorian Government’s confirmed
approach to statutory planning controls in this redevelopment area. The Framework includes
two distinct initiatives in relation to social and affordable housing; a 6 per cent affordable
housing target and a floor area uplift scheme for the provision of additional social housing.
We return to the floor area uplift scheme later in this section.
The 6 per cent target obliges proponents to apply their ‘best endeavours’ to incorporate
affordable housing – as defined in the Planning and Environment Act – within the maximum
building envelope set by the Framework’s Dwelling Density Ratio (DDR) for the site in
question. As noted in the Framework…
Fishermans Bend is an opportunity to increase the supply of a diverse range of,
affordable housing, including social housing. The aim is for at least six per cent of
housing across Fishermans Bend to be affordable. This includes a range of affordable
housing models, typologies, and occupancies, from short-term crisis accommodation
through to long-term secure housing for people with special needs, the aged and key
workers employed in essential services.
Importantly, the 6 per cent target is not mandatory. Proponents cannot be forced into
affordable housing agreements under S173. Moreover, there is no obligation on proponents
to pursue particular types of affordable housing were they of a mind to enter into such
agreements. For example, they could legitimately focus on those forms of affordable housing
which are least costly to them or to those parties selling development sites.
Nevertheless, the 6 per cent target is an important advance insofar as there is a strong onus
of proof on proponents as to why they cannot comply, and this onus can be expected to be
strongly pursued in review forums like VCAT.
The basis of the 6 per cent target is unclear; many parties to the proceedings leading up to
the adoption of the Framework argued for targets between 10 per cent and 20 per cent. In
any case, the 6 per cent has statutory backing in this particular part of Melbourne.
Potentially, the City of Melbourne could develop and adopt an equivalent target for
application across other parts of the municipality, including major redevelopment areas. The
VPA’s vision for Arden Macaulay already includes 6 per cent affordable housing target.
SGS’s analysis reported in Section 5 suggests that a target of up 10 per cent could be adopted
without distorting the local housing market.
The research included in this report can be used as the basis for strategic policy to back a
consistent voluntary contributions scheme across the municipality.
City of Melbourne Housing Needs Analysis
74
Mandatory inclusionary requirements at Planning Permit stage
Conceptually, any development contribution requirement, whether in the affordable housing
area or elsewhere, will fall into one of four mutually exclusive and additive categories – user
pays charges, impact mitigation payments, value sharing requirements and inclusionary
provisions. An overview of these categories, including the relevant principles for cost
apportionment, is provided in Figure 41.
FIGURE 41 TYPES OF DEVELOPMENT CONTRIBUTION
Source: SGS Economics and Planning
Inclusionary provisions are premised on minimum acceptable standards of development with
the proponent sometimes having the option to fulfil the required performance standard off-
site through a cash or in-kind contribution. Cash-in-lieu schemes have been operated for the
fulfilment of car parking requirements for decades and are now formalised in the Victorian
Planning Provisions (VPP). Cash payments in lieu of provision of 5 per cent (or more) of land
for public open space upon approval of subdivision is another example of the ‘inclusionary
standards’ premise for requiring cash or in-kind contributions from a development
proponent.
As indicated in the diagram, the premise of inclusionary requirements for development
contributions is quite different to the other rationales for requiring cash or in-kind
contributions (user pays, impact mitigation and value sharing) and could reasonably be
applied in addition to all three of these other measures.
There is a strong in principle case for mandatory inclusionary requirements for social and
affordable housing contributions. As mentioned, social and affordable housing is a ‘must
have’ environmental attribute of urban development to ensure sustainability in much the
same way as open space provision is. This broad interpretation of the essential attributes of a
sustainable place is sanctioned by the expansive definition of ‘environment’ applied in
modern town planning practice. ‘Environment’ is now taken to include the social as well as
the natural and built form aspects of development.
Despite the strength of this argument, and the use of mandatory inclusionary zoning for social
and affordable housing in other Australian jurisdictions (see text box below), the Victorian
Government has, thus far, stopped short of enabling such provisions in the state’s planning
USER PAYS
CONTRIBUTIONS
IMPACT MITIGATION VALUE SHARING
INCLUSIONARY
REQUIREMENTS
JUSTIFICATION
Proponents should contribute
towards planning infrastructure in
line with projected share of usage
JUSTIFICATION
Proponents are responsible for
100% of the cost of making good
unanticipated off-site effects,
including infrastructure impacts
JUSTIFICATION
Proponents are required to share
part of the uplift in land value
brought about by re-zoning or
granting of additional height or
density
JUSTIFICATION
Proponents must meet certain
development standards on site or
pay for these to be satisfied off-
site, to meet requirement for
cumulative sustainability
EXAMPLES
Development Contribution Plan
levies
EXAMPLES
Make good conditions on
development approvals
EXAMPLES
Growth Area Infrastructure
Charge (Vic)
AmC270 Melbourne Planning
Scheme
Conditions for value sharing built
into Planning Scheme
amendments to enable particular
EXAMPLES
Parking requirements and cash in
lieu schemes
Open space requirements and
cash in lieu schemes
(Prospectively) affordable housing
requirements
City of Melbourne Housing Needs Analysis
75
system. Rather, the Victorian Government has preferred to limit itself to voluntary
agreements (albeit with stronger targets) and modest forms of value sharing as discussed
below.
At this stage, were Council to favour the application of mandatory inclusionary requirements,
its only option is to advocate for the adoption of an appropriate tool in the Victoria Planning
Provisions. In this context, it should be noted that through the IMAP forum, the inner city
municipalities have already developed a ‘ready to implement’ draft VPP Overlay to give effect
to mandatory inclusionary zoning, following the Ultimo Pyrmont model.
City of Melbourne Housing Needs Analysis
76
MANDATORY INCLUSIONARY ZONING IN SYDNEY’S ULTIMO PYRMONT
The longest running mandatory Inclusionary Zoning scheme in Australia applies in
Sydney’s Ultimo Pyrmont urban redevelopment precinct. This former industrial/port
district in the inner city was the subject of a State and Commonwealth ‘Building Better
Cities’ initiative in the early 90s, under which a targeted amount of affordable housing
would be maintained in the neighbourhood as it transformed into an otherwise exclusive
area for well remunerated ‘knowledge workers’. A special purpose, not for dividend
company – City West Housing Ltd – was created by the State Government to own,
operate and, where necessary, build the targeted affordable housing. The requisite
housing was to be procured via a one off Better Cities capital grant from the
Commonwealth, an agreed proportion of the value of State Government land sales in the
precinct and the proceeds, both cash and in kind, from the Inclusionary Zoning (IZ)
scheme applying in the area.
In its latest version, the City West IZ scheme requires developers to provide affordable
housing at a rate of 0.8 per cent of the total floor area to be used for residential
purposes and 1.1 per cent of the total floor area that is not intended to be used for
residential purposes. In 2009/10, the cash in lieu rates were $30.97/m
2
for residential
development and $44.49/m
2
for non-residential development. City West Housing Ltd
reported IZ cash contributions from developers of some $54 million in the 2016/17
financial year (including contributions from an additional nearby urban renewal precinct
known as ‘Green Square’).
The target set on the launch of the City West Affordable Housing Scheme in 1994 was
that some 600 dwellings would be acquired in Ultimo Pyrmont over 30 years as
permanently affordable rental stock for very low, low and moderate income households.
This target has already been well surpassed.
CITY WEST AFFORDABLE HOUSING (ULTIMO PYRMONT)
City of Melbourne Housing Needs Analysis
77
Floor area uplift at planning permit stage
There are two formally adopted floor area uplift schemes in metropolitan Melbourne,
applying in the Central City and Fishermans Bend
98
. The Central City scheme – introduced via
Am C270 to the Melbourne Planning Scheme – offers proponents the option of providing
social housing in return for additional development rights, while the award of additional
density in Fishermans Bend Scheme is exclusively tied to the transfer of social housing.
Both floor area uplift schemes are a form of value sharing under the typology shown in Figure
41. Proponents can exceed a nominal dwelling density ratio or number of storeys provided
they meet design rules and deliver a commensurate public benefit. As we explain in Section
5.1, the value of the development site is increased when additional development density or
height is permitted. The provision of social and affordable housing is a means by which the
proponent may share this uplift in land value with the wider community.
Value sharing requirements have their own separate justification from user pays, impact
mitigation and inclusionary development contributions.
Regulation of land use and development through planning schemes in Victoria represents a
form of restriction on market access necessitated by the objective of economic efficiency. The
Victorian Government deliberately and systematically rations access to ‘development rights’
via planning regulations. Governments apply this rationing because it is expected to generate
a net community benefit (that is, an efficiency or welfare gain) compared to allowing urban
development to proceed on a ‘laissez faire’ basis.
The value of regulated development rights is capitalised into the price of land. For example,
other things equal, a piece of land which is enabled for use as a major shopping centre will be
more valuable than land without this privileged access to retail centre development rights.
Similarly, land enabled for a multi-storey apartment building will be worth more than
otherwise equivalent land designated for a single household dwelling, and so on. And land
zoned for mixed use residential will be more valuable than land designated for industrial uses.
As occurs with other regulated markets, for example, commercial fisheries, mineral
exploitation, broadcasting bandwidth and so on, it is appropriate to charge a licence fee for
access to these regulated development rights
99
.
Provision of social and affordable housing in
payment for additional development rights can, therefore, be construed as the payment of a
licence fee.
Key features of AmC270 and Fishermans Bend schemes are discussed in the following pages.
Melbourne Planning Scheme Amendment C270
What are the height, FAR and FAU limits?
▪ FAR = 18:1
▪ FAU = no upper limit
▪ Heights:
▪ In the General Development Areas (GDA) there are no overall building heights.
However, Commonwealth aviation controls (above 226-228m AHD) and additional
overshadowing of public open spaces are considerations.
98
A further scheme is mooted for West Melbourne (AmC309)
99
See Spiller, M., Spencer, A. and Fensham, P. (2017) Value capture through development licence fees, Occasional Paper
published by SGS Economics & Planning Pty Ltd, February 2017
City of Melbourne Housing Needs Analysis
78
What was the justification for setting the FAR?
The aim of the FAR control and the justification for adopting 18:1 benchmark for the General
Development Areas is outlined in the following extracts from Central City Built Form Synthesis
Final Report:
▪ “The proposed allowable Floor Area Ratio on sites within the general development
areas is 18:1. This aims to achieve two purposes:
− Setting realistic and clear expectations about what a potential reasonable yield of
a typical development site could be; and
− Establishing a threshold density which triggers a value-sharing contribution
towards community infrastructure.”
100
▪ “Setting an allowable Floor Area Ratio is not an exact science that will determine the
‘perfect’ ratio. Rather, it is about setting a reasonable threshold, where the FAR is
considered commensurate with a scale of development that can be accommodated
on a typical site without causing the negative built form and amenity impacts that
have been apparent with many recent developments.”
101
▪ “This threshold has been set through an iterative process of architectural testing for
two case study precincts in the Hoddle Grid and Southbank. The built form testing led
to the establishment of a range of Floor Area Ratios that were able to meet the
defined built form objectives. The built form testing in the Hoddle Grid indicated an
average feasible plot ratio of 18.3:1 in the Hoddle Grid and 18.0:1 in Southbank”
102
▪ “An allowable FAR of 18:1 would place Melbourne at the highest end of allowable
densities globally, somewhat above cities such as Sydney, New York and Chicago. The
combination of an allowable FAR control with a planning framework that incentivises
the delivery of public benefit through permitting increased development yield, is
accepted practice in Australia and internationally with demonstrable benefits.”
103
The Panel report on Amendment C270 noted that the 18:1 FAR was high but in the absence
of an alternative proposal it was adopted:
How are contributions under the FAU scheme calculated?
A guidelines document “How to calculate Floor Area Uplifts and Public Benefits” provides
direction on the method of calculating the FAU contribution, the public benefits categories
and methods for valuing each type of benefit.
The FAU contribution is calibrated to the residual land value (RLV) increase associated with
the floor space that is above the 18:1 threshold. The calculation method set out in the
guideline first estimates the Gross Realisation Value (GRV) of the additional floor space then
calculates the RLV as 10 per cent of the GRV. The guideline includes a map and schedule of
rates and provides the GRV/RLV rates by precinct and land use (see Figure 42 and Figure 43).
These rates are subject to annual review to ensure that they align with current land and
property values. In this sense, the FAU scheme is not a set-and-forget arrangement but one
where there is a genuine attempt to calibrate the value of public benefits to the value created
via the planning decision.
100
Central City Built Form Synthesis Final Report 2016, page 92.
101
Ibid, page 93.
102
Ibid, page 93.
103
Ibid, page 93.
City of Melbourne Housing Needs Analysis
79
FIGURE 42: GROSS REALISATION VALUES PER SQUARE METRE (1 JANUARY 2016)
Source: Melbourne C270 How to calculate Floor Area Uplifts and Public Benefits November 2016, page 2
FIGURE 43: AMENDMENT C270 GRV PRECINCTS MAP (TO BE READ WITH TABLE ABOVE)
Source: Melbourne C270 How to calculate Floor Area Uplifts and Public Benefits November 2016, page 2.
City of Melbourne Housing Needs Analysis
80
What types of contributions are permitted?
104
Five explicit categories of public benefit area described:
▪ publicly accessible open areas on site (additional to any public open space
contribution under Clause 53.01 of the Planning Scheme)
▪ publicly accessible enclosed areas within the proposed building
▪ affordable housing within the proposed building
▪ competitive design process for design of the proposed building, and
▪ strategically justified uses including office on site or within the proposed building.
The guidelines note that proposals for other types of public benefit will be considered if they
are agreed to be of comparable relevance and value.
FIGURE 44: EXAMPLE CALCULATION FROM C270 GUIDELINE DOCUMENT
Source: Melbourne C270 How to calculate Floor Area Uplifts and Public Benefits November 2016
Limitations
The FAU and public benefit scheme in the central city has been in operation for a relatively
short period of time, yet it is somewhat unlikely, in its current form at least, to provide
affordable housing as a community benefit. The reasons for this are twofold. Firstly, the 18:1
threshold before the FAU requirements take effect is a very high benchmark. A significant
number of new developments will fail to exceed this density and therefore will not be
104
Melbourne C270 How to calculate Floor Area Uplifts and Public Benefits November 2016
City of Melbourne Housing Needs Analysis
81
required to make any public benefit contributions. Secondly, should a proposal exceed the
18:1 limit, the proponent is likely to prefer to provide commercial floor space as a community
benefit, rather than any other benefit categories listed. It would be illogical for a developer to
provide affordable housing at zero consideration when there is an alternative, revenue
generating option available. This ‘loophole’ is likely to undermine the operation of the policy
in terms of securing genuine community benefits in the foreseeable future.
Fishermans Bend Amendment GC81
What are the height, FAR and FAU limits?
The Fishermans Bend Review Panel devoted significant time and effort to reconciling growth
forecasts, density controls, planning for land use mix, community benefit (FAU) mechanisms
and affordable housing requirements.
The Review Panel’s report ultimately recommended that FARs be abandoned in favour of
dwelling density controls. The multiple and varied reasons for this recommendation are
outlined in Chapter 7 of the Review Panel’s report but might be summarised by the Review
Panel’s suggestion that: “The FAR is trying to do too many things at once and as such is likely
to fail at doing any of them well.”
105
The Fishermans Bend Urban Design Strategy suggested an average FAR of 3.4:1 was needed
to support the population target by 2050 for the Fishermans Bend precinct.
106
The draft
Amendment for Fishermans Bend included FAR controls that ranged from 2.1 to 7.4 and
included a policy on the minimum requirement for commercial floor space (see Figure 45).
FIGURE 45: FISHERMAN’S BEND FLOOR AREA RATIOS
An FAU mechanism was also proposed with three categories of community benefit:
affordable housing, additional open space and community infrastructure. The FAU scheme
was intended to create an incentive for the provision of affordable housing by allowing
proponents to build eight additional private dwellings at a 'price' of one affordable housing
dwelling built and transferred to an appropriate managing authority at no cost (Figure 46).
105
Fishermans Bend Planning Review Panel, Report No. 1 – Volume 1, 19 July 2018
106
Fishermans Bend Urban Design Strategy, page 75
City of Melbourne Housing Needs Analysis
82
FIGURE 46: PUBLIC BENEFIT RATIOS
Source: How to Calculate Floor Area Uplifts and Public Benefits in Fishermans Bend
Dwelling density control recommendations
In place of FARs, the Review Panel’s recommended a range of dwelling densities be applied,
expressed as dwellings per hectare. Their final recommendations are set out in the second
row of the table below.
These densities were derived from the Review Panel’s assessment of appropriate densities for
each Precinct (discussed in Chapter 2.4 of their report). They estimate that the proposed
densities would increase the lower end population range for Fishermans Bend at 2050 from
80,000 to 98,000. They go on to suggest that this leaves scope for the social housing uplift
mechanism (see below) to operate within the difference between those population estimates
and the upper bounds estimate of 120,000.
FIGURE 47: RECOMMENDED DWELLING DENSITIES FOR FISHERMANS BEND
Source: Fishermans Bend Planning Review Panel, Report No. 1 – Volume 1, 19 July 2018, page 72.
Floor area uplift scheme for social housing ('social housing uplift')
The initial proposal for three categories of public benefits was narrowed to a single benefit
category of social housing (as distinct from the broader definition of 'affordable housing'
which is also used in the Fishermans Bend planning controls). The Review Panel favoured the
narrow focus for the uplift mechanism as it was more likely to generate the desired and
required social housing.
The scheme is based on a public benefit ratio approach where the requirement for public
benefit (social housing) is calculated via a ‘gifting’ ratio. In this case, the ratio is 8:1, which
means for every 8 additional dwellings permitted as FAU, the proponent is required to
provide 1 social housing dwelling.
Assuming that 100 per cent of the land value uplift from the FAU is ‘converted’ to a public
benefit (social housing), the 8:1 ratio implies that land value for 8 market dwellings is
equivalent to the total value of one affordable housing dwelling.
City of Melbourne Housing Needs Analysis
83
Although this approach differs from Amendment C270 which uses dollar values to translate
land value uplift value to community benefits, the ratio approach is similar in terms of
underlying land economics. The equivalent ratio in the Amendment C270 area would be 10:1.
Interestingly, the Review Panel did not believe that it was presented with sufficient evidence
to justify the 8:1 ratio. Its report states: "The Review Panel does not consider it appropriate to
endorse the proposed 8:1 ratio on the evidence before it. However, it represents a starting
point."
