While one developer this week signals it is reserving some low cost apartments in Sydney for first home buyers, another is about to put the finishing touches to 74 luxury apartments of which 43 will be offered to key workers at 20 per cent below market value for the next 10 years.
The luxury unit developer, Hyecorp, says the project at 34-42 Penshurst Street in Willoughby on the lower North Shore, is pretty much sold out, apart from half the affordable units that it decided to keep for itself as a long-term investment.
Managing director of the company Stephen Abolakian says all the units are “super luxury”, and no compromise was made on any of the finishes. Facilities include a rooftop rejuvenation pool, kids playground, barbecue area and communal area.
“We had a lot of interest in it because when people look at affordable housing they think of it as boxy – unattractive. This is a thought out development and the units are perfectly integrated into the private housing market.”
Instead of wealthy folk though, 43 of the units will be occupied by firefighters, teachers, police, nurses and paramedics.
It sounds incredible in a market where the industry says it needs incentives or subsidies to deliver affordable housing.
In this case, there were incentives, but not financial.
Abolakian says all hinged on being able to effectively use a planning clause that allows an additional 0.5:1 uplift in the floor space ratio in return for half the units delivered as affordable housing for 10 years.
It works like this: if the FSR is 2:1 (that is two square metres of building space for each square metre of land area) then with the qualifying development application the FSR becomes 2.5:1.
Bingo, suddenly the developer can afford to deliver half the units at below market rents for 10 years but with no compromise on quality.
The clause has a sliding scale but Abolakian wanted to go for the max.
“We’re really passionate about this,” he says.
Investors buy in at a slightly lower than market sale price to reflect the lower rent, and they “take a haircut” on the yield as well, but in the end they have a high-end product that in 10 years will revert to market.
The units will be managed by a local community housing provider and at the end of the agreed term their owners can reap the market values at the time.
Buyers have been a “mix of mum and dad investors who are buying a one-bedroom unit at a discount”, Abolakian says.
The precise size of that discount is hard to quantify, he says, but buyers might also enjoy tax benefits available to them, which can help them over the line.
You might think the project cost the developer money, but it didn’t – unless you want to count the cost of the careful planning required to correctly implement the policy. And the difficulty.
“It’s very hard to make this work on a site of this size and orientation,” says Abolakian, whose company has a $1.5 billion pipeline in Sydney. And no, he doesn’t know of other developers doing the same.
And no, other than the planning allowance, there were “no government incentives, no NRAS [National Rental Affordability Scheme] and no rental supplements”.
“My advice to government is incentivise the picture. Use incentives, not a stick.”
He doesn’t have an issue with the state government saying developers should put in affordable housing, “but they should pitch it in a way that allows you to put affordable housing in.”