A boarding house development in Annandale

Tone Wheeler has been working on a range of boarding house projects across Sydney, developments that not only incorporate his practice Environa Studio’s sustainability nous, but which also herald the arrival of an exciting new asset class that is earning many self-funded retirees yields of 8-9 per cent.

Boarding houses involve small single or dual-occupancy dwellings in larger complexes that are offered on minimum three-month tenancy arrangements. In NSW, a boom in the market has been occurring, thanks in part to legislation introduced by the former NSW Labor government to improve housing diversity and affordability, and again in 2012 under the Boarding Houses Act.

The State Environmental Planning Policy (Affordable Rental Housing) 2009 has been encouraging a “new generation” of self-contained boarding houses, such as those Wheeler has been working on, which contain an ensuite bathroom, kitchenette and wardrobe with a bed and potentially a balcony or mezzanine, all within around 25 square metres.

According to Australian Bureau of Statistics data, NSW now accommodates more than a third of all boarding house residents in Australia, strongly concentrated within the City of Sydney and surrounding inner-city locations.

Traditionally, Wheeler says, boarding houses have had a bad reputation, characterised by old down-and-out men drinking on the steps outside. Now the demographics are changing. According to the Australian Housing and Urban