107
The Panel did not appear to be concerned that the dwelling ratio approach might allow for
'gaming' on the part of developers who might, for example, seek permission for 8 additional 3
bedroom dwellings while gifting a single one bedroom social housing dwelling to meet the 8:1
obligation. Although this is an extreme example it does highlight how the dwelling ratio
approach might lead to some perverse outcomes.
In other jurisdictions, it is commonplace for social or affordable housing obligations to be
expressed as a proportion of the additional floor space or as a proportion of the number of
bedrooms
108
. Either of these approaches would reduce the incentive for developers to
manipulate the type and size of the proposed FAU dwellings in their favour. These
alternatives might also result in more equitable obligations between sites.
Value capture provisions incorporated into rezonings
In the cases of the Central City and Fishermans Bend, value capture is being pursued in the
context of land which is already zoned for higher order uses.
Value capture strategies to support social and affordable housing provision can, and have
been applied, in situations where land is being ‘upzoned’ from, say, industrial to residential or
mixed use. Recent examples include the rezoning of industrial land in Altona North and the
former Amcor site at Alphington.
Amendment C88 to the Hobsons Bay Planning Scheme (approved October 2018) rezones
industrial land to enable development of a new medium density suburb in Altona North. It
will facilitate the redevelopment of an area under multiple land holdings known as ‘Precinct
15’. This amendment included a requirement for a minimum of 5 per cent of all dwellings to
be made available to housing agencies at a 25 per cent discount on market price. This
targets 150 of the proposed 3,000 dwellings in Precinct 15.
Given that in other value capture schemes (such as Fishermans Bend and Melbourne Central
City), social housing units are intended to be transferred at zero cost, the 5 per cent
affordable housing ‘requirement’ in Altona North is, in fact, closer to 1.25 per cent.
Recognising that the underlying land value uplift enabled by the rezoning was estimated by EY
to be some $360 million, and assuming that each social housing unit has an acquisition cost of
around $500,000, the rate of value capture in Altona North is a very low 5.2 per cent.
During the panel hearing for Am C88, several key issues were raised:
▪ whether there is state policy support for affordable housing
▪ what is a reasonable amount of affordable housing for the precinct
▪ how a requirement for affordable housing should be implemented.
Hobsons Bay City Council had argued for a mandatory 10 per cent affordable housing,
consistent with its adopted Affordable Housing Policy Statement 2016.
The Panel found that this was the first time Council had pursued an affordable housing
requirement that specifically required the provision of 10 per cent social and affordable
housing. The Panel suggested that if the Council’s local policy was part of the planning
107
Fishermans Bend Planning Review Panel, Report No. 1 – Volume 1, 19 July 2018, page 98.
108
The bedroom approach is used in London – see Affordable Housing and Viability Supplementary Planning Guidance.
City of Melbourne Housing Needs Analysis
84
scheme and had been reviewed by DELWP or a Panel, then it may have been more willing to
support the 10 per cent requirement.
The Panel also found that in the absence of a state-wide framework for the provision of
affordable housing it was difficult to support an approach that was generally ‘not consistent
with others tested, including the mandatory gifting of housing.
The Alphington Amcor site rezoning also included a nominal 5 per cent affordable housing
contribution. However, most of the units in question will only be made available to registered
housing agencies on a 10 year lease.
These two examples demonstrate that the absence of definitive guidance from the State
Government about how to measure and share value uplift from rezonings has severely
compromised the affordable and social housing yield from such planning scheme
amendments, even though the underlying public policy case for value capture is strong and
widely accepted.
The City of Melbourne has limited opportunities for value capture from discrete rezonings,
though these principles are clearly very relevant to the future of Arden Macaulay.
Planning waivers and concessions
Councils occasionally seek to assist social and affordable housing provision by offering
proponents incorporating such accommodation various cost or time saving benefits. These
can include:
▪ Waiving car parking requirements
▪ Rebates on any development contributions which may be applicable, and
▪ Access to the priority or fast track development assessment process.
These levers are no doubt welcome on the part of proponents, but they do raise some thorny
issues. Waiving of planning standards which would otherwise be applicable implies that the
quality of a development or its environmental performance on other grounds can be
compromised to achieve the benefit of affordable housing.
Similarly, critics might argue that Councils should provide timely development assessment
processes to all development proponents in the interests of creating an efficient housing
market overall.
Partnership levers
Facilitated redevelopment of social housing assets
In partnership with existing Housing Associations in City of Melbourne, Council can identify
existing property assets that can be effectively and viably leveraged to realise an increased
affordable housing yield through appropriate redevelopment, including the opportunity to
tap any Victorian and Commonwealth Government partnership funding.
Similarly, Council can identify and facilitate opportunities to pilot new delivery models and
increase the yield, diversity and/or quality of housing in existing public housing estates.
Facilitation of innovative affordable housing product - Build to Rent
Build to Rent (BTR) is attracting significant popular commentary as a potential ‘market led’
response to affordable housing needs. The sector is still in its infancy in Australia, and its
relevance to low and moderate income groups (as defined for the purposes of the Planning
and Environment Act) is ill-defined. The City of Melbourne could play a pro-active role in
shaping BTR practice, pending removal of some of the key barriers which are controlled
(principally) by the Commonwealth Government.
BTR is a development and business model whereby investors build apartments to hold
indefinitely rather than retail to multiple owner-occupiers or minor investors.
City of Melbourne Housing Needs Analysis
85
Industry groups such as the Property Council see the BTR sector as a solution to growth in a
market downturn and a welcome first step in creating a sector that will deliver high quality
rental homes and stable long term yields for investors.
109
Developers of BTR properties tend to be larger, specialised, property management
companies, such as Australian developer Mirvac, backed by institutional investors, such as the
Clean Energy Finance Corp.
110
Other Australian examples of BTR projects are shown in the
text box.
There is no direct nexus between BTR and housing affordability per se. That is, BTR can be
configured to achieve affordability outcomes but these are not implicit in the model itself.
Occupants of BTR in the UK and USA generally have above the median income
111
. In contrast
to affordable housing, mainstream BTR buildings have high quality public space, excellent
environmental performance and a focus on on-site amenities where residents are offered
concierge services, pool facilities and communal rooftops.
Although not as common, there have been examples where BTR projects have provided
affordable housing, particularly for key workers. Legal and General developed 440 homes on
former Ferry Lane Industrial Estate in London and offered a proportion of homes at a 20 per
cent discount to accommodate local key workers.
Unlike Australia, BTR is a common form of housing in the US, especially in larger cities.
According to CBRE, the overall success of BTR is largely made possible by preferential
mortgage market arrangements in the US. This includes the Multifamily Tax Exemption and
US government backed lending programs not available for other housing supply models.
112
BTR is growing rapidly in the UK. According to the British Property Foundation, policy support
from local and national governments has contributed to the overall success of BTR in the UK.
109
www.propertycouncil.com.au/Web/Content/News/National/2018/Build-to-rent_builds_momentum.aspx.
110
https://www.afr.com/real-estate/mirvac-launches-buildtorent-with-first-investor-clean-energy-finance-corp-20180731-
h13d9y
111
https://www.londonfirst.co.uk/sites/default/files/documents/2018-04/Build-to-Rent.pdf
112
CBRE (2017) US Multifamily Housing: A Primer for Offshore Investors.
CURRENT AUSTRALIAN BUILD TO RENT PROJECTS
Gold Coast, QLD
▪ Grocon has partnered with UBS AM to deliver over 1,200+ apartments
under a BTR model by converting the former Commonwealth games
village.
Sydney, NSW
▪ Mirvac and UBS have launched the syndicated club fund of $390m called
Liv by Mirvac to deliver BTR projects, the first of which is in Sydney
Olympic Park.
Melbourne, VIC
▪ Grocon development on City Road Southbank with 410 apartments over
61 levels to be delivered as a BTR model.
▪ Salta Properties has launched two BTR developments in Docklands and
Richmond, Victoria.
▪ Make Ventures and Assemble launched an innovative long term rent-to-
buy model in Kensington, Vic. The development had 3,000 application for
73 apartments, evidencing the market demand for this type of product.
Perth, WA
▪ Element 27 in Subiaco is expected to lease to its first tenants in April-19.
The development includes 93 apartments.
City of Melbourne Housing Needs Analysis
86
For example, the Government Housing White Paper
113
released in 2017 allowed for changing
planning rules so councils could proactively plan for more build to rent homes where there is
a need, making it easier for BTR developers to offer affordable private rent in place of other
types of affordable home. Furthermore, the draft New London Plan sets out a different
approach to assessing the viability of BTR developments opening up a fast track route and
bypassing costly negotiations through the planning system.
114
In contrast to the US and UK, significant barriers must be overcome for BTR to establish itself
in Victoria.
Under current tax arrangements, BTR schemes operated through a Managed Investment
Trusts (MIT) are taxed at 30 per cent of profits which seriously dampens the attractiveness
and competitiveness of this asset class.
BTR developers are not entitled to claim back the GST costs of construction, resulting in a 10
per cent premium on the overall cost of the project compared to a typical build to sell a
project.
The owners of BTR projects also face land tax bills levied annually on increasing land values. It
is interesting to note, however, that low cost accommodation and boarding houses are
exempt from land tax.
Many of the barriers facing BTR in Victoria sit with the Commonwealth Government.
Although fundamental tax regime changes are unlikely, various current and prospective
Commonwealth Government programs could work in favour of BTR.
It is worth highlighting the January 2019 announcement of the first funds released through
the Affordable Housing Bond Aggregator (AHBA) managed by the National Housing Finance
Investment Corporation (NHFIC) for low cost affordable housing. The purpose of this is to
113
Department for Communities and Local Government (2017). “Fixing Our Broken Housing Market.”
114
www.london.gov.uk/sites/default/files/new_london_plan_december_2017.pdf
GOVERNMENT BTR INCENTIVES IN THE U.S.
Multifamily Tax
Exemption
The MFTE program provides a tax exemption to developers and owners of new
multi-family buildings who set aside 20-25 percent of their units as income-and
rent-restricted for low to moderate income households.
Freddie Mac and
Fannie Mae
Freddie Mac is short for the Federal Home Loan Mortgage Corporation and
Fannie Mae is short for the Federal National Mortgage Association
Fannie Mae and Freddie Mac were created by Congress. They perform an
important role in the US housing finance system – to provide liquidity (ready
access to funds on reasonable terms), stability and affordability to the
mortgage market.
Most importantly, the majority of the apartments that Fannie and Freddie
finance are designed to be affordable to tenants on low and moderate incomes
Fannie and Freddie do not lend directly to apartment investors, Instead, they
shoulder financial risks on loans that are underwritten by commercial mortgage
companies. In a process known as securitisation, the agencies buy the loans,
package them up and sell them on to investors. If borrowers default, Fannie
and Freddie potentially have to cover big chunks of the losses.
For example. Fannie Mae has helped finance 465 Washington Street in New
York. Of 107 units, 20 units were reserved for low-income households. The
remainder were let at market rates.
City of Melbourne Housing Needs Analysis
87
raise money at lower rates from the wholesale bond market for not-for-profit community
housing providers. BTR projects could potentially tap this source of debt finance.
Also noteworthy is that the federal Opposition has foreshadowed the introduction of subsidy
program along the lines of the erstwhile National Rental Affordability Scheme. These income
streams could also shore up the viability of BTR, especially where low and moderate income
tenants are involved.
Council has limited power and influence to boost actual BTR construction, other than through
a direct investment role (see below).
Facilitation of innovative affordable housing product - Community Land Trust
As summarised by Crabtree et al (2012), Community Land Trusts (CLTs)…
“are a form of common land ownership where land is usually held by a private non-
profit organisation and leased on a long term basis to members of the community or
other organisations. Buildings and services on that land are then held as owned or
leased properties by residents, businesses and/or other community housing
providers”
115
.
CLTs are typically referenced as a means of expanding a home ownership-like product to
moderate and lower income groups. Buyers, in effect, take a shared equity position in their
dwelling, being the built asset component.
However, CLTs can also be established to provide long term land tenure for providers of
affordable rental housing. These providers can similarly enjoy a major cost benefit in not
having to secure land at full market rates.
A careful audit of community owned land in the City of Melbourne, comprising properties
controlled by faith groups, service clubs and philanthropic bodies could well reveal a
considerable stock of sites. If packaged and managed so as to tap into established funding
sources (including NHFIC financing, subsidies under the State Government’s Homes for
Victorians policy and a prospective revitalised NRAS), this portfolio of land could be deployed
to generate significant affordable housing opportunities in partnership with the registered
housing agencies.
Council could play a role in supporting the land audit process and brokering partnerships
between CLT investors and housing agencies.
Information and brokerage
A low cost and low risk policy lever for Council would be to ensure that all stakeholders are
well informed about affordable housing needs and opportunities in the City. This could
involve:
▪ regular publication of research on key affordable housing indicators
▪ hosting inter-sectoral ‘venture fairs’ introducing developers, philanthropists,
government policy experts and housing agencies, and
▪ sponsoring the discovery and dissemination of best practice principles for delivery of
affordable housing, for example, through fact finding missions interstate or the
assembly of interstate experts to provide advice locally.
115
Crabtree, L., Phibbs, P., Milligan, V. and Blunden, H. (2012) Principles and practices of an affordable housing Community
Land Trust model, AHURI
City of Melbourne Housing Needs Analysis
88
Investment levers
Vesting of Council assets
This intervention would see Council making a long-term commitment to investing ratepayer
equity in the provision of local social and affordable housing, recognising that this is
important local infrastructure.
The exemplar Council in this area is Port Phillip, which has a 30-year history of involvement in
the provision of social housing. The City owned and managed social housing stock from 1985
to 2006, much of which was rooming house accommodation. The City of Port Phillip
Municipal Strategic Statement lists ‘supporting a diversity of people across all six of its
neighbourhood planning areas’ as a key community goal. In meeting this goal, Council chose
to become actively involved in the provision of housing to protect disadvantaged residents
from rental inflation in an otherwise rapidly gentrifying municipality.
The Port Phillip Housing Association (PPHA) was established in 1985 to manage the City’s
housing stock. In 2006 the City of Port Phillip and the PPHA established the Port Phillip
Housing Trust (PPHT). PPHA acts as the Trustee and the City of Port Phillip serves as governor
of the Trust. The PPHA sought and received official registration with the State Government to
continue to access joint venture funding from the DHHS. The City of Port Phillip transferred
the titles of 12 of its 17 social housing projects to the PPHT in 2006. In part, these reforms
reflected Council’s desire to divest itself of the role of housing developer.
The City has supported the PPHA (as trustee of the PPHT) with an ongoing capital injection of
around $400,000 subsidy per year, plus access to surplus Council properties for social housing
projects. More recently, the City has canvassed the possibility of spreading its annual
investment to a broader range of local providers, including niche organisations geared to the
needs of particular demographic groups or districts.
Were Council to desire a direct role in social and affordable housing provision, there are a
range of proven models from elsewhere in Melbourne that it could follow.
Annual or one-off cash investment
Following the Port Phillip model and that of the Social Housing Growth Fund established by
the State Government, Council could look to provide cash assistance to suitable social and
affordable housing projects.
Through the Social Housing Growth Fund, the State Government proposes to build up a $1
billion endowment fund, the annual returns on which (targeted to be $70 million) would be
awarded to various proponents with innovative and/or effective schemes to generate
sustainable affordable housing. Such support is competitively awarded.
Waiver of rates and charges
Waiving of Council rates and charges that would otherwise apply on social and affordable
housing providers is also a form of direct financial support for these outcomes. However,
they are less transparent and accountable.
Housing Trust
A number of Councils, including Port Phillip, Moreland and Hobsons Bay, have established, or
plan to establish Housing Trusts to support their social and affordable housing policies.
These Trusts are not policy instruments in themselves. Rather they are a means of
consolidating and deploying funding and asset streams from disparate sources. These could
include cash in lieu of development contributions and philanthropic donations.
The additional costs and loss of economies of scale with the proliferation of local Housing
Trusts is an issue. The City of Melbourne could consider purchasing Trusts services from
another Council.
City of Melbourne Housing Needs Analysis
89
4.4 Implementation and impact
As we have shown, some of the listed mechanisms are relatively readily applied in the City
because Council has the authority to move in its own right. Others are dependent on State
Government providing the required authorising environment. For example, there is no
current mechanism in the Victoria Planning Provisions for the enforcement of mandatory
inclusion of affordable housing in new developments in the City, although a number of policy
statements suggest that the State Government may consider enabling reforms in this area.
As well as their capacity for successful implementation within a reasonable period (say 2
years), the mechanisms can also be differentiated in terms of the quantum of affordable
housing they are likely to generate over, say, the period to 2036. Figure 48 below shows
SGS’s assessment of housing yield versus ease of implementation for each of the mechanisms.
It is evident that many of the levers that can be readily applied will have a moderate to low
impact on the level of need in the City. Council needs to be mindful of the effort/return ratio
as it contemplates strategic responses to the affordable housing challenge in Melbourne. This
is underlined by Figure 49 which indicates that those levers where Council ‘can go it alone’
without further external authorisation, including vesting of Council land, waiving of rates and
charges and provision of planning concessions, are not likely to generate significant flows of
affordable housing.
FIGURE 48 HOUSING YIELD VERSUS PROBABILITY OF SUCCESSFUL IMPLEMENTATION
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
90
FIGURE 49 HOUSING YIELD, LEVEL OF COUNCIL INFLUENCE AND SCALE OF IMPACT
Source: SGS Economics and Planning
4.5 Synthesis
Were Council to be motivated to address the considerable and rapidly growing shortage of
social and affordable housing in the City, it would need to resolve these policy questions:
▪ What role to play from hands off advocacy through to direct investment in social
housing?
▪ Who to target with this policy effort, from those in or at risk of homelessness through
to ‘key’ and creative workers?
▪ How to deliver the adopted social and affordable housing aspirations via regulatory,
partnership and investment levers?
The array of policy levers open to Council is extensive, but no single mechanism can be
expected to make a major dent in the level of need by itself. While the State Government has
clarified that the planning system can and should have a role in affordable housing provision,
it is yet to endorse mechanisms such mandatory Inclusionary Zoning and development
licensing arrangements that could mobilise a significant flow or social and affordable housing
in Melbourne.
City of Melbourne Housing Needs Analysis
91
5. ECONOMIC CASE FOR
INTERVENTION
Any intervention that Council might make to mitigate the social and affordable
housing shortfall in the City will not be cost free. These interventions might
dampen development activity and generate other unwanted effects. This Chapter
of the report assesses the market impacts of Council action, assuming that Council
could, and would, enforce development contributions for social and affordable
housing. The Chapter also investigates whether any costs generated by these
interventions are outweighed by positive impacts leading to a net community
benefit.
