AHURI Brief

What role can local government play in delivering affordable housing?

Investigation into the role of local government areas (LGAs) in supporting the housing needs for low income 'key' workers.

13 January 2020

With increasingly unaffordable house prices in Australia’s major urban areas, many Australian local government areas (LGAs) are developing affordable housing strategies, often framed around the need for housing for low income ‘key’ workers in their neighbourhoods.

Why affordable housing matters to councils

Many Australian LGA’s (particularly capital city councils) are acutely aware that, as housing costs rise, the lower paid workers in industries that service their local area (such as those in hospitality, health care support and retail) are increasingly travelling longer distances to work. As high rents force lower income workers to move further out, long travel times may lead these workers to seek similarly paid jobs closer to home, leaving the high housing cost, inner city suburbs struggling to find a pool of sufficiently qualified workers.

Description of Key Workers

For example, the City of Willoughby—a council on the lower North Shore of Sydney—issued a Draft Housing Strategy to 2036,  published in 2019, which stated that ‘Considering that the most dominant employment type in Willoughby is health care workers and that this figure is expected to increase by 6,000 jobs to 2031, it is considered appropriate that Council make provisions to increase its key worker housing stock to accommodate this particular housing need.’

Similarly, the City of Parramatta (25km west of Sydney CBD) Affordable Rental Housing Policy 2019 defines keyworkers as ‘those workers who are employed in roles essential to the functioning of a city. While there is no universal definition of the term, key workers typically include police, fire fighters, teachers, childcare workers and other employee groups who undertake work considered essential for the day-to-day functioning of a city.’

Types of Key Workers

Other councils, such as the City of Yarra (in inner Melbourne, Victoria), promote the importance of having a ‘vibrant and diverse municipality’  and that ‘sustaining a diverse population requires a diversity of housing available at prices that can be afforded by households with very low, low and moderate incomes.’

Direct action by local government

Local Governments can influence affordable housing supply through their management of the planning system, the two most common approaches being inclusionary zoning and voluntary planning agreements (VPAs). AHURI research from 2018 examined the use of these interventions to increase affordable housing supply in both international and Australian markets. According to the research, ‘Voluntary planning incentives can encourage affordable housing inclusion as part of incremental residential development within the existing planning and development control framework’.

The City of Parramatta Affordable Rental Housing Policy 2019 proposes the use of both mechanisms. Using VPAs, the City of Parramatta ‘nominates that 10 per cent of land value uplift in all areas outside the Parramatta CBD will be captured by Council for the purpose of providing affordable rental housing.’ This means that when land increases in value due to it being allowed to be developed to a higher density than is currently permissible, 10 per cent of that increase must be paid by the land owner to the council to facilitate building (or buying) dwellings for affordable rental housing.

The City of Parramatta policy intends that a community housing provider will manage the operation of council-owned affordable housing and that tenants qualify as very low, low or moderate income households; they have proof of connection to the City of Parramatta LGA; and proof of tenant’s employment within the City of Parramatta LGA, and ideally within a key worker role.

Indirect action by local government

Beyond influencing housing supply, councils can also have a role in promoting an increase in the number of public and social housing dwellings within their local area. The types of housing encouraged by councils’ varies, ranging from housing rented or sold at below local market rates to key workers, to social housing rented to very low-income households to supporting older home owners through reduced council rates.

For example, the City of Yarra in Melbourne housing policies document states that it is ‘committed to working to increase the supply of housing suitable for households on low incomes within our municipality. We advocate to the state and federal governments to expand funding of public and social housing.’

Also in Victoria, the Hobsons Bay City Council’s Affordable Housing Policy Statement (published in 2016) considers options of the Council financially assisting low-income homeowners to remain in their homes by providing rates discounts to pensioners; providing rates rebates to war veterans and widows; and considering a reduction of rates in cases of hardship. While these options are not intended to support lower income tenants as such, they may help lower income residents maintain their local housing. In addition, the Council also sees a role for itself in assisting ‘older residents to remain in their homes (either owned or rented) rather than transitioning to higher cost aged care through the provision of a range of support services.'

The future

While local suburban and capital city councils can make a positive contribution to affordable housing, they are unlikely to be able to supply enough affordable housing for either key workers or people on welfare benefits (such as the age pension and disability support). AHURI research shows that over the two decades to 2036, around 730,000 additional social housing dwellings will be required across Australia FR315P3 at a cost of between $146,000 to $614,000 per dwelling, depending on local conditions.

AHURI research finds that planning system tools for affordable housing supply work best when part of a wider whole-of-government strategy to address the continuum of housing needs.

To work towards supplying this number of dwellings, local, state/territory and federal governments will have to align their policies and to work together using a variety of funding and implementation strategies including inclusionary zoning; VPAs; allocation of council and government owned land towards building affordable housing; government capital grants and operating subsidies; and encouraging investment in social housing provided by community housing providers.

By 2036 Information