What is affordable housing, and how does it work?

It’s well established that many people working on the North Shore  — among them nurses, teachers, cleaners, retail and hospitality workers — can struggle to rent accommodation reasonably close to work.

While increased supply across the state is supposed to have the effect of lowering prices, luxury apartments in North Sydney and Chatswood are well beyond the means of the average worker.

A search of realestate.com.au shows that the average Sydney rent for a unit is $760 weekly. By comparison, the average in St Leonards is $915, Chatswood $830, North Sydney $820 and Killara and Gordon $810. 

Wahroonga, at $750, was cheaper than the citywide average.

Affordable housing — a term that is commonly bandied about — is pitched as a solution. But what is it exactly, and how does it work?

Social housing

Affordable housing is not social housing. 

Social housing refers to government-subsidised housing based on need for people on very-low incomes, as well as people experiencing homelessness or family violence. 

Public housing and community housing fall under social housing; the former is operated by state and territory governments (in New South Wales, under Homes NSW) while the latter is operated by not-for-profit organisations.

Affordable housing

A much broader range of incomes can apply for affordable housing. Unlike social housing, affordable housing is typically run by non-government organisations.

Andrew McAnulty is CEO of Link Wentworth, one of the largest not-for-profit housing providers in Australia. It manages community and affordable housing.

In recent decades, he said, the number of people facing rental stress had increased significantly, and that “young people in good jobs can't afford to pay rent”.

The split: There are two types of affordable housing. The first sees tenants charged a rent 20-25 percent below the market rate for that area, and in the second rent is charged at 25-30 percent of household income before tax.

• Whoever builds the housing decides which of these rent structures is used.

Income thresholds are measured differently for renters in Greater Sydney and the rest of NSW.

In the Greater Sydney region, the maximum threshold for a single person household to be eligible for affordable housing is $86,400. For a couple it is $129,600.

As an example of this, if a household had an income of $80,000 and needed to rent a unit with a market rate of $800 a week, the 20-25% lower rate would result in a weekly rent of between $600 and $640 a week. 

But if the housing provider used the 25-30 percent of pre-tax household income method, the renter would pay between $384 and $461 a week for the same flat.

Developers: Currently in NSW, significant concessions to building height and density can be granted to developers by the state government if they dedicate 10-15 percent of their floor space for affordable housing for 15 years.

Over this period, the affordable housing is managed by a registered community housing provider. This provider does everything that a regular landlord would do: collecting rent and undertaking repairs. 

Rent collected goes to the owner of the unit. This can be either the developer, or an investor who has bought the unit from them.

McAnulty says that when a private developer owns the affordable housing, they will almost always opt for the more profitable market rate discount.

After this 15-year period, the owner of the property can rent it out at market price, or sell.

In North Sydney, where many large developments have made use of these concessions, Mayor Zoe Baker has previously urged the state government to make the units affordable in perpetuity. 

She told the Lorikeet there is a “strong economic imperative” to have permanent affordable housing as the LGA grows.

“We’re the most dense education precinct in the country, we have two major hospitals … There is a reality that key workers, including those who work at the council, are unable to afford to live in the place that they work.”

McAnulty echoed this sentiment, claiming that affordable housing needs to be considered as an essential part of any city's infrastructure.

He also said the high cost of construction in NSW must be addressed, claiming that in parts of Sydney the cost of building a unit can be greater than its value. 

“There's a balancing act of what's the sweet spot that still encourages the developers to develop, and new homes to be supplied, and the proportion of them to be made available as affordable.”

Thumbnail: MDRX via Wikimedia