5.1 Property market impacts of inclusionary requirements
Framing in the context of notional mandatory contributions
The purpose of this analysis is to investigate the potential effect of notional mandatory
affordable housing requirements on land values and the quantum of redevelopment activity
in the City of Melbourne.
We recognise that, as things stand, there is no provision for mandatory inclusionary
requirements in the Victorian planning system. However, we have framed this analysis on the
assumption that such a tool is available and that Council would choose to apply it. From an
‘adverse market impact’ point of view, this establishes a worst case scenario.
Research question and data sources
This analysis relies on an assessment of the residual land values (RLV) that would result from
the development of those sites likely to be available for new housing in the next 20 years.
Data provided by the City of Melbourne on available sites and their respective capacities has
been used as a key input in this assessment.
The key question this analysis seeks to address is whether the imposition of social and
affordable housing requirements, through the planning system, would dampen the residual
land values to the point where development sites will be withheld from the development
process.
For the sake of this analysis it has been assumed that planning-related affordable housing
obligations will be satisfied via the transfer of newly constructed dwellings to registered
housing agencies at zero consideration.
Residual land value and development feasibility
Development feasibility is typically assessed by comparing the RLV to the existing use value
(or, where appropriate next highest value for a site). The RLV can be thought of as the
maximum amount a rational developer would pay for a development site. RLV is estimated
by deducting all development costs, including profit and risk, from anticipated revenues. The
amount left over from the equation – the ‘residual’ – is capitalised into the value of the land.
This is shown conceptually in Figure 50.
City of Melbourne Housing Needs Analysis
92
A development is feasible if the RLV is sufficient to entice the current landowner to sell their
site for redevelopment. What is deemed ‘sufficient’ will vary from site to site and landowner
to landowner. It is a function of a range of factors including the income generated by the
existing use, options for alternative future uses, general market conditions and individual
landowner circumstances and motivations.
FIGURE 50 RESIDUAL LAND VALUE APPROACH TO VALUING LAND
Source: SGS Economics and Planning
Impact of affordable housing on property markets
Commentary on the economic impact of additional development costs (development
contributions, open space requirements, affordable housing, etc.) typically assumes that
these costs can be, and will be, passed forward, meaning that they are added to the price
faced by end buyers, whether they be owner-occupiers or investors. However, this
perspective overlooks the fact that developers of new housing cannot simply increase the
price of new housing to cover higher input costs. Developers are ‘price takers’ rather than
‘price makers’: the price of new dwellings (or any other marketed floorspace) is determined
by the operation of broader housing markets that include both existing dwellings and new
dwellings in other locations.
The most likely impact of additional development costs, where they are known in advance, is
that they will be passed back to the owners of potential development sites. Because land for
development is valued on a residual basis (see discussion above), additional development
costs reduce the RLV and therefore the amount a rational developer will be willing to pay for
a development site.
Passing additional development costs backwards, reducing the RLV, will impact development
feasibility. The key question when assessing the impact of affordable housing requirement on
property development is to determine whether the RLV, after the requirements are
considered as a development cost, is sufficient enticement for the incumbent landowner to
sell their land to a prospective developer.
Approach
SGS’s analysis of these issues involved the following steps:
1. Creating a generic RLV model, populated with preliminary cost and revenue assumptions
(sourced by SGS and reviewed by m3property).
2. Incorporating available land and density data from Council’s ‘development capacity
project’ into the RLV model.
3. Mapped and spreadsheet analysis of potential development sites to determine the
number and location of residential development projects that are theoretically viable.
4. Assessing the impact of affordable housing requirements on development project
viability.
City of Melbourne Housing Needs Analysis
93
5. Determine what share of viable projects might be abandoned or deferred because of
reduced residual land values versus the capitalised value of current rent streams.
Data and assumptions
Study area
The study area includes all of the City of Melbourne. However, the areas designated Port
Melbourne and West Melbourne (Industrial) have been excluded given these precincts are
unlikely to be redeveloped in the next 20 years.
City of Melbourne housing capacity data
To identify sites available for housing in the future our modelling has drawn on residential
capacity data provided by the City of Melbourne. This data set identifies sites likely to be
available for future redevelopment and provides an estimate of the gross floor space that
might be developed.
This capacity modelling does not proport to identify where or when development will occur.
It simply identifies potential opportunities for residential development across the City.
Available land
The housing capacity dataset provided by Council included a total of 13,847 sites with a total
area of 26,987,301 square metres. Of these sites, 1,337 (around 10 per cent) were deemed
available for development. The total area of available sites is approximately 460 hectares.
The following lot characteristics were used in Council’s capacity model to determine sites that
are unlikely to accommodate residential development in the future:
▪ lots less than 200 sqm in area
▪ all lots subject to heritage overlays (with the exception of HO1, HO2 and HO3)
▪ sites were the existing floor space is greater than 75 per cent of estimate of potential
floor space
▪ lots zoned C1Z, C2Z or Special Use
▪ sites with more than 5 owners
▪ sites with irregular geometry
▪ parks (based on both GIS layers and zoning data), and
▪ sites with development activity (in the City’s Development Activity Monitor) which
are currently being developed, are approved for development or have planning
permit applications currently under consideration.
Potential density of future residential development
The capacity or density of redevelopment was provided in the City’s housing capacity dataset.
This was estimated using a range of criteria, in order of preferred application:
▪ for urban renewal area the average floor area ratio for that precinct (these values
may not be site by site)
▪ parametric modelling of the DDO using City Engine (DD10 in particular)
▪ for remaining areas capacity was estimated as the 75 per cent percentile of built
densities for each zone/neighbourhood combination, and
▪ any GRZ1 zoned sites were capped at a maximum of 2 dwellings.
The capacity data also included estimates of dwelling sizes and the proportion of gross floor
space that would be residential (i.e. excluding common areas, parking, non-residential floor
space). This data was derived from a sample of current residential buildings in each precinct.
City of Melbourne Housing Needs Analysis
94
FIGURE 51: DWELLING SIZE ASSUMPTIONS FROM CITY OF MELBOURNE CAPACITY DATA
Precinct
Average dwelling size (sqm)
Melbourne CBD
56.05
Southbank
57.00
Docklands
63.00
North Melbourne
59.50
Carlton
59.60
Parkville
66.10
East Melbourne
105.00
West Melbourne (Residential)
54.10
Kensington
98.00
South Yarra/Melbourne (Remainder)
73.65
Source: City of Melbourne residential capacity data, 2018.
Existing floor space
Existing floor space has been used in SGS’s modelling to estimate demolition costs and
existing sites values.
Existing floor space was derived from Census of Land Use and Employment (CLUE) data
provided by the City of Melbourne. This data includes separate ‘space use’ categories for
each site (i.e. “bps_base_id”). The space use categories were filtered to determine those that
are likely to generate revenues for the purpose of existing site values.
Estimates of site-specific existing use values based on net annual value
Existing site values have been estimated using CLUE data on existing floor space and space
use categories, estimated rental return per square metre of floor space and yield
assumptions. These are shown in Figure 52 below. These figures were reviewed by
m3property.
Revenue assumptions for new residential development
Revenues assumptions in the model are based on square metre rates for the net saleable
floor space as set out in Figure 53 below.
These values are preliminary estimates only that have been derived from the Gross
Realisation Values published in the guidelines for estimating the monetary value of
community benefits contributions published with Amendment C270 to the Melbourne
Planning Scheme. These values are reproduced below at Figure 42 on page 79.
We have assumed the rates in this guideline are per square metre of gross floor area and
have thus converted them to rates per square metres of net saleable floor area using the
gross to net floor space efficiency rate (75 per cent for all hypothetical development
projects). A 5 per cent discount was then applied to bring the result in-line with current
market values. m3property reviewed these rates before their application in SGS’s modelling.
City of Melbourne Housing Needs Analysis
95
FIGURE 52: ASSUMPTIONS FOR ESTIMATING EXISTING USE VALUES
Floor space use
Net rent per sqm
gross floor space
(estimate)
Yield
(estimate)
Implied gross
realisation
value/sqm gross
floor space
Commercial Accommodation
$250
5.0%
$5,000
Institutional Accommodation
$250
5.0%
$5,000
House/Townhouse
$240
3.5%
$6,857
Residential Apartment
$290
4.5%
$6,444
Student Accommodation
$720
9.0%
$8,000
Office
$400
5.5%
$7,273
Retail - Shop
$500
5.0%
$10,000
Retail - Showroom
$300
6.5%
$4,615
Manufacturing
$150
5.0%
$3,000
Hospital/Clinic
$600
5.5%
$10,909
Storage
$125
5.0%
$2,500
Workshop/Studio
$150
5.0%
$3,000
Educational/Research
$400
5.0%
$8,000
Unoccupied - Unused
$250
5.0%
$5,000
Transport/Storage - Uncovered
$275
4.0%
$6,875
Performances, Conferences, Ceremonies
$250
5.0%
$5,000
Wholesale
$125
5.0%
$2,500
Entertainment/Recreation - Indoor
$250
5.0%
$5,000
Community Use
$250
5.0%
$5,000
Public Display Area
$250
5.0%
$5,000
Source: SGS Economics and Planning
FIGURE 53: REVENUE PER SQUARE METRE NET SALEBLE AREA
Precinct
GRV/sqm NSA
Melbourne CBD
$9,250
Southbank
$8,650
Docklands
$8,650
North Melbourne
$9,000
Carlton
$9,000
Parkville
$8,000
East Melbourne
$11,000
West Melbourne (Residential)
$8,750
Kensington
$7,500
South Yarra/Melbourne (Remainder)
$8,500
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
96
Feasibility assessment
As outlined, the fundamental test applied in the modelling to determine whether a
hypothetical development is feasible was to compare the RLV of that development to the
existing use value of the site plus the margin that is required to motivate the landowner to
sell. Put simply, a hypothetical development is feasible when:
RLV >= EUV+
For the current modelling, the margin represented by the ‘+’ is 20 per cent of the existing site
value.
Where affordable housing requirements are introduced into the feasibility equation, the
required proportion of dwellings are deducted from the estimated revenue while the cost of
constructing them is included. There are consequential adjustments to GST and marketing
costs. The net effect of these changes is a reduction in the RLV. A hypothetical development,
with an affordable housing requirement, is deemed feasible when:
RLV (with AH) >= EUV+
The following sub-sections discuss the preliminary results of applying these tests to those
sites deemed available in the City’s housing capacity data.
Capacity for housing on available sites
Based on the City’s housing capacity criteria as described above, and the density assumptions
provided with this dataset, there is capacity for an estimated 176,000 new dwellings in the
municipality. Note that only a proportion of these would be commercially feasible on today’s
costs and revenues (see below).
Most of this gross capacity is in four precincts: Docklands (32,000); the CBD (34,000); North
Melbourne – which include Arden and Macaulay (47,000) and Southbank (30,000).
FIGURE 54: AVAILABLE SITES AND ESTIMATED DWELLING CAPACITY
Precinct
Sites
per cent of sites
Dwellings
per cent of
dwelling capacity
Carlton
81
6%
9,256
5%
Docklands
39
3%
32,217
18%
East Melbourne
71
5%
1,004
1%
Kensington
215
16%
6,233
4%
Melbourne (CBD)
184
14%
34,233
19%
North Melbourne
363
27%
46,779
27%
Parkville
151
11%
8,875
5%
South Yarra
46
3%
648
0%
Southbank
46
3%
30,146
17%
West Melbourne (Residential)
138
10%
6,109
3%
Melbourne (Remainder)
3
0%
439
0%
Total
1,337
100 per cent
175,940
100 per cent
Source: City of Melbourne residential capacity data, 2018. Note: dwelling counts differ from CoM figures due to the global
application of 75 per cent efficiency rate (gross to net floor space).
City of Melbourne Housing Needs Analysis
97
Feasibility of residential development on available sites
As explained, feasibility of development has been determined for each available site by
comparing the RLV to the existing use value plus 20 per cent.
Of the 1,337 sites and 176,000 dwellings in the capacity dataset, preliminary modelling
suggests that redevelopment of 494 sites would be commercially feasible. These sites would
host 116,500 dwellings (see Figure 55 and Figure 56). This accounts for 37 per cent and 66
per cent of the total sites and total dwellings in the housing capacity dataset respectively.
Feasible sites are most common North Melbourne, the CBD, Kensington, South Yarra and
West Melbourne. In terms of total dwelling numbers on feasible sites, North Melbourne has
43,000 and Southbank and Docklands have around 20,000 each.
The location of feasible sites is shown in Figure 58.
FIGURE 55: FEASIBLE SITES – BASE CASE (NO AFFORDABLE HOUSING REQUIREMENT)
Precinct
All sites
per cent of all
sites
Feasible site
per cent of
feasible sites
Carlton
81
6%
26
5%
Docklands
39
3%
22
4%
East Melbourne
71
5%
19
4%
Kensington
215
16%
43
9%
Melbourne (CBD)
184
14%
68
14%
North Melbourne
363
27%
194
39%
Parkville
151
11%
5
1%
South Yarra
46
3%
43
9%
Southbank
46
3%
31
6%
West Melbourne (Residential)
138
10%
42
9%
Melbourne (Remainder)
3
0%
1
0%
Total
1,337
100%
494
100%
Source: SGS Economics and Planning
FIGURE 56: FEASIBLE DWELLINGS – BASE CASE (NO AFFORDABLE HOUSING REQUIREMENT)
Precinct
All dwellings
per cent of all
dwellings
Feasible
dwellings
per cent of
feasible
dwellings
Carlton
9,256
5%
5,936
5%
Docklands
32,217
18%
20,290
17%
East Melbourne
1,004
1%
554
0%
Kensington
6,233
4%
4,367
4%
Melbourne (CBD)
34,233
19%
12,138
10%
North Melbourne
46,779
27%
43,840
38%
Parkville
8,875
5%
7,238
6%
South Yarra
648
0%
618
1%
Southbank
30,146
17%
17,847
15%
West Melbourne (Residential)
6,109
3%
3,406
3%
Melbourne (Remainder)
439
0%
246
0%
Total
175,940
100%
116,481
100%
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
98
FIGURE 57: EXISTING USE VALUE OF AVAILABLE SITES (ESTIMATE – DARKER = HIGHER)
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
99
FIGURE 58: RELATIVE FEASIBILITY OF AVAILABLE SITES (BLUE = FEASIBLE; RED = NOT FEASIBLE)
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
100
Impact of affordable housing requirements
The impact of affordable housing requirements is measured by discounting revenues in the
hypothetical developments but maintaining the same cost assumptions. The effect is to
reduce the RLV. Comparing the new residual land value to the existing use value plus (EUV+)
for each site generates a reduced number of feasible sites.
The tables below show the impacts of 5 per cent and 10 per cent affordable housing
requirements on the number of feasible sites and the total potential dwellings on those sites.
A five percent affordable housing requirement reduces the number of feasible sites from 494
to 451 – a 9% reduction. This in turn reduces the number of feasible dwellings from 116,500
to 109,600 – a 6% reduction.
FIGURE 59: FEASIBLE SITES – 5 PER CENT AFFORDABLE HOUSING REQUIREMENT
Precinct
Count of
feasible sites
(base case)
Proportion of all
feasible sites
(base case)
Count of
feasible sites
(5 per cent AH)
Proportion of all
feasible sites
(5 per cent AH)
Carlton
26
5%
24
5%
Docklands
22
4%
20
4%
East Melbourne
19
4%
15
3%
Kensington
43
9%
35
8%
Melbourne (CBD)
68
14%
63
14%
North Melbourne
194
39%
186
41%
Parkville
5
1%
4
1%
South Yarra
43
9%
41
9%
Southbank
31
6%
30
7%
West Melbourne (Residential)
42
9%
32
7%
Melbourne (Remainder)
1
0%
1
0%
Total
494
100%
451
100%
Source: SGS Economics and Planning
FIGURE 60: FEASIBLE DWELLINGS – 5 PER CENT AFFORDABLE HOUSING REQUIREMENT
Precinct
Count of
feasible
dwellings
(base case)
Proportion of all
feasible
dwellings sites
(base case)
Count of
feasible
dwellings
(5 per cent AH)
Proportion of all
feasible
dwellings
(5 per cent AH)
Carlton
5,936
5%
5,427
5%
Docklands
20,290
17%
18,583
17%
East Melbourne
554
0%
492
0%
Kensington
4,367
4%
3,056
3%
Melbourne (CBD)
12,138
10%
11,576
11%
North Melbourne
43,840
38%
42,982
39%
Parkville
7,238
6%
6,939
6%
South Yarra
618
1%
604
1%
Southbank
17,847
15%
17,583
16%
West Melbourne (Residential)
3,406
3%
2,148
2%
Melbourne (Remainder)
246
0%
246
0%
Total
116,481
100%
109,636
100%
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
101
A ten percent affordable housing requirement reduces the number of feasible sites from 494
to 404 – an 18% reduction. This in turn reduces the number of feasible dwellings from
116,500 to 103,400 – a 16% reduction.
FIGURE 61: FEASIBLE SITE – 10 PER CENT AFFORDABLE HOUSING REQUIREMENT
Precinct
Count of
feasible sites
(base case)
Proportion of all
feasible sites
(base case)
Count of
feasible sites
(10 per cent AH)
Proportion of all
feasible sites
(10 per cent AH)
Carlton
26
5%
24
6%
Docklands
22
4%
19
5%
East Melbourne
19
4%
14
3%
Kensington
43
9%
25
6%
Melbourne (CBD)
68
14%
51
13%
North Melbourne
194
39%
172
43%
Parkville
5
1%
4
1%
South Yarra
43
9%
34
8%
Southbank
31
6%
29
7%
West Melbourne (Residential)
42
9%
31
8%
Melbourne (Remainder)
1
0%
1
0%
Total
494
100%
404
100%
Source: SGS Economics and Planning
FIGURE 62: FEASIBLE DWELLINGS – 10 PER CENT AFFORDABLE HOUSING REQUIREMENT
Precinct
Count of
feasible
dwellings
(base case)
Proportion of all
feasible
dwellings sites
(base case)
Count of
feasible
dwellings
(10 per cent AH)
Proportion of all
feasible
dwellings
(10 per cent AH)
Carlton
5,936
5%
5,427
5%
Docklands
20,290
17%
17,048
16%
East Melbourne
554
0%
462
0%
Kensington
4,367
4%
2,632
3%
Melbourne (CBD)
12,138
10%
10,364
10%
North Melbourne
43,840
38%
42,158
41%
Parkville
7,238
6%
6,939
7%
South Yarra
618
1%
504
0%
Southbank
17,847
15%
15,483
15%
West Melbourne (Residential)
3,406
3%
2,118
2%
Melbourne (Remainder)
246
0%
246
0%
Total
116,481
100%
103,381
100%
Source: SGS Economics and Planning
Sensitivity testing
For illustrative purposes only, the tables below demonstrate the impact of progressively
increasing the affordable housing requirements on development feasibility. A one percent
affordable housing requirement reduces the number of feasible sites by 7 (1% of feasible
sites) whereas a 20 per cent requirement reduce this number by 265 (54% of feasible sites)
This corresponding reductions in feasible dwellings are 221 (<1%) and 41,360 (54%).
City of Melbourne Housing Needs Analysis
102
FIGURE 63: IMPACT OF VARIOUS AFFORDABLE HOUSING REQUIREMENTS – FEASIBLE SITES
Affordable housing per cent
Feasible sites
(no affordable
housing
requirements)
Feasible sites
with affordable
housing
requirement
Reduction in
feasible sites
due to AH
requirement (%)
Reduction in
feasible sites
due to AH
requirement
(count)
1.0 per cent
494
487
1%
7
2.0 per cent
494
483
2%
11
3.0 per cent
494
473
4%
21
4.0 per cent
494
457
7%
37
5.0 per cent
494
451
9%
43
6.0 per cent
494
443
10%
51
7.0 per cent
494
438
11%
56
8.0 per cent
494
425
14%
69
9.0 per cent
494
412
17%
82
10.0 per cent
494
404
18%
90
12.0 per cent
494
379
23%
115
14.0 per cent
494
347
30%
147
16.0 per cent
494
309
37%
185
18.0 per cent
494
272
45%
222
20.0 per cent
494
229
54%
265
Source: SGS Economics and Planning
FIGURE 64: IMPACT OF VARIOUS AFFORDABLE HOUSING REQUIREMENTS – FEASIBLE DWELLINGS
Affordable housing per cent
Feasible
dwellings
(no AH)
Feasible
dwellings with
AH requirement
Reduction in
feasible
dwellings due to
AH requirement
(%)
Reduction in
feasible
dwellings due to
AH requirement
(count)
1.0 per cent
116,481
116,260
0%
221
2.0 per cent
116,481
114,579
2%
1,902
3.0 per cent
116,481
113,971
2%
2,510
4.0 per cent
116,481
110,407
5%
6,073
5.0 per cent
116,481
109,636
6%
6,844
6.0 per cent
116,481
107,121
8%
9,360
7.0 per cent
116,481
105,449
9%
11,032
8.0 per cent
116,481
104,590
10%
11,891
9.0 per cent
116,481
103,828
11%
12,653
10.0 per cent
116,481
103,381
11%
13,100
12.0 per cent
116,481
100,984
13%
15,497
14.0 per cent
116,481
91,677
21%
24,804
16.0 per cent
116,481
83,804
28%
32,676
18.0 per cent
116,481
81,139
30%
35,342
20.0 per cent
116,481
75,121
36%
41,360
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
103
Discussion
Preliminary modelling results
The analysis demonstrates some key dynamics in the property market with respect to future
housing supply. These can be summarised as follows:
▪ Of the total land area in the City, only a fraction will be available for new residential
development in the next 20 years.
▪ Regardless, there is likely to be significant theoretical capacity for housing growth
owing to several larger redevelopment areas, and the relatively high densities that
might be achieved in the City in general.
▪ Only a proportion of sites identified as being available for housing will be feasible to
redevelop. Of 1,377 sites identified as being available for redevelopment, 494 were
identified as being feasible (see Figure 55).
▪ The introduction of affordable housing requirements will reduce revenues will reduce
the number of sites that are feasible (see Figure 61 and Figure 62).
▪ Higher affordable housing requirements will have a greater impact on feasibility and
more widespread property market impacts (see Figure 63).
Market impact
There is a projected requirement for approximately 88,000 additional dwellings in the City of
Melbourne to accommodate population growth between 2016 and 2036. Current planning
approvals, which may or may not be acted upon, provide for around 60,000 dwellings. SGS’s
high level modelling shows that a mandated requirement for 10 per cent affordable housing
(delivered via gifting) across all new development in the City would still leave a stock of
commercially feasible development opportunities with capacity for 103,000 dwellings. This
suggests that the introduction of mandated inclusionary requirements up to 10 per cent
would not distort the City of Melbourne housing market; housing supply would have ready
scope to adjust to demand over the next 20 years. However, the mix of development sites
could change compared to a scenario where mandated inclusionary requirements were not
applied. That is, some landowners would be adversely impacted, but the overall housing
market would still deliver the required supply.
Limitations and cautions
The high level modelling we have described necessarily brings a number of limitations. Of
note, the decision rules built into the City of Melbourne development capacity model are
open to critique and/or adjustments. To recap the criteria:
▪ All land zoned C1Z was excluded.
▪ Sites with more than five owners were excluded. In the case of commercial strata
buildings some of these sites could still be considered available for development.
▪ All sites with development activity (in the City’s Development Activity Monitor) were
excluded (i.e. sites being development, sites approved for development and sites
with planning permit application currently under consideration). This impact of
affordable housing requirements on these sites has not been tested.
▪ Some sites with substantial existing developments were included even though in
some instances the result is counter-intuitive. For example, two notable and
substantial buildings in 1 Spring Street and 222 Exhibition Street fall into the
developable pool under the decision rules in the City’s capacity model. This occurs
because the current level of development is under the threshold for exclusion
(existing development being greater than 75 per cent of potential floor space
calculated at a floor area ratio of 18:1).
City of Melbourne Housing Needs Analysis
104
Notwithstanding the last of these points, SGS’s view is that, overall, the decision rules in the
City of Melbourne capacity model make for a conservative estimate of the potential future
supply of housing in the municipality.
Certain limitations in SGS’s feasibility modelling approach also need to be noted.
Feasibility was determined by comparing an ‘existing use values’ to RLVs. Due to data
constraints, these existing use values were estimated by calculating the capitalised value of
the net annual rents. These rent estimates are not site specific.
SGS’s feasibility model also assumes that the mandatory affordable housing transfers will be
valued in the developer’s feasibility study at full market price rather than construction
cost. In practice, developers would have a lower GST exposure and selling costs on gifted
affordable housing units would be negligible. As a result, SGS’s estimate of the reduction in
RLV as a result of a mandatory inclusionary requirement is likely to be higher than what would
be found in a real-world feasibility study
116
.
There is scope for further work to refine the findings of SGS’s modelling. That said, the
general direction of the limitations in the modelling is to over-estimate any adverse impact on
the withdrawal of development sites from mandatory inclusionary requirements. Our broad
conclusion that the introduction of such requirements would not unduly distort the market
holds as a sound hypothesis for policy development in this area.
5.2 Cost benefit analysis of mandatory affordable housing
requirements
Major regulatory initiatives in Victoria must be demonstrated to generate a net community
benefit. That is, the value of welfare gains by beneficiaries moving from a normal business
scenario to the new regulatory regime must be shown to be greater than the value of any
welfare losses from this shift, when expressed in present value terms.
If the regulatory reform delivers a net community benefit in these terms, it is deemed to
result in a more economically efficient allocation of Victoria’s collective resources than under
the business as usual scenario.
Cost benefit analysis methodology
There is an established discipline and method for conducting CBAs in Victoria. This is
common to all Australian jurisdictions.
In short, a CBA must address the full spectrum of environmental, social and business impacts
of the regulatory proposal at hand. Positive and negative effects are quantified and
monetised (expressed in dollar terms) as far as possible and then compared. This leads to a
conclusion as to whether the proposal is likely to make the community better off, in net
terms, compared with persevering with business as usual conditions.
The principal steps in the generic cost benefit analysis method (see Figure 65) include:
1. Differentiating between the outcomes under a ‘business as usual’ or ‘base case’
scenario and those arising with the regulatory initiative in question (the ‘with project’
scenario).
2. Identifying the economic, social and environmental costs and benefits that might
arise in moving from the ‘base case’ to ‘with project’ scenario.
3. Quantifying and monetising these costs and benefits, where possible, over a suitable
project evaluation period (in this case 20 years).
116
It is also assumed that affordable dwellings will be provided at zero cost to a housing association. However, this is not a
material assumption, as a range of affordable housing requirements were tested. For example, a 5 per cent requirement
provided at no cost will be equivalent to a 10 per cent requirement provided to a housing association at 50 per cent of the
market rate
City of Melbourne Housing Needs Analysis
105
4. Generating measures of net community impact using discounted cash flow
techniques over the 20-year duration of the regulation; this requires an expression of
future costs and benefits in present value terms using a discount rate that is
reflective of the opportunity costs of resources diverted to the implementation of the
reforms.
5. Testing the sensitivity of these measures to changes in the underlying assumptions
utilised.
6. Supplementing the quantitative analysis with a description of costs and benefits that
cannot be readily quantified and monetised.
It is important to note that all impacts of the proposed regulations versus the base case must
be considered, whether or not they are ‘traded’ effects or ‘externalities’.
As the name implies, traded effects have a price in the market. Externalities, on the other
hand, are unpriced costs and benefits sustained by third parties in any market transaction.
The cost benefit analysis must account for these impacts even though they are not directly
mediated (bought and sold) in the market. The monetised value of these external effects
needs to be imputed using a variety of techniques as advised by DTF in its Cost Benefit
Analysis Tool Kit.
Another vital characteristic of CBA in the context of increasing the supply of social and
affordable housing is that the community benefit delivered by this regulatory initiative is
judged by reference to the ‘Kaldor-Hicks’ rule. This states that the initiative in question is
worth undertaking if the gain in welfare by the beneficiaries is greater than the loss in welfare
for those adversely affected. In other words, the regulatory initiative would be warranted if
the beneficiaries could, if required, compensate those adversely affected and still be better
off; hence the term ‘net’ community benefit.
The ‘Kaldor Hicks’ rule differs from the ‘Pareto’ test which is sometimes used in town planning
practice. The Pareto test is that an initiative is only warranted if there are no losers in the
process. The Pareto test is not sanctioned in regulatory impact assessment because it places
an unworkable onus of proof on the economic merits of regulatory change.
FIGURE 65 COST BENEFIT ANALYSIS METHOD
Source: SGS Economics and Planning
8
Define geographic scope Project description
Define ‘without project’
scenario
Define ‘with project’
scenario
Identify marginal costs &
benefits
Remove transfer effects
Monetise costs & benefits
Prepare DCF analysis Performance measures
Sensitivity
testing
Describe non-quantifiable
Distributional analysis
Conclusions re. economic
merit
City of Melbourne Housing Needs Analysis
106
Common errors and misapplications in cost benefit analysis
There are some common pitfalls in assessment of net community benefit in matters of
planning regulation. One is to confuse ‘economic impact’ with ‘economic benefit’. The
former deals with the commercial flow-on effects of an initiative or program (sales made,
people employed, suppliers contracted and so on), while the latter relates to an improvement
in community welfare.
Another pitfall is to construe construction and operational jobs as a ‘benefit’ of a proposal
whereas they are typically factored into cost benefit analyses as a cost. This is because the
labour in question has an opportunity cost – it could be deployed elsewhere to produce
benefits for the community were it not for the project at hand. Employment is usually only
counted as a benefit when the project creates jobs for people who would otherwise be
permanently unemployed or underemployed.
A third common misapplication of economic thinking to the net community benefit test in
urban planning issues is to implicitly or explicitly confine the analysis to the local district or
host region of the development in question. Again, in line with usual advice offered by
jurisdictional Treasuries, the frame for assessing net community benefit should be set at the
state jurisdiction level. To do otherwise runs the risk of patently illogical findings; that is, a
net community benefit may be found for the local area, but this might be more than offset by
transfers or external costs for neighbouring communities or the host metropolitan area or
state.
Distinguishing financial and cost benefit analysis
Financial analysis is sometimes confused or conflated with CBA. Financial analysis is
undertaken from the narrow perspective of an investor, or buyer, or seller in the market and
only tracks market transacted costs and benefits. It also considers tax liabilities. In contrast,
CBA is undertaken from a Victoria wide perspective and, as noted, considers all impacts on
welfare, whether priced or unpriced. Moreover, because CBA is concerned with net effects,
tax impacts are typically set aside as they are simply transfers within the wider community.
Base case, project case, costs and benefits
The purpose of the CBA outlined in this section is to test whether a notional policy of
mandatory affordable housing requirements in the City of Melbourne would represent an
efficient regulatory reform. That is, to test the net community benefit of moving from the
base case to the project case.
CBA framework
Typically, applying a CBA methodology to evaluate the merit of an initiative requires
knowledge of the implementation and operational details of the project. In the case of the
provision of social and affordable housing, these details include identifying who will be the
targeted recipients of the affordable housing and what mechanism will be used to deliver this
supply. Given that the exact nature of the project is not yet defined at this level of detail, two
key methodological choices have been adopted in this discussion paper.
Lacking knowledge of the groups which will be targeted by the program, an appropriate
methodology for a preliminary CBA is to evaluate a BCR on a ‘per household’ basis, which will
represent the merit of providing affordable housing to a representative household. The costs
and benefits used will, therefore, be defined based on a set of assumptions which specify the
composition of this representative household.
Under the assumptions adopted for the project case (detailed in the following section), the
specific mechanisms used to deliver the supply of social and affordable housing are
inconsequential to the estimation of costs which will be used to evaluate the BCR. This is due
to the operation of transfer effects, the details of which are discussed in further detail below.
City of Melbourne Housing Needs Analysis
107
Defining the base case and project case
The base case assumes the current status quo where a significant number of households in
the City are unable to access affordable housing, and as a result, suffer a range of negative
consequences from rental stress to homelessness. In the base case the current number of
social and affordable housing dwellings remains static, while the total number of dwellings in
the City increases by 88,000 dwellings between 2016 and 2036.
The project case assumes that the introduction of regulation would result in an increase in the
supply of social and affordable housing stock in the City of Melbourne. It is assumed that the
program will achieve the following outcomes:
▪ provide affordable housing for homeless persons, and
▪ provide affordable housing for those who would otherwise experience housing
stress.
It has been assumed that the regulations will have two distinct impacts on the supply of
housing stock over the 20-year period in question:
1. A share of the private dwellings provided in the base case will be provided as social and
affordable housing dwellings in the project case (represented by the dark purple shaded
area in the figure below). This replacement effect assumes that there would be no
increase in demand as a result of the regulation, and therefore no change to total
dwelling supply.
2. Where homeless persons are provided with secure housing this would constitute a net
increase in housing supply relative to the base case (represented by the pink shaded area
in the figure below). These households would not have been accommodated under the
base case.
Therefore, it is assumed the introduction of mechanisms to increase the supply of affordable
housing stock will result in an overall net increase in occupied dwellings.
FIGURE 66: BASE CASE AND PROJECT CASE HOUSING SUPPLY OUTCOMES COMPARED
Source: SGS Economics and Planning
Finally, the project case assumes that the benefits of social and affordable housing stem from
the alleviation of housing stress or homelessness rather than any changes in households’
locations. That is, the broad locational characteristics of a household affected by the project
(e.g. accessibility) will be similar across the base and project cases. This assumption precludes
the need to explicitly define where each household would move from if an affordable
dwelling was made available in the City of Melbourne and can be interpreted as assuming
that the households affected are those that would have chosen to reside within the City of
Melbourne under the base case.
Base Case Project Case
SAH
-
Market housing
Net additional
dwellings
Homeless households
Market housing
City of Melbourne Housing Needs Analysis
108
Marginal costs
This section lists the potential additional costs associated with the introduction of social and
affordable housing regulations, that is, moving from the base case to the project case. Some
of these costs relate only to the realisation of the net additional dwellings (as defined in the
project case), while others are relevant only to dwellings that would have been otherwise
provided by the market but will now be used for social or affordable housing. These are
summarised in the table below and then described in more detail.
FIGURE 67: SUMMARY OF COSTS
Net additional dwellings
All other dwellings
Base construction costs
Maintenance and operating costs
Reduction in residual land value
Reduction in residual land value
Increased construction costs from additional design
requirements
Increased construction costs from additional design
requirements
Adverse debt raising effects
Adverse debt raising effects
Source: SGS Economics and Planning
Construction costs
The expenses relating to the initial establishment of the net additional dwellings (as defined in
the project case) include:
▪ land acquisition
▪ planning and feasibility studies
▪ architectural and engineering design
▪ construction, including materials, equipment and labour
▪ construction financing
▪ insurance, and
▪ equipment and finishing.
Maintenance and operating costs
Ongoing expenses will be incurred for maintenance and operating costs throughout the
useful life of the net additional dwellings, once constructed. Broad categories of these costs
include:
▪ insurance
▪ property management
▪ utilities
▪ repairs and maintained, and
▪ administrations.
Reduction in residual land value (RLV)
As described in detail above, the maximum price which a developer is willing to pay for land is
equal to the Gross Development Value (GDV) of the development (i.e. revenue received if the
development was sold at market value), minus the cost of construction and fees, as well as a
desired profit margin for a project. This can be expressed simply according to the following
equation:
In the project case, there is an additional requirement that impacts the developers’ costs,
which is to provide social or affordable housing at zero consideration.
Providing these dwellings comes at a financial cost to the developer and, all things being
equal, will result in a reduction in the RLV.
City of Melbourne Housing Needs Analysis
109
FIGURE 68: REDUCTION IN RLV
Base Case Project Case
Note: SAH = social and affordable housing
Source: SGS Economics and Planning
Increased construction costs from additional design requirements
Social and affordable housing should accommodate the universal needs of residents to enable
ongoing independence throughout various stages of life or tenure. Dwellings should respond
effectively to these needs without requirement for costly and energy intensive alternations.
A range of features may be incorporated into the design of social and affordable housing units
to achieve this, and include:
▪ adaptable floor plans
▪ incorporate a high level of physical access provision for people with a physical
impairment, whether it be the primary resident or visitor
▪ enhanced provision for people with sensory, intellectual or cognitive impairment
▪ slightly wider doorways or passage ways
▪ robust surfacing treatments, and
▪ easy to use fixtures such as taps and door handles.
The Housing Design Guidelines, developed by the Department of Health and Human Services
(DHHS), provides guidance on specific design requirements for low rise public housing. The
Liveable Housing Design Guidelines Standard or AS 4299 Adaptable Housing Class C provide
guidance for high rise social housing developments.
As this form of universal dwelling design is not standard for all residential developments,
developers will likely incur an additional cost in the design and construction of this type of
housing. The National Disability Insurance Scheme (NDIS) identifies a cost of $25,190 per
dwelling to incorporate a high level of access provision in new housing stock. This is
equivalent to the ‘Liveability Housing Australia (Platinum)’ level and has been used to quantify
the additional design costs.
Property market impacts
As we have detailed in Section 5.1 possible consequence of the reduction of RLV could be that
some potential housing projects are rendered unfeasible. Should this be the case, the flow of
new housing might be negatively impacted as developers would be unable to afford to
purchase enough land to satisfy housing demand.
Charges & fees
Construction,
marketing &
finance costs
Developer margin
for profit and risk
Residual Land
Value
Charges & fees
Developer margin
for profit and risk
Construction,
marketing &
finance costs
Residual Land
Value
SAH
City of Melbourne Housing Needs Analysis
110
Adverse debt raising effects
Requirements to include affordable housing in new development may reduce overall property
and land values, impacting the ability of owners to raise finance against these assets (i.e.
through higher interest rates or reduced borrowing amounts). The impact of this cost will be
mitigated if the requirements for affordable housing are increased progressively rather than
in a single step-change.
Marginal benefits
This section lists the potential benefits associated with the introduction of social and
affordable housing regulations. As with the costs detailed above, some of the defined benefits
relate only to the realisation of the net additional dwellings (as defined in the project case),
while others are relevant only to dwellings that would have been otherwise provided by the
market but will now be used for social or affordable housing. These are summarised below.
FIGURE 69 BENEFITS SUMMARY
Net additional dwellings
All other dwellings
Health cost savings
Health cost savings
Reduced domestic violence
Reduced domestic violence
Reduced costs of crime
Reduced costs of crime
Enhanced human capital
Enhanced human capital
Worker retention
Worker retention
Educational benefits
Educational benefits
Improved community pride and social justice
Improved community pride and social justice
Retained cultural value
Retained cultural value
Enhanced social capital
Enhanced social capital
Gain in housing services
Increased consumer surplus
Avoided property price and tourism impacts
Source: SGS Economics and Planning
Health cost savings
Homeless individuals and people experiencing housing stress consume far more health
services than people who have stable and affordable housing. There are many reasons for
this, with the impacts of housing felt in both direct and indirect ways by individuals. The
World Health Organisation has identified four specific attributes of housing which contribute
to the wellbeing of residents. These include the:
▪ meaning of ‘home’ as a protective, safe and intimate refuge where one develops a
sense of identity and attachment
▪ physical structure and its conditions, mould growth, quality, design, and noise
exposure
▪ immediate housing environment, including the quality and amenity of the
environment immediately surrounding
▪ community and the shared sense of trust and collective efficacy.
117
The benefits of secure, affordable and quality housing have been extensively researched and
documented. These benefits include reduced stress and improved mental health outcomes,
117
Bonnefoy, X. (2007). Inadequate housing and health: an overview. Int. J. Environment and Pollution, Vol. 30, Nos. 3/4, ,
411–429.
City of Melbourne Housing Needs Analysis
111
enhanced ontological security, reduced number of hospital presentations and length of stay,
and a shift from crisis medical attention to preventative care.
118
Substandard or no accommodation can leave a person more susceptible to illness and less
able to appropriately manage chronic conditions and can predispose residents to accidents
and injury (with children and the elderly particularly affected). The financial strain caused
from chronic (ongoing) housing stress can contribute to a variety of physical and mental
issues, including increased likelihood of substance abuse, and can limit an individual’s ability
to access health and community services.
119
The benefits of housing are most pronounced for those who are removed from homelessness
or in insure housing. This is evidenced by recent housing project such as The Michael program
which provided housing and wrap-around services to homeless men, significantly altering the
type and quantity of health services required by participants.
120
Reduced domestic violence
The 2016 Royal Commission into Family Violence found that family and domestic violence is a
significant issue in Victoria, with the recorded rate of family violence incidence increasing by
83 per cent between 2009 and 2014.
The causes of family violence are complex and varied, however, financial hardship is a well-
evidenced and frequently cited contributing factor. Research by Benson and Fox (2004) found
that couples experiencing financial strain had an average rate of domestic violence of 9.5 per
cent compared with 2.7 per cent for couples who reported low levels of strain.
121
High
housing costs place a significant economic burden on families and can fuel the occurrence of
domestic violence. This is supported by the findings of the Commission, who noted ‘financial,
housing and gambling issues’ as a prevalent amongst male perpetrators.
Poor housing affordability also contributes to the issue of domestic violence by limiting the
ability of victims to find safe and secure shelter when wishing to remove them self from a
violent household. For many victims, the lack of appropriate housing often resulted in the
victim returning the abusive household or becoming homeless. In its findings, the Commission
found that family violence was a key factor contributing to homelessness, with just under 40
per cent of family violence victims seeking support from Specialist Homelessness Services.
122
Domestic violence costs the Victorian community through increased need for crisis care,
health services specialist homelessness services justice system and child-protection costs, and
the pain and suffering of victims.
123
Reduced costs of crime
Providing affordable housing can help to reduce the incidence of crime and engagement with
the justice system.
Homeless people and people experiencing housing stress are more likely to be both the
victims and perpetrators of crime than the general community. This is because:
▪ Living in a public space means that homeless individuals are more susceptible to
committing public order offences.
118
Raynor, K, Palm, M, O’Neil, M and Whitzman, C. (2018), ‘Investigating the costs and benefits of the Melbourne
Apartments Project’, Transforming Housing, The University of Melbourne
119119
Phibbs, P. and Young,, P. (2005), Housing assistance and non-shelter outcomes. Retrieved from Australian Housing
and Urban Research Institute: https://www.ahuri.edu.au/research/final-reports/74
120
Mission Australia (2010), The Michael Project: New perspectives and possibilities for homeless men, Australia: Mission
Australia.
121
Benson, M.L., & Fox, G.L. (2004), ‘When violence hits home: How economics and neighbourhood play a role’,
Washington, DC: U.S. Department of Justice, National Institute of Justice.
122
Australian Government (2016), Royal Commission into family violent: Report and recommendations, Melbourne:
Victorian Government Printer.
123
AIHW (2018), ‘Family, domestic and sexual violence in Australia 2018’, Canberra: Australian Institute of Health and
Welfare.
City of Melbourne Housing Needs Analysis
112
▪ People without stable accommodation, or suffering significant financial pressure,
may have little choice but to engage in ‘survival offending’.
▪ Substance abuse as a coping mechanism may lead to offending behaviour to fund
habits.
▪ The lack of safe and stable housing for some individuals may mean that they are less
able to secure belongings.
Research by MacKenzie (2016) shows that homeless young people are six times more likely to
be apprehended as an offender while also having a higher incidence of reporting robbery and
theft.
Social and affordable housing can help alleviate many of these causes by providing stable and
secure accommodation, and reducing the financial strain caused by rental stress.
Enhanced human capital
The Melbourne Sustainable Society Institute notes that the experience of homeless and
housing stress can limit the ability of people to make productive contributions to society in
terms of work, social relationships, volunteering and community activities.
The provision of affordable housing and relief of experience of housing stress can help to free
time and financial resources to be input into other endeavours, including reconnecting with
the job market and education, or taking a more active role in the community, thereby
improving future employment prospects.
124
Human capital benefits are likely to be particularly pronounced in the City of Melbourne,
where there is a high concentration of opportunities to engage in productive activities.
Worker retention
As discussed in the supporting background paper, there is growing concern for poor housing
affordability contributing to a thinning of the labour pool in the central city. In some instances
– both internationally and in Australia – lack of diversity in the workforce pool is resulting in
poor labour matching and increasing costs relating to labour market shortages, staff retention
(and hence retraining) and reductions in economic productivity.
It is expected that implementing social and affordable housing targets in the City of
Melbourne will result in increased housing for key service workers (including both essential
and personal service workers). To the extent that this initiative allows these workers to find
secure housing in a neighbourhood closer to work, local services and businesses will enjoy
reduced recruitment and retention costs for key staff.
Educational benefits
Poor housing affordability can affect the educational outcomes of school-aged children in
several ways.
Children living in households in housing stress are more likely to change school more often
due to greater susceptibility to fluctuations in rent, or difficulty in maintaining chronically high
rental payments, resulting in the family relocating. Research has shown that children who
change schools more frequently are more likely to have below average grade scores, are
more likely to drop out and have higher rates of absenteeism than children who have not.
125
124
Raynor, K, Palm, M, O’Neil, M and Whitzman, C. (2018), ‘Investigating the costs and benefits of the Melbourne
Apartments Project’, Transforming Housing, The University of Melbourne
125
Mueller, E. and Tighe, J.R. (2007), Making the case for affordable housing: Connecting housing with health and
education outcomes, Journal of Planning Literature, 21(4)
City of Melbourne Housing Needs Analysis
113
Likewise, other consequences of poor housing affordability, such as overcrowding and lower
housing quality also result in decreased academic performance due to increased noise, poor
health and lack of quiet space to do homework.
126
Improved community pride and social justice
The lack of stable shelter and the vulnerability, discrimination, insecurity and lack of personal
and professional development faced by individuals who do not have adequate and affordable
accommodation represents an injustice.
By facilitating the provision of social and affordable housing to address the injustices that
housing insecurity creates, society receives a social justice benefit. This benefit is
unquantifiable but can be thought of as the gain the community receives knowing that they
are a participant in a fair and just society.
Retained cultural value
As addressed in the supporting background paper, cities and regions in advanced economies
are seeking to distinguish themselves within an increasingly competitive global economy to
attract footloose capital and investment. Incubating and promoting diversity is seen as a
positive attribute in creating a point of differentiation. Diversity is also seen as important in
business and tourism attraction.
It is anticipated that the implementation of targets will assist in delivering an increase in
alternative housing forms and tenures, which will in turn allow for a greater diversity of
people and households to reside in the municipality (people of different socio-economic
status, abilities, ages and household composition).
Enhanced social capital
A significant body of international literature identifies a clear link between stable
communities and the growth of social capital.
127
Social interaction is seen to provide residents
living in a community with knowledge about their fellow residents, which in turn assists in
allowing for exchanges to take place, building trust, and creating social networks and a
common set of rules.
Enhanced social capital has been shown to contribute to a range of positive economic and
social outcomes including high levels of growth of gross domestic product, more efficiently
functioning labour market, higher educational attainment, lower levels of crime, better
health, increased social contributions (volunteering) and more effective institutions of
government.
Affordable housing reduces the likelihood of tenant turnover, increasing the potential for the
development of a stronger sense of community - or social capital.
Gain in housing services
As described in the base case above, it has been assumed that increasing the requirement for
social and affordable housing in the City will ultimately result in a net increase in the total
dwelling stock. This overall increase in total dwellings is the result of providing
accommodation for people and households who were previously homeless or in insecure
housing situations and is valuable for its ability to provide shelter, security of tenure, security
of person and privacy.
126
Mueller, E. and Tighe, J.R. (2007), Making the case for affordable housing: Connecting housing with health and
education outcomes, Journal of Planning Literature, 21(4)
127
Williams, J. (2005) ‘Designing Neighbourhoods for Social Interactions: The case for cohousing’, Journal of Urban Design,
10(2), 195-227.
City of Melbourne Housing Needs Analysis
114
Increased consumer surplus
Consumer surplus is an economic measure of consumer benefit, which is calculated as the
difference between the benefits consumers receive from a good or service and the price they
actually spend to obtain it. In this case, the good is housing, which has a benefit equivalent to
the market rental rate. Households who receive tenancy at below-market rates have an
increase in consumer surplus which is equal to the difference between the rent they pay and
the market rate. This benefit applies to the households who, under the base case, would have
consumed an identical product (i.e. housing) but paid a level of rent which placed them in
rental stress.
Avoided property price and tourism impacts
Research by the Sustainable Society Institute (2017) noted that the City of Melbourne has
recently expressed concerns about the impact of homelessness on shopping areas such as
Elizabeth Street and Flinders Street, having received hundreds of calls rejecting the visibility of
Melbourne’s homelessness.
Other evidence suggests that homelessness bears a cost to the community through deflated
development and property prices, and in impacting the tourism sector.
128
Providing affordable housing, particularly forms of housing targeting the homeless, is
expected to result in a net gain by reducing the visibility of homelessness. The Melbourne
Sustainable Society Institute (2017) quote evidence from the recent Gold Coast Project for
Homeless Youth (GCPPHY), in which substantial donations were received from local
businesses to shelter homeless youths. The amount donated is evidence of a willingness-to-
pay for the reduced visibility of homeless youth.
Transfer effects
The term ‘transfer effects’ refers to cases in which resources are transferred from one party
to another without any economic value being created or consumed.
As noted, any transfer effects should be removed in CBAs as they represent costs and benefits
that are redistributed within the community (i.e. the costs to one party are entirely offset by
benefits to other parties) and do not generate any change in net community benefit.
Two of the marginal impacts considered in the sections above can be removed from the CBA
as they constitute transfer effects. These are the costs and benefits that accrue from an
affordable dwelling that is provided to a household who would otherwise have experienced
rental stress.
Households relieved of rental stress (not net additional stock)
For households who receive an affordable dwelling, and are relieved of rental stress, a
marginal cost is the reduction in RLV, which is borne by the landowner. This cost is offset by
benefits that flow to other parties. In this case, the Housing Associations receive rental
income, albeit at below market rates, and the tenants of these dwellings (who are renting
them at below market rates) receive a consumer surplus.
Another way of conceptualising this transfer mechanism is to see that there is no change in
the use of resources caused by the intervention. Under both the base and project scenarios,
the same dwelling is produced and is assumed to house the same occupant. The sole
difference is the share of the value of the dwelling between parties (i.e. landowner and
occupant). An example, which assumes delivery via the planning system is illustrated below.
128
Melbourne Sustainable Society Institute (2017), Issue Paper Series: The case for investing in last resort housing,
University of Melbourne: Melbourne.
City of Melbourne Housing Needs Analysis
115
Net additional dwellings (homeless households)
In the case of net additional dwellings provided to homeless households, the marginal cost of
a reduction in RLV, is borne by the landowner. The benefit of these new dwellings is the value
of housing services received by the occupants (who would have been homeless under the
base case). This is not a transfer effect.
Quantification of costs and benefits
Overview
After accounting for transfer effects, the remaining benefits and costs have been quantified
on a per dwelling, per annum basis. As identified in Figure 67 and Figure 69 above, some
benefits relate only to the provision of housing for homeless people, while others are only
relevant to dwellings that would have been otherwise provided by the market but will now be
used for social or affordable housing.
Figure 70 and Figure 71, below provide a summary of all costs and benefits and their
treatment under the CBA for both:
TRANSFER EFFECTS FOR NON-HOMELESS HOUSEHOLDS
Consider a development in which social and affordable housing (SAH) is provided to
households who would otherwise suffer rental stress. This results in a loss in RLV per SAH
dwelling, which is borne by the landowner. The mechanism by which the transfer
operates is illustrated in the following example:
▪ the landowner bears a RLV loss per SAH dwelling of $400,000
▪ this is equivalent to the present value of rental income that could be generated by
the dwelling ($26,000 per year an infinite period, discounted at 7 per cent).
To see this, consider the case without SAH provision requirements – in which case
the developer sells the dwelling at a market rate of $400,000 to a buyer who leases it
at $26,000 per annum ($500 per week)
▪ the SAH dwelling is gifted to a Registered Housing Association. The Housing
Association leases it to a low income household at 75 per cent of market rent, which
is approximately $20,000 per annum
▪ the tenant household therefore gains a consumer surplus of $6,000 per annum
▪ the net present value to the Housing Association and tenant is therefore $400,000,
which offsets the loss to the landowner.
RLV loss
per SAH
dwelling:
$400k
Annual
rent
received
(surplus to
CHP):
$20k
Annual
consumer
surplus to
tenant:
$6k
NPV:
$400k
City of Melbourne Housing Needs Analysis
116
▪ Net additional dwellings (housing for the homeless)
▪ All other SAH dwellings
FIGURE 70: COSTS AND BENEFITS FOR NET ADDITIONAL SAH DWELLINGS
Cost category
Monetised
Un-monetised
Transfer
Reduction in RLV
Construction costs
Maintenance and operating costs
Increased construction costs from additional design
requirements
Adverse debt raising affects
Benefit categories
Monetised
Un-monetised
Transfer
Gain in housing services
Utility gain
Health cost savings
Reduced domestic violence
Enhanced human capital
Worker retention
Educational benefits
Avoided property price and tourism impacts
Improved community pride and social justice
Retained cultural value
Enhanced social capital
Source: SGS Economics and Planning
FIGURE 71 COSTS AND BENEFITS FOR ALL OTHER SAH DWELLINGS
Cost category
Monetised
Un-monetised
Transfer
Reduction in RLV
Increased construction costs from additional design
requirements
Adverse debt raising affects
Benefit categories
Monetised
Un-monetised
Transfer
Utility gain
Health cost savings
Reduced domestic violence
Enhanced human capital
Worker retention
Educational benefits
Improved community pride and social justice
Retained cultural value
Enhanced social capital
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
117
Furthermore, not all benefit streams apply equally (or in some cases, at all) to all types of
households. The provision of affordable housing for some households will deliver a
substantial benefit under a range of categories as compared to other household types.
Benefits to the following seven household categories have been quantified to show this:
▪ homeless household
▪ Indigenous household
▪ lone parent with children
▪ high-service use household (pensioner or person with a disability)
▪ single person household (part-time worker/ un-or underemployed)
▪ creative worker
▪ typical household (i.e. a household who would otherwise only suffer rental stress)
It is assumed that each of these households is currently experiencing some form of housing
stress or housing insecurity due to poor affordability.
FIGURE 72: SUMMARY OF MONETISED BENEFITS (PER HOUSEHOLD PER ANNUM)
Group
Health
cost
savings
Reduce
domestic
violence
Reduced
crime
costs
Enhanced
human
capital
Key
worker
retention
Educational
benefits
Gain in
housing
services
*
Typical household
$2,253
$935
NA
$3,169
$6,323
$4,719
Transfer
Homeless
$8,590
$6,334
$6,379
$437
NA
NA
$589,000
Indigenous household
$2,253
$3,181
NA
$3,169
$6,323
$4,719
Transfer
Lone parent (employed
full time) with child in
housing stress
$2,253
$935
NA
$3,169
$6,323
$5,808
Transfer
High service-use
household (pensioner or
person with a disability)
$1,479
$1,871
NA
NA
NA
NA
Transfer
Single person household
(part-time worker/ un-
or underemployed)
$2,253
$935
NA
$3,169
$6,323
NA
Transfer
Creative worker
$2,253
$935
NA
$3,169
NA
NA
Transfer
*
Note: Gain in housing services is given in net present value terms, not annual benefit
Source: Source: SGS Economics and Planning
FIGURE 73: SUMMARY OF MONETISED COSTS (PER HOUSEHOLD)
Cost Category
Relevant group
Cost
Maintenance and operational
All
$2,253 per annum
Additional design expenses
All
$25,190 at year 0
RLV loss
Homeless only
$589,000 at year 0
Source: Source: SGS Economics and Planning
Excluding those categories that are transfer effects, the following tables summarise the
quantification techniques applied to each of the costs and benefits, by relevant household
type.
City of Melbourne Housing Needs Analysis
118
Costs
FIGURE 74: COSTS QUANTIFICATION
Category
Quantification method
Adjustments/ Assumptions
Maintenance and operating costs
▪ Operating and maintenance costs estimated at 1 per cent of the average property
value ($488,000) per year.
None
Reduction in residual land value
▪ Findings from the property market impact analysis indicate that, on average across
the City of Melbourne, the loss in RLV is $9,500 per square metre. Applying this to an
average dwelling size of 62 square metres yields a loss in RLV of $589,000 per
dwelling.
Increased construction costs from additional
design requirements
▪ National Disability Insurance Scheme (NDIS) identifies a cost of $25,190 per dwelling
to incorporate a high level of access provision in new housing stock. This is equivalent
to the ‘Liveability Housing Australia (Platinum)’ level.
129
None
Adverse debt raising affects
No data to support quantification
Source: SGS Economics and Planning
129
Australian Government (2017), NDIS Price Guide: Specialist disability accommodation, Canberra: Australian Government.
City of Melbourne Housing Needs Analysis
119
Benefits
FIGURE 75: BENEFITS QUANTIFICATION
Category
Relevant households
Quantification method
Adjustments/ Assumptions
Health cost savings
▪ Homeless
▪ MacKenzie (2016) found that homeless youth experience a range of health
issues to a much greater extent than the general population or other
disadvantaged young people who are unemployed but not homeless.
▪ The total cost to the Australian economy of health services associated with
young people experiencing homelessness is on average $8,505. This is $6,744
per person per year more than for the long-term unemployed youth.
▪ The Melbourne Sustainable Society Institute (MSSI)(2017) adjusted this figure
upward by 25 per cent to account for the generally lower health care costs of
young people. This figure was then applied to the general population of
homeless persons, at $8,429 per person per year.
▪ Adjusted for inflation: year 2018
▪ Adjusted to average homeless household
size: 1
▪ Indigenous
▪ Lone parent with children
▪ Single person household (part-
time worker/ un-or
underemployed)
▪ Creative worker
▪ Average household
▪ Work commissioned by the Community Housing Federation of Australian and
undertaken by Net Balance (2010) found a reduction in the average annual
spend on health services after low-income households entered community
housing of $1,872 per household per year.
▪ Adjusted for inflation: year 2018
▪ High-service use household
(pensioner or person with a
disability)
▪ Work commissioned by the Community Housing Federation of Australian and
undertaken by Net Balance (2010) found a reduction in the average annual
spend on health services of high-service use households after entering
community housing of $640 per year per resident.
▪ Adjusted for inflation: year 2018
▪ Adjusted to average household size for
the City of Melbourne: 1.92
City of Melbourne Housing Needs Analysis
120
Reduced domestic
violence
▪ Homeless
▪ An evolution of the, ‘Family Violence Housing Blitz’, by the Victorian
Government in 2018 found that the program had delivered $62,220 in
benefits to the community through: reduced costs of crisis care, reduced
health system costs, reduced specialist homelessness and moving costs,
benefit from work for re-entry, reduced justice system costs, reduced child-
protection related costs, reduced pain and suffering.
130
▪ Benefit is received per client assisted.
▪ To avoid duplication with other benefit
categories, health system cost savings
and work force re-entry were removed
from total ($15,000).
▪ Adjusted for inflation: year 2018
▪ Adjusted prevalence of DV/ violence: 13
per cent
131
▪ Indigenous
▪ An evolution of the, ‘Family Violence Housing Blitz’, by the Victorian
Government in 2018 found that the program had delivered $62,220 in
benefits to the community through: reduced costs of crisis care, reduced
health system costs, reduced specialist homelessness and moving costs,
Benefit from work for re-entry, Reduced justice system costs, reduced child-
protection related costs, reduced pain and suffering.
132
▪ Benefit is received per client assisted.
▪ To avoid duplication with other benefit
categories, health system cost savings
and work force re-entry were removed
from total ($15,000).
▪ Adjusted for inflation: year 2018
▪ Adjusted prevalence of DV/ violence: 3.4
per cent
133
▪ Lone parent with children
▪ Single person household (part-
time worker/ un-or
underemployed)
▪ High service-use household
(pensioner or person with a
disability)
▪ Creative worker
▪ Average household
▪ An evolution of the, ‘Family Violence Housing Blitz’, by the Victorian
Government in 2018 found that the program had delivered $62,220 in
benefits to the community through: reduced costs of crisis care, reduced
health system costs, reduced specialist homelessness and moving costs,
Benefit from work for re-entry, Reduced justice system costs, reduced child-
protection related costs, reduced pain and suffering.
▪ Benefit is received per client assisted.
▪ To avoid duplication with other benefit
categories, health system cost savings
and work force re-entry were removed
from total.
▪ Adjusted for inflation: year 2018
▪ Adjusted prevalence of DV/ violence: 1
per cent
134
130
Department of Health and Human Services (2018), Family violence housing blitz: Package evaluation.
131
Australian Institute of Criminology (2018), ‘Homeless people: Their risk of victimisation’, Canberra: Australian Institute of Health and Welfare.
132
Ibid.
133
AIHW (2018), ‘Family, domestic and sexual violence in Australia 2018’, Canberra: Australian Institute of Health and Welfare.
134
AIHW (2018), ‘Family, domestic and sexual violence in Australia 2018’, Canberra: Australian Institute of Health and Welfare.
City of Melbourne Housing Needs Analysis
121
Reduced crime costs
▪ Homeless
▪ No data found to support
quantification of other households
▪ MacKenzie (2016) found that homeless youth experience a rate of exposure
to the justice system to a much greater extent than the general population or
other disadvantaged young people who are unemployed but not homeless.
▪ The total cost to the Australian economy of justice services associated with
young people experiencing harmlessness is on average $8,242 per person per
year more than for the long-term unemployed youth.
▪ The Melbourne Sustainable Society Institute (MSSI)(2017) adjusted this figure
downward by 25 per cent to account for the higher use of justice services by
younger people in general so that the figure may be applied to the general
homeless population.
▪ Overall, the MSSI (2017) found reduction in crime cost savings of $6,182 per
person per year.
▪ Adjusted for inflation: year 2018
▪ Adjusted to average homeless household
size: 1
City of Melbourne Housing Needs Analysis
122
Enhanced human
capital
▪ Homeless
▪ The annual salary was taken as the upper bound wage of a resident within
Victoria in the first quintile of incomes as sourced from the Australian Bureau
of Statistics.
▪ The individual is assumed to be housed for two years without gaining
employment and then to be in employment for an additional 30 years.
▪ The benefit is the individual’s future lifetime earnings stream discounted to a
present value in the year the individual is housed.
▪ The benefit is estimated at $4,236 per bed per annum
▪ Adjusted for inflation: year 2018
▪ Adjusted to average homeless household
size: 1
▪ To estimate the labour force participation
benefit associated with the provision of
secure housing for the homeless, the
MSSI (2017) assumed that 10 per cent of
all tenants will access employment after
they have been provided
accommodation. This assumption is
guided by the previous experience of SGS
Economics and Planning, with community
housing programs that indicated that
between 8-10 per cent of tenants
accessed employment after gaining
housing.
▪ Lone parent with children
▪ Single person household (part-
time worker/ un-or
underemployed)
▪ High service-use household
(pensioner or person with a
disability)
▪ Creative worker
▪ Average household
▪ Ravi and Reinhardt (2010) found there to be an increase in employment rates
and earning potential amongst low-income persons who were housed
through a community housing program at the value of $17,784 per person
per year.
▪ Average weekly earnings of a part-time worker with a Year 12 or equivalent
degree is $342 (adjusted for inflation) - income data from ABS 2005 adjusted
for inflation to 2010 values.
▪ Adjusted for inflation: year 2018
▪ Adjusted to average homeless household
size: 1.92
▪ Weighted to the proportion of people in
housing stress actively looking for work: 9
per cent
135
Worker retention
▪ Indigenous
▪ Lone parent with children
▪ Single person household (part-
time worker/ un-or
underemployed)
▪ Creative worker
▪ Average household
▪ The value of worker retention was calculated by SGS Economics and Planning
by assuming that each tenancy turnover results in training and recruitment
expenses for an employer.
▪ The reduction in tenancy turnover as a result of finding secure housing was
assumed as the difference between the average tenancy turnover for
households in rental stress as compared with the average turnover for the
general population. The difference was found to be 4.4 times over a 20-year
period.
▪ For calculation purposes, SGS assumed that recruitment and training costs
amount to 25 per cent of annual salary of $60,000. This is in line with the
recruitment bounty typically charged by employment agencies.
Recruitment costs were capitalised to
determine per annum benefit.
City of Melbourne Housing Needs Analysis
123
Educational benefit
▪ Indigenous
▪ Measured by Ravi and Reinhardt (2010) as the additional earning potential
for Year 12graduated as compared to those earning at Year 10 certificate or
below.
▪ Valued at $3,016 per child per year
▪ Adjusted by the average number children
per lone parent family: 1.8
▪ Lone parent with dependent
children
▪ Measured by Ravi and Reinhardt (2010) as the additional earning potential
for Year 12 graduated as compared to those earning at Year 10 certificate or
below.
▪ Valued at $3,016 per child per year
▪ Adjusted by the average number children
per lone parent family: 1.3
Gain in housing
services
▪ Homeless
▪ The NPV of the gain in housing services to the tenant household is assumed
to be equivalent to the loss in RLV to the landowner (i.e. $589,000), which
itself is a proxy for the full market value of the additional dwelling.
Avoided property
price and tourism
impacts
No data to support quantification
Improved community
pride and social
justice
No data to support quantification
Retained cultural
value
No data to support quantification
Enhanced social
capital
No data to support quantification
Source: SGS Economics and Planning
135
Ravi, A. and Reinhardt, C. (2011), The social value of community housing in Australia, Net Balance
City of Melbourne Housing Needs Analysis
124
Economic impact by key socio-demographic groups
Figure 76 shows the total value of all relevant benefits for each of the households, including a
weighted average. The weights represent a hypothetical scenario in which:
▪ Homeless households are weighted according to their share of the overall demand in
2016.
▪ Most recipients (60 per cent) are typical households who would otherwise suffer
rental stress.
▪ A notional weighting of 5 per cent is assumed for all other groups except single
person households, who are prioritised (12 per cent) due to the high demand for
lone person households identified in Primary Project 1.
FIGURE 76: ECONOMIC IMPACT BY SOCIO-DEMOGRAPHIC GROUP
Group
Total benefit
Weighting
Typical household
$17,400
60%
Single person household (part-time worker/ un-or underemployed)
$21,740
12%
Homeless
$19,645
8%
Indigenous household
$18,489
5%
Lone parent (employed full time) with child in housing stress
$3,350
5%
High service-use household (pensioner or person with a disability)
$12,681
5%
Creative worker
$6,358
5%
Weighted average benefit per household per year
$16,093
100%
Source: SGS Economics and Planning
Findings
Along with the quantification methods described in the prior section, the CBA has been
performed using the following parameter:
▪ Time horizon: 20 years
▪ Discount rate: Commercial discount rate of 7 per cent real
136
▪ Timing of benefits: All benefits realised at the time of affordable housing provision
▪ Timing of costs: Construction costs in year zero and maintenance costs thereafter
▪ Terminal values: Each of the benefit streams is assumed to terminate in year 20,
even though most are likely to continue indefinitely. The assumption of zero terminal
values makes for a conservatively low assessment of net community benefit
The assumptions described above indicate that providing an affordable rental dwelling to a
representative household will result in a benefit cost ratio (BCR) of 3.01, which represents a
net positive economic and community outcome for Victoria.
136
Victorian Department of Treasury and Finance: Economic Evaluation for Business Cases Technical guidelines (August
2013)
City of Melbourne Housing Needs Analysis
125
Figure 77 ranks the benefits by their magnitudes (after applying the weighting of socio-
demographic groups). This shows that the largest benefits stem from key worker retention
and educational benefits. A conservative scenario, under which these benefits are excluded
entirely, results in a benefit cost ratio (BCR) of 1.74, which still represents a net positive
economic and community outcome for Victoria.
FIGURE 77: RANKING OF BENEFITS
Rank
Benefit Category
Weighted average benefit (by socio-demographic group)
1
Key worker retention
$5,185
2
Educational benefits
$3,358
3
Enhanced human capital
$2,792
4
Health cost savings
$2,721
5
Reduce domestic violence
$1,526
6
Reduced crime costs
$510
Total
$16,093
Source: SGS Economics and Planning
5.3 Synthesis
Assuming that Council had a means of enforcing affordable housing contributions via the
planning system, and that it chose to apply such a tool, it would significantly impact the local
property market. The level of impact would depend on the scale of the mandatory
requirement. A proportion of sites that would otherwise be available for development could
be withdrawn.
Our analysis shows that a mandatory requirement of up to 10 per cent could be supported
without choking off housing supply adequate to meet projected aggregate requirements in
the City of Melbourne.
Our analysis also shows that while some landowners will suffer a loss of value in their
property, mandatory requirements would deliver a strong net benefit for the whole
community. In this sense, this intervention is economically warranted.
City of Melbourne Housing Needs Analysis
126
6. POLICY TARGETS FOR CITY OF
MELBOURNE
This chapter considers what social and affordable housing provision target the
City of Melbourne might adopt for its policy efforts, assuming Council is interested
in this action. Two approaches to setting this target are examined. One relies on
pure estimates of unmet need after considering the provision strategies of other
levels of government. Recognising the likely enormity of this unmet need and the
inevitably constrained role of the Council, the second, more pragmatic, approach
sets a target by reviewing precedents from other municipalities across Australia.
Further, the types of actions Council would need to undertake to move social and
affordable housing supply in the City towards the nominated target are identified.
6.1 Needs-based target: the residual target method
A ‘logical’ or uncompromising approach to establishing an affordable housing target for the
City of Melbourne’s policy efforts would focus on net measured need, that is, residual need
after accounting for new supply generated by other parties, most notably, the State and
Commonwealth Governments.
As we have discussed, addressing the shortfall of social and affordable housing is the
responsibility of all levels of government. Both State and Commonwealth Governments have
contributed directly to the supply of social and affordable housing in the past. They are well
placed to make further investments, as they do in other essential urban infrastructure, by
virtue of their superior revenue raising powers and ability to take on debt.
Residual target method
Establishing a target for social and affordable housing using the residual target method
involves the following steps:
1. Estimate demand for social and affordable housing across Metropolitan Melbourne
2. Estimate demand for social and affordable housing in the City of Melbourne.
3. Apply a discount to this demand figure to account for households that may not need
housing assistance (e.g. students, working holidaymakers, etc.).
4. Establish a target for the City of Melbourne local government area.
5. Determine the likely contributions of state and federal housing programs
6. Calculate a residual target for the City of Melbourne (the Council) by deducting the
figure at step 5 from the target at step 4.
FIGURE 78: STEPS TO SETTING A NEED BASED SOCIAL AND AFFORDABLE HOUSING TARGET
City of Melbourne Housing Needs Analysis
127
Estimate of demand
The total demand for social and affordable housing for both Metropolitan Melbourne and the
City of Melbourne were discussed in Section 2.
Four different approaches to calculating demand in the City of Melbourne to 2036 produced
estimates of 20,848, 26,009, 30,139, and 33,640 households/dwellings. These figures would
represent 13 per cent, 17 per cent, 19 per cent, and 22 per cent respectively of all housing in
the City in 2036.
For the subsequent steps in estimating a needs-based target SGS adopted the second highest
figure. This was derived from an allocation method that assumes the future distribution of
social and affordable housing should be concentrated in more accessible locations.
Discount for potential overestimate of need
Housing stress is a situation where households find their housing costs are so high that they
must forego life’s necessities such as food, health care and education. It is conceivable some
households are paying more than 30 per cent of their income on rent and yet are relatively
satisfied with respect to all other necessities. Individuals that might fall into this category
could include some students (e.g. those with relatively low incomes but few other expenses),
some working holidaymakers (e.g. who might choose to pay high housing costs and for a short
term, by drawing down on savings) and households that are temporarily in rental stress or
temporarily overcrowded. However, as discussed in section 2.3, accurately determining which
of these households genuinely require affordable housing is difficult, due to the unobservable
nature of these traits.
To ensure the needs-based target for the City of Melbourne is not excessive, a discount might
be applied to the estimated demand figures to account for a nominal proportion of
households that meet the technical definition of housing stress but do not require a social
and affordable housing supply response.
There is no readily available data to assist in estimating the number of households identified
as being in housing stress but not actually in need of housing assistance. For the sake of
establishing the demand-based target, we have applied a discount of 10 per cent to the total
demand figure.
City of Melbourne (LGA) target
The aggregate affordable housing requirement for the Melbourne local government area is
the estimated demand discounted by 10 per cent. This amounts to 27,125 dwellings by 2036
(based on scenario 3).
Contribution of federal and state programs
Various federal and state government programs and funding streams are available for social
housing provision. In recent years, funding under the base load ‘National Affordable Housing
Agreement’ between the Commonwealth and State Governments has provided barely
enough resources to replace social housing which is at the end of its useful life.
Consequently, social housing supply has stagnated over the past two intercensal periods, both
in absolute and proportional terms.
In 2017, the State Government moved to redress this decline through its ‘Homes for
Victorians’ policy package. The principal initiative in this package was the formation of the
Social Housing Growth Fund. This can be expected to generate a significant flow of new
housing, some of which could be provided in the City of Melbourne.
As noted, the Growth Fund will use the interest on a $1 billion investment to provide social
housing throughout the state. The fund might yield $70 million per annum assuming a 7 per
cent return. The City of Melbourne will account for 9 per cent of projected population
City of Melbourne Housing Needs Analysis
128
growth in Victoria to 2036.
137
If the City attracted a proportional share of the funding enabled
by the Social Housing Growth Fund this would provide around 250 dwellings over a 20-year
period.
138
In addition to the Growth Fund, the State Government’s Public Housing Renewal Program is
likely to deliver net additional social and affordable dwellings as well as the renewal of
existing social housing stock. It follows that the slated renewal of the North Melbourne estate
has the potential to contribute to new supply. However, specific data on net additional social
and affordable housing dwellings are not currently available.
FIGURE 79: OCCUPIED SOCIAL HOUSING – METROPOLITAN MELBOURNE 1991 - 2016
Source: ABS Census data, SGS calculations
FIGURE 80: SOCIAL HOUSING AS PER CENT OF TOTAL OCCUPIED HOUSING STOCK – METROPOLITAN
MELBOURNE 1991 - 2016
Source: ABS Census data, SGS calculations
The federal opposition has signalled its intention to be more proactive on affordable housing
if elected. This may result in a more significant Commonwealth role in future, although the
size of this contribution is not known.
137
Based on Council forecasts for the City of Melbourne and VIF (2016).
138
$70 million per year/$500,000 average procurement price = 140 dwellings per year x 9 per cent = 12.6 dwellings per
year x 20 years = 250.
36,259
33,201
35,953
41,524
43,010
42,912
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1 2 3 4 5 6
3.2%
2.7%
2.7%
2.8%
2.6%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1991 1996 2001 2006 2011 2016
City of Melbourne Housing Needs Analysis
129
In summary, the contribution of other levels of government to the supply of social and
affordable housing in the City of Melbourne is likely to be relatively modest. There are
however some signs that this contribution will increase in future when compared to the
recent trends.
City of Melbourne (Council) residual social and affordable housing target
The residual target for Council is calculated by taking the difference between the Melbourne
(LGA) target and the contribution of other government policies and programs. Existing social
housing dwellings are also netted off the LGA target. This calculation is shown in the table
below.
The result is a target of 22,954 social and affordable housing dwellings by 2036.
FIGURE 81. DEMAND-BASED SOCIAL AND AFFORDABLE HOUSING TARGET CALCULATION (2036)
Estimate of
demand
Discount rate
to account for
potential
overestimate
Target for
City of
Melbourne
(LGA)
Existing social
housing
dwellings
State and
federal
forecast
supply
Residual
target for
Council
Demand
based on
Scenario 3
30,139
90%
27,125
3,970
250
22,954
Source: SGS Economics and Planning, 2019.
This figure presents an ambitious target given the total forecast housing growth for the City is
88,065 additional dwellings to 2036. To meet the demand-based target, one in every four
new dwellings provided would need to be social or affordable housing. This is an
unprecedented rate in the Australian context and high even by international standards.
The residual needs-based method would generate a more achievable target for Council if
other levels of government made a more substantial contribution to the LGA provision.
6.2 Precedent-based target
An alternative approach to setting a policy target for Council is to extrapolate from existing
precedents.
Targets for the provision of social and affordable housing can be found in broader aspirational
policies, specific planning policies and site-specific planning negotiations and decisions. The
tables below outline examples of each type of target. The examples focus on Australian
precedents.
The lowest rate identified, 0.4 per cent, is the rate of permanent provision at the Alphington
(Amcor) renewal site. This outcome was negotiated by the City of Yarra and the developer in
2016. The highest rate is 20 per cent which has been identified for the Fitzroy Gasworks site.
This is a state government owned site for which there are, as yet, no specific development
proposals.
While the rates vary, they are mostly consistent and in the order of 5 per cent to 10 per cent
of dwellings in a particular residential building.
At Ultimo Pyrmont, Australia oldest ‘inclusionary housing’ scheme, an affordable housing
contribution rate of 1.1 per cent is applied to new development. However, the targeted
provision for public and affordable housing in the ‘overarching’ policy was 8-10 per cent. In
this instance, it is likely that the shortfall between the inclusionary rate and the target was to
be funded by both the State and Commonwealth Governments.
For the most part, the targets and rates apply to the proportion of housing that is affordable
rental dwellings made available through state housing agencies and/or not-for-profit housing
City of Melbourne Housing Needs Analysis
130
providers. South Australia is something of an exception. Its affordable housing policy has a
focus on affordable dwellings for purchase.
FIGURE 82: AFFORDABLE HOUSING TARGETS IN POLICIES AND STRATEGIES
Policy
Rate target
Notes
Ultimo Pyrmont, Sydney
8-10% of housing will be
affordable or public rental
housing; comprised on 600
affordable housing dwellings and
100 public housing dwellings
See Department of Planning
(2010) Revised City West
Affordable Housing Program;
Scheme commenced in 1995.
In Our Back Yard,
City of Port Phillip
7% (920 dwellings of project
growth of 13,620 between 2015
and 2025)
(SGS needs based target
presented in IOBY policy review,
2018, was 13%)
Sustainable Sydney 2030,
City of Sydney
By 2030 7.5% of all housing in the
City will be affordable housing
delivered by not-for-profit or
other providers.
A Metropolis of Three Cities,
Greater Sydney Commission, 2018
5-10% affordable rental housing in
nominated precents, subject to
viability
Altona North precinct, Hobsons
Bay
10%
“Precinct 15” - SGS advice to
Council based on need and
cognisant on feasibility impacts.
(AmC88)
Source: SGS Economics and Planning, 2019.
FIGURE 83: AFFORDABLE HOUSING REQUIREMENTS IN ADOPTED AND DRAFT POLICIES
Policy
Rate of provision
Notes
City West Affordable Housing
Program, Ultimo Pyrmont, Sydney
0.8% of the total floor area
residential uses;
1.1% of the total floor area for
non-residential uses
Cash rates: $30.97 and $44.49 per
square metre of residential and
non-residential floor area
respectively.
Lower rate for residential based
on 30% discount to incentive
residential development;
Scheme commenced in 1995.
Green Square Affordable Housing
Program, Sydney
330 dwellings
Unclear what the base number of
dwellings supplied will be or the
timeframe for provision. Pre-dates
Sydney 2030 policy target of 7.5%.
Affordable Housing Overlay,
South Australia
15% Applies to ‘significant
developments’ within a
designated affordable housing
zone. Includes government land,
major developments and private
developments that are bound by
the development plan policy for
affordable housing.
AH: offered for sale at or below
the appropriate price; offered for
sale to eligible buyers
priced at $354,000 or less;
affordable rental properties can
contribute to the 15% of
affordable dwellings if rented out
at an affordable price.
Homes for Londoners: Affordable
housing and viability
supplementary planning guidance,
Greater London Authority (2017)
Effective rate of social housing
provision is 10.5 per cent (35% x
30%).
Default arrangement for
developers to avoid the need to
submit to case-by-case
requirements negotiated via open
book feasibility assessment is 35
per cent; split between ‘social
housing’ (30%) and ‘intermediate
City of Melbourne Housing Needs Analysis
131
Policy
Rate of provision
Notes
housing’ (70%).
Altona North, Hobsons Bay
5%
Rate recommended in AmC88
Panel report.
Fishermans Bend
6%
Rate in base floor space; not
mandatory; proposed to work in
tandem with FAU scheme which
requires additional AH at a rate of
8:1 private to social dwellings
West Melbourne
6%
Draft policy (2018)
Source: SGS Economics & Planning, 2019.
FIGURE 84: AFFORDABLE HOUSING REQUIREMENTS IN SPECIFIC DEVELOPMENTS
Development
Rate of provision
Notes
Yarra Bend, Alphington
(Glenvill/AMCOR site)
150 of 2500 dwellings (6%) for 10
years;
10 of 2500 dwellings (0.4%)
permanently
HA (CHL) to lease 150 dwelling
from the developer at a fixed rent
for 10 years to be subleased at
below 75% market rent. The HA
will retain titles to 10 dwellings in
perpetuity.
Flinders Bank development (CBD)
20 of 700 (approx. 3%)
Ministerial approval in September,
2018 negotiated the inclusion of
20 dwellings to be leased at 50 per
cent of market rent for the life of
the building.
Nightingale Village, Brunswick
14 of 210 dwellings or 7%
Section 173 Agreement requires
developer to provide
unencumbered ownership of no
less than 14 dwellings (or 7% of
the total dwellings) to be
transferred to a
Registered Housing Agency
Fitzroy Gasworks site,
North Fitzroy
20 per cent (see notes)
Development Victoria website
suggest site will contain 1,100
apartments, 20% of which will be
social/shared equity/affordable
housing.
Riverlee site,
Epping, Victoria
Negotiated agreement between
Council and developer (Riverlee).
Source: SGS Economics and Planning, 2019.
Setting a precedent-based social and affordable housing target
The rates and targets described above range from less than 1 per cent to 20 per cent of
dwellings, with most figures in the order of 5 per cent to 10 per cent. These policies imply
more modest requirements than the need-based target identified above. This reflects the
somewhat limited scope for planning-based approaches to achieve social and affordable
housing outcomes without subsidies from other levels of government.
Notwithstanding that Victoria has constrained regulatory tools to advance social and
affordable housing compared to other Australian jurisdictions, planning approaches remain
one of the main mechanisms Council has direct influence over (albeit that the support of
State Government is essential). Implementing a successful inclusionary housing policy - via a
value capture mechanism, inclusionary targets (as per Fishermans Bend) or a combination of
these policies – is likely to have the greatest impact on the supply of social and affordable
housing of any option that is available.
City of Melbourne Housing Needs Analysis
132
Assuming that Council is able to successfully implement a planning policy for social and
affordable housing, a precedent-based target would be calculated by applying ‘precedent
rates’ outlined above to the forecast dwelling growth, which is 88,065 dwellings between
2016 to 2036. Calculations for three rates – 5 per cent, 7.5 per cent and 10 per cent – are
shown in the table below. The resulting targets are for 4,404, 6,605 and 8,806 dwellings
respectively.
A fourth target is shown that is based on retaining the 2016 level of social housing provision
as a proportion of the total dwelling stock to 2036. Approximately 5.8 per cent of all
dwellings are social housing dwellings. Retaining this proportion would require a further
5,108 dwellings.
FIGURE 85: TARGETS USING PRECEDENT METHOD
Supply 2016 to 2036
(all dwellings)
per cent of social and
affordable housing
Council’s
Target (dwellings)
5.0 per cent of dwellings
added between 2016
and 2036
88,065
5.0%
4,404
7.5 per cent of dwellings
added between 2016
and 2036
88,065
7.5%
6,605
10 per cent of dwellings
added between 2016
and 2036
88,065
10.0%
8,806
Maintain the 2016
proportion of social
housing
88,065
5.8%
5,108
Source: SGS Economics and Planning
Precedent-based and demand-based targets compared
The highest of precedent-based targets shown above falls short of the demand-based target
by a significant margin. This suggests that if Council were to pursue even the most ambitious
precedent-based target shown there would still be substantial unmet demand for housing
assistance.
FIGURE 86: DEMAND-BASED AND PRECEDENT-BASED TARGETS COMPARED
Target for
City of
Melbourne
(LGA)
Existing social
housing
dwellings
State and
federal supply
added
between
2016 and
2036
Residual
target for
Council
5.0 per cent
of dwellings
added
between
2016 and
2036
7.5 per cent
of dwellings
added
between
2016 and
2036
10 per cent of
dwellings
added
between
2016 and
2036
Maintain the
2016
proportion
of social
housing
27,125
3,970
250
22,954
4,404
6,605
8,806
5,108
Source: SGS Economics and Planning, 2019.
6.3 A target for the City of Melbourne
Council should adopt a realistic and achievable target for its contribution to the supply of
social and affordable housing based on those policies and activities it has direct influence
over.
Assuming Council wishes to maximise social and affordable housing outcomes, and that the
property market impacts are acceptable, we would suggest Council adopt a target based on
the higher end of the precedent rates; that is, 8,800 additional dwellings between 2016 and
2036. This is still well below the need-based target of 22,954 but would be a more realistic
yet still ambitious target.
City of Melbourne Housing Needs Analysis
133
Provision of this target could take various forms across the housing spectrum, depending on
Council’s chosen priorities and available resources. For example, provision of social housing
units would assist those most in need, while provision of affordable housing would require a
lower subsidy. Figure 87 presents one possible disaggregation of targets, across both the
housing spectrum and time. This is based on the relative levels of demand for social housing
and affordable housing under scenario 3, and the timing of residential growth expected in the
City of Melbourne.
While the target of 8,800 has been apportioned to ‘social’ and ‘affordable’ housing categories
in line with their shares in overall measured need, Figure 87 applies the full estimated need
for transitional housing beds in the City of Melbourne, based on expressed demand. This is
the outworking of two considerations. Firstly, transitional housing can be characterised
primarily as a support service rather than a housing (or shelter) program as such. There is no
obvious way of scaling back estimated need to form a target suitable for the City of
Melbourne’s operations. Secondly, provision of transitional housing – which is typically
provided by community based groups with varying levels of government and philanthropic
support – can be seen to be more in the domain of local government, the sphere of
government closest to community.
FIGURE 87: TARGETS FOR SOCIAL AND AFFODABLE HOUSING PROVISION ACROSS THE HOUSING SPECTRUM
Source: SGS Economics and Planning, 2019.
By way of comparison, a target of 8,800 (excluding transitional housing) over 20 years can be
contrasted with the City of Port Phillip’s 20 year equivalent target of 1,840 dwellings. After
allowing for differences in population numbers, Melbourne’s target would be 3.75 times
greater than that of City of Port Phillip. Bearing in mind the special role of a Capital City
Council in social and affordable housing provision (see Section 3), this ratio may be
appropriate.
6.4 What does Council need to do to meet the target?
Achievable planning initiatives
Without pre-empting any future social and affordable housing strategy that Council might
adopt, our review of supply levers available to the City of Melbourne under current policy
settings controlled by the State and Commonwealth Governments (see Section 4.3) suggests
that the most effective approach for Council would be to:
▪ Extend the Fishermans Bend affordable housing target approach to all relevant parts
of the municipality and lift the ratio from 6 per cent to 10 per cent. While this is not
mandatory inclusionary zoning, it is the next best option. It is intended that
developers will have a strong onus of proof as to why they should not meet the
nominated target.
▪ Extend the principle of the Fishermans Bend floor area uplift for social housing
scheme to all relevant parts of the City. This would mean revamping AmC270 to
require proponents exceeding a FAR of 18:1 to provide social housing as the sole off-
setting public benefit.
2016-2020 2020-2024 2024-2028 2028-2032 2032-2036 2016 - 2036
Social Housing - 1,914 1,890 1,853 1,870 7,527
Affordable Housing - 324 320 313 316 1,273
Total - 2,238 2,210 2,167 2,186 8,800
Transitional Housing - 362 357 350 353 1,423
Target
City of Melbourne Housing Needs Analysis
134
Implementation ‘ramp up’ period
Even though these two planning initiatives are ambitious, they have clear recent precedents
in Melbourne and should be achievable. Nevertheless, it is important to recognise that if
Council’s main strategy to achieve the target is via planning policy mechanisms, there will be
some delay in the policy taking effect and delivering dwellings.
The policy would need to be developed and passed through the planning scheme amendment
process which might take 12 to 24 months. Once in place, planning applications assessed
under the policy would take some time to be approved and then be realised on the ground.
This might take another 2 years. Existing planning approvals that are already in the
development pipeline will also absorb a share of demand further reducing the impact of the
policy in the next few years until these approvals are either taken up or allowed to lapse.
This policy ramp effect up is illustrated in the figure below.
If the primary tool for achieving the target is a non-mandatory inclusionary zoning mechanism
that required 10 per cent of dwellings to be social and affordable, this would only produce the
average annual target of 440 dwellings per annum after a period of several years. An
estimation of the ramp-up effect on the supply of affordable housing dwellings is shown in
Figure 89 below. This considers data extracted from the City of Melbourne’s Development
Activity Monitor (DAM, which indicates that there are:
▪ 13,726 dwellings identified as being completed in 2017 and 2018
▪ 16,415 dwellings identified as under construction
▪ 37,788 dwellings in approved permits
▪ 13,456 dwellings in active permits applications
FIGURE 88: IMPACT OF RAMP UP PERIOD OF PLANNING POLICY ON ACHIEVING TARGET
Source: SGS Economics and Planning
City of Melbourne Housing Needs Analysis
135
FIGURE 89: ESTIMATION OF IMPACT OF ‘RAMP UP’ EFFECT ON AFFORDABLE HOUSING SUPPLY
Source of new dwellings
2016 to 2021
2021 to 2026
2026 to 2031
2031 to 2036
Total
Count
Share
Count
Share
Count
Share
Count
Share
Already constructed
13,719
57 %
-
0 %
-
0 %
-
0 %
13,719
Under construction
10,230
43 %
6,185
29 %
-
0 %
-
0 %
16,415
Existing approvals/
applications under consideration
-
0 %
9,526
45 %
-
0 %
-
0 %
9,526
New applications
(pre-affordable housing policy)
-
0 %
4,400
21 %
1,071
5 %
-
0 %
5,471
New applications
(post-affordable housing policy)*
-
0 %
1,058
5 %
20,356
95 %
21,520
100 %
42,934
Total dwellings**
23,949
100 %
21,169
100 %
21,427
100 %
21,520
100 %
88,065
Affordable dwellings
-
0.0 %
106
0.5 %
2,036
9.5 %
2,152
10.0 %
4,294
Source: SGS Economics and Planning, 2019
*Affordable housing provision rate of 10 per cent applied to new applications only.
** City of Melbourne population forecasts.
The shortfall of dwellings in the earlier years might be acceptable as an inevitable
consequence of the delayed effect of new policy. Alternatively, Council might endeavour to
‘backfill’ the shortfall via other mechanisms (e.g. the development of Council owned land and
direct financial contributions to Housing Agencies -see Section 4.3).
6.5 Synthesis
The task of responding to the need for social and affordable housing in the City is significant.
We have estimated the aggregate requirement for the City of Melbourne local government
area in 2036 as 27,125 dwellings (based on scenario 3 and the discount). The combined
efforts of Council and other spheres of government are required to address this challenge.
A supply target for Council’s efforts, as part of any wider response, may be required.
This supply target can be set in one of two ways; (1) as a residual of what the other levels of
government deliver versus measured need; and (2) extrapolation of precedents from other
local government policies.
Given the scarcity of new supply known to be coming from State and Commonwealth
Governments, the former approach would leave Council with a very high target of almost
23,000 additional social and affordable housing units by 2036.
The latter approach yields a range of targets the upper end of which is 8,800 additional units
by 2036. This figure would seem to be both ambitious and realistic, given the leadership role
and endowments of a capital city council.
Assuming an affordable housing provision rate of 10% and a policy ramp up period that sees
this policy taking effect from 2021, we have estimated that Council could deliver in the order
of 4,300 affordable dwellings via this inclusionary approach. The balance of the 8,800
additional units might be met via floor area uplift mechanisms, direct investment or through
Registered Housing Associations leveraging gifted stock to acquire additional dwellings.
City of Melbourne Housing Needs Analysis
136
APPENDIX 1: DEMAND FORECAST
METHODOLOGY
Overview
The SGS Housing Assistance Demand Model measures the number of households who
currently need affordable housing, segmented by demographic and spatial variables, and
forecasts the evolution of this need subject to factors such as expected population growth,
demographic shifts, changes in household incomes, and the evolution of rental rates.
The model uses the following key datasets:
▪ ABS Census 2016. A detailed list of ABS Census data appears in Figure 92
▪ 2016 ABS estimation of homelessness (cat 2049.0)
▪ Forecasts of household by type – Victoria in Future 2016 and City of Melbourne
forecasts (2018)
139
FIGURE 90: HOUSING ASSISTANCE DEMAND MODEL OVERVIEW
Source: SGS Economics and Planning
139
Victoria in Future forecasts are available for metropolitan Melbourne. However, upon Council’s request, forecasts for
the Melbourne LGA have been aligned to the City of Melbourne’s internal forecasts
City of Melbourne Housing Needs Analysis
137
Methodology
The structure of the Housing Assistance Demand model follows three key steps:
▪ Preparing an initial market state, based on 2016 ABS Census data.
▪ Evolving the market state over time, based on user-defined assumptions (e.g.
changes in household incomes and rents)
▪ Interrogating the count of households in need of affordable housing.
Initial market state
An initial market state is prepared using 2016 ABS Census data, and household forecast data
(VIF 2016 and City of Melbourne forecasts). The main data inputs are 2016 census data, which
is used to prepare a detailed attribute-by-attribute market state distribution. Household
forecast data provides control totals against which the market state is adjusted, ameliorating
systematic errors in Census data (e.g. undercount). The attributes necessary to identify
financial stress appear in Figure 91.
FIGURE 91:CENSUS ATTRIBUTES
Variable
Use
Weekly rent
Weekly rent is used to identify households spending a large proportion of
their income on rent.
Weekly household income
140
Weekly household income is used to identify households spending a
large proportion of their income on rent.
Household type
Lone person, Group household, or several family sub-types. The
appropriate housing response for households in need of SAH will vary
based on household type.
Tenure type
Used to differentiate between home-owner households, rental
households, social housing households, and households with no tenure
types (includes homeless households).
LGA
Spatial component used to show distribution of SAH demand across VIC
Weekly equivalised
income
141
Equivalised income converts household income to a ‘Lone-person
household equivalent’ income. This allows for the incomes of different
household types to be compared, which is necessary in order to identify
‘low income’ households. Use of equivalised income in such a way is an
OECD
142
standard.
Source: SGS Economics and Planning, 2018
Ideally, census data could be obtained to identify the number the households fitting any
criteria with any given set characteristics. However, for reasons of privacy, ABS products will
not provide accurate data where the number of persons fitting a category is small, returning a
small random number instead. Because of the detailed breakdown, using ABS Census Table
Builder to obtain a cross-tabulated table with all the variables listed above returns unreliable
numbers.
Therefore, one must collect data more carefully and build a quintuple-attribute model, at an
LGA level, in a more sophisticated manner than a simple query of ABS data. The data tables in
Figure 92 were obtained from ABS Census Table Builder and used in the preparation of the
market state.
140
This represents pre-tax income, as reported in the Census
141
Despite being included, this is an unused variable for the purpose of this analysis, as income thresholds are defined
based on total household income and not income percentiles (the 40
th
income percentile is a common alternative)
142
Organisation for Economic Cooperation and Development
City of Melbourne Housing Needs Analysis
138
FIGURE 92 CENSUS 2016 INPUT DATA TABLES
Single attribute tables
Double attribute tables
▪ LGA by HCFMD Family
Household Composition
(Dwelling)
▪ LGA by TENLLD Tenure and
Landlord Type
▪ LGA by RNTRD Rent (weekly)
Ranges
▪ LGA by HIND Total Household
Income (weekly)
▪ LGA by HIED Equivalised Total
Household Income (weekly)
▪ LGA by HCFMD Family Household Composition
(Dwelling) and HIED Equivalised Total Household
Income (weekly)
▪ LGA by HCFMD Family Household Composition
(Dwelling) and RNTRD Rent (weekly) Ranges
▪ LGA by HCFMD Family Household Composition
(Dwelling) and RNTRD Rent (weekly) Ranges
▪ LGA by HIND Total Household Income (weekly) and
HCFMD Family Household Composition (Dwelling)
▪ LGA by HIND Total Household Income (weekly) and
HIED Equivalised Total Household Income (weekly)
▪ LGA by HIND Total Household Income (weekly) and
RNTRD Rent (weekly) Ranges
▪ LGA by HIND Total Household Income (weekly) and
TENLLD Tenure and Landlord Type
▪ LGA by RNTRD Rent (weekly) Ranges and HIED
Equivalised Total Household Income (weekly)
▪ LGA by TENLLD Tenure and Landlord Type and
HCFMD Family Household Composition (Dwelling)
▪ LGA by TENLLD Tenure and Landlord Type and HIED
Equivalised Total Household Income (weekly)
▪ LGA by TENLLD Tenure and Landlord Type and
RNTRD Rent (weekly) Ranges
A model of the market state is prepared at a local government area level, using a process
called iterative proportional fitting (statistics), or the RAS algorithm (economics). This process
is described in the breakout box below.
The goal is to use the 10 double-attribute and 5 single-attribute tables to prepare a seed for
the 4-attribute target table. This is performed LGA by LGA. The process is as follows:
1. Scale all tables listed in Figure 92 so that each sums to 1.
2. As a preliminary step, for each double-attribute table, use the RAS algorithm to align
it to the margins provided by the two corresponding single-attribute tables. This is a
necessary to ensure consistency needed in the following steps.
3. Prepare a collection of 5-attribute tables by combining two double-attribute tables
and one single-attribute table, without repeating factors. For instance
▪ LGA by HCFMD Family Household Composition (Dwelling) and HIED Equivalised
Total Household Income (weekly)
▪ LGA by TENLLD Tenure and Landlord Type and RNTRD Rent (weekly) Ranges
▪ LGA by HIND Total Household Income (weekly).
4. Take the average of all these tables, to produce one 5-attribute table that combines
all the data input tables. This is the seed for the following step.
5. Use the table prepared in step 3 as the seed in a final use of the RAS algorithm. In
this step, the 10 double-attribute tables adjusted in step 2 are the margins against
which the seed is aligned.
6. The output of step 5 is a five-attribute data table that aligns with all tables in Figure
92.
7. As the census household types do not align with the VIF family types, the 5-attribute
table output above is aggregated to align with the household types in that
publication.
8. The five-attribute table is scaled (by household type) to align to the control totals of
VIF 2016. This gives the data of the market state for a given LGA in 2016.
City of Melbourne Housing Needs Analysis
139
Future market state
Time evolution of the market state is inspired by a Markov-like process: a household with
certain attributes (a) in year y may become a household of another type (a’) in year y+1,
occurring with a certain probability. Global parameters in the Model, determine those
probabilities.
The implemented model differs from a true Markov process in two ways:
▪ It is deterministic – the large volume of households tracked means probabilistic
effects are washed out in practice.
THE RAS ALGORITHM
The RAS algorithm is a process for building an unknown n-dimensional table T of positive
numbers, given known tables T
1
, T
2
, … which form margins of T (i.e., totals along various
axes of T). It is a generalization of the method of using “control totals” to align data. An
illustration of the output of the RAS algorithm is presented in Figure 93.
FIGURE 93 OUTPUT OF THE RAS ALGORITHM
The process is simple in the case when T is a two-dimensional table (i.e., as in a spreadsheet)
with rows and columns. Say, T
1
are the row-totals of T, while T
2
are the column totals of T.
1. Begin with an initial “seed” for T. For the sake of this example, assume T is a table of
1s.
2. Scale each row of T such that it matches the row total as per T
1
.
3. Scale each column of T such that it matches the column total as per T
2
.
4. Iterate though steps 1 and 2 repeatedly until T stabilizes sufficiently.
Under reasonable conditions for T, this process is guaranteed to stabilise.
However, while the resulting table for T will align with both T
1
and T
2
, difference in choice of
seed can result in considerably different output for T, as seen in Figure 93
City of Melbourne Housing Needs Analysis
140
▪ To make the Model more intuitive, household rent increases over time in alignment
with global assumptions, rather than in a distributional manner.
Additionally, new households are added to the existing market state in alignment with
existing household projections. These new households are assigned to the market in
proportions matching the existing market state.
Scenario-defined parameters specify how the state of the market steps forward in time. In
each time step, households are re-allocated to other attribute sets based on their initial set of
attributes. This process is portrayed in Figure 94. For this analysis, it is assumed that there will
be no future change in the relative distribution of rents and incomes (i.e. transition process
depicted in Figure 94 does not allow for changes in category)
FIGURE 94 ATTRIBUTE REALLOCATION
Query of financial stress
Finally, for each year in the forecasting period, households with attributes that fit the criteria
of a household in need of affordable housing are identified and counted.
To understand the definition of demand for social and affordable housing, consider first the
base year of 2016. A household is considered if it falls within any of the following categories:
▪ Rental stress - The household equivalised income is below a certain threshold and
the proportion of income spent on rent is above a certain threshold.
▪ Very low income households in rental stress (paying over 30 per cent of income on
rent).
▪ Low income households in rental stress (paying over 30 per cent of income on rent)
▪ Moderate income households in rental stress (paying over 30 per cent of income on
rent).
▪ Social housing - The household resides in social housing, indicating that they would
be in financial stress were it not for this assistance. This implicitly assumes that these
are very low income households.
▪ Homeless or no tenure - The household is homeless, indicating that they need of
affordable housing despite not experiencing rental stress. This implicitly assumes that
these are very low income households.
City of Melbourne Housing Needs Analysis
141
The model identifies households that comprise demand based on their attributes (weekly
rent, weekly household income, household type, and tenure type). The query of the above
categories from the initial market state is as follows:
▪ Rental stress - Weekly rent and weekly household income are used to compute
whether a household earns a moderate income or lower, and the proportion of
income spent on rent
143
.
▪ Social housing – The tenure and landlord type of the household is defined as either
‘Rented: State or territory housing authority’ or ‘Rented: Housing co-operative,
community or church group’.
▪ Homeless or no tenure – This group consists of households who are not counted in
either of the previous categories but are nonetheless in financial stress. They are
most commonly ‘homeless’ individuals who were residing in non-private dwellings
(boarding houses or supported accommodation with no tenure). To account for this
category, the Model incorporates an external estimate of these individuals (assumed
to be lone person households) and adds them to the query of the two other
categories. This external estimate draws on the ABS Homelessness Estimate (Cat.
2049.0).
In forecast years, the Model queries the number of households in rental stress based on the
same attributes, which have evolved due to population growth and various user-defined
assumptions. When considering the ‘social housing’ and homeless or no tenure’ categories, it
is important to note that the Model does not forecast changes to the social housing supply or
the incidence of homelessness. Rather, it ensures that the individuals in these categories are
represented in the query of demand for affordable housing.
143
Note that some households may not be counted as being in rental stress due to them receiving assistance (i.e. rental
assistance). However, data limitations at the time of analysis did not permit this to be accounted for, as the proportion of
households who both receive rental assistance and remain in rental stress can’t be determined
WHO ARE VERY LOW, LOW AND MODERATE INCOME HOUSEHOLDS?
The annual household income ranges for all households across Metropolitan Melbourne
are shown in the table below.
Household
Very Low Income
Low Income
Moderate Income
Couple family with
children
Up to $52,940
$52,940 to $84,720
$84,720 to $127,800
Couple family
without children
Up to $37,820
$37,820 to $60,520
$60,520 to $90,770
One-parent family
Up to $52,940
$52,940 to $84,720
$84,720 to $127,800
Other family*
Up to $52,940
$52,940 to $84,720
$84,720 to $127,800
Group household**
Up to $37,820
$37,820 to $60,520
$60,520 to $90,770
Lone person
Up to $25,220
$25,220 to $40,340
$40,340 to $60,510
Planning and Environment Act, Section 3AA(2)
* Other family set equivalent to couple family with children
** Group household set equivalent to couple family without children
To contextualise these income ranges, consider the annual income for the following
occupations (only applicable to lone person households)
▪ Moderate-income: Music professionals ($46,000), Registered nurses ($60,000)
▪ Low-income: Commercial cleaners ($33,000), Aged and disabled carers ($39,000)
▪ Very low-income: Café workers ($21,000)
City of Melbourne Housing Needs Analysis
142
APPENDIX 2: TERTIARY STUDENT
HOUSEHOLDS IN RENTAL STRESS
The adjusted demand in presented in section 2.3 relies on analysis of ABS Census data. The
key attributes used for analysis are:
▪ Counts of persons by place of enumeration, which enables housing characteristics
(e.g. tenure, rent, household income) to be cross-tabulated with education
characteristics.
▪ Counts of dwellings by place of enumeration, which is used to estimate average
household sizes for each household type.
FIGURE 95: STUDENT DEMAND ASSUMPTIONS
Average
students per
household
Affordable housing requirement
Rental stress
(persons)
Rental stress
(households)
Couple family
with children
1.00
All households contribute to demand
228
228
Couple family
with no
children
1.33
No households contribute to demand
2,365
1,778
One parent
family
1.00
All households contribute to demand
197
197
Other family
1.33
No households contribute to demand
1,227
923
Group
household
2.61
No households contribute to demand
9,888
3,787
Lone person
household
1.00
No households contribute to demand
4,345
4,345
Total
18,250
11,258
Source: SGS Economics and Planning
The quantity of interest is the number of households which contain students, meet the
criteria of rental stress, but do not contribute to demand for affordable housing due to other
factors. This is estimated using the following key steps and assumptions:
▪ For each household type, rental stress is defined as described in Appendix 1. This is
used to determine the number of tertiary students who live in households which
meet the definition of rental stress.
▪ Counts of students in rental stress are converted to a count of households by
applying the assumptions presented in Figure 95.
▪ For couple families with children, the household size of 1 implies that these
households in rental stress each contain only one tertiary student (i.e. either one of
the partners or a single dependent).
▪ For couple families without children, the household size of 1.33 implies that 50 per
cent of the students in rental stress live together, while the other 50 per cent live
with a partner who is not a tertiary student
▪ For one parent families, the household size of 1 implies that there is only one student
in each household (i.e. either the parent or one of the dependents).
City of Melbourne Housing Needs Analysis
143
▪ For other families (usually siblings in a single household), the household size of 1.33
implies that 50 per cent of these students live together (in groups of two), while the
other 50 per cent live in a household which doesn’t contain a tertiary student.
▪ Group households have an average size of 2.61 across the City of Melbourne. Using
this implies that all tertiary students in rental stress have formed households with
each other, and therefore leads to a conservative estimate of demand (i.e. in reality,
some will live with non-students).
▪ All student households which include dependents contribute to demand.
▪ For other household types, student households do not contribute to demand.
City of Melbourne Housing Needs Analysis
144
APPENDIX 3: KEY WORKERS
This appendix provides some additional contextual analysis of workers who may be
considered Key Workers. As defined by Council in its internal studies, Key Workers include,
but are not limited to, certain ranks or classifications of police officers (on average annual
incomes up to $91,000), fire and emergency workers ($89,500), ambulance officers and
paramedics ($83,000), registered nurses ($61,000), commercial cleaners ($33,000), café
workers ($21,000), primary school teachers ($66,000), secondary school teachers ($76,500),
child care workers ($34,500), aged and disabled carers ($39,000), social workers ($63,500)
and music professionals ($48,500). All of these jobs generate salaries within the eligibility
bounds set out in the Affordable Housing definition in the Planning and Environment Act,
depending on their household structure. Figure 96 presents the personal income distribution
for workers in these occupations within Greater Melbourne (GCCSA), excluding those who are
studying. This shows a diverse range of income distributions across occupations (e.g. Café
workers are more likely to have low or very low incomes, while most police earn an above
moderate income). It is this variation which makes identifying workers who are ‘key’, and may
warrant prioritised assistance, a complex problem. However, excluding the highest income
category, over 50 per cent of workers in these occupations earn a moderate income.
Other workers in households within the Moderate income category may not hold jobs in the
nominated occupations, but can nonetheless be treated as ‘key’, at least in the enterprises
and organisations which retain them. Some ‘Key Workers’ as defined by Council may not have
found their way into SGS’s estimates of Moderate income households in sufficient stress to
warrant affordable housing provision because their incomes are at the higher end within their
professional bands and/or they have found accommodation at affordable but remote
locations. We have assumed that, overall, this sub-group of Key Workers does not require an
affordable housing supply response, even though those in affordable but remote locations
may face a degree of productivity sapping difficulty in maintaining their jobs.
FIGURE 96: INCOME DISTRIBUTION OF SELECTED OCCUPATIONS (GREATER MELBOURNE)
Very Low
Income
Low Income
Moderate
Income
Above Moderate
Income
Music Professionals
23%
18%
25%
35%
Primary School Teachers
3%
6%
21%
70%
Secondary School Teachers
3%
5%
16%
77%
Registered Nurses
2%
10%
35%
53%
Social Workers
1%
6%
39%
53%
Ambulance Officers and Paramedics
0%
3%
17%
80%
Child Carers
17%
37%
39%
7%
Aged and Disabled Carers
20%
38%
32%
11%
Cafe Workers
38%
44%
12%
6%
Fire and Emergency Workers
0%
3%
16%
81%
Police
0%
1%
12%
87%
Commercial Cleaners
27%
42%
23%
8%
Total
8%
16%
26%
49%
Source: ABS Census 2016
HOBART
PO Box 123
Franklin TAS 7113
+61 421 372 940
sgstas@sgsep.com.au
SYDNEY
209/50 Holt St
Surry Hills NSW 2010
+61 2 8307 0121
sgsnsw@sgsep.com.au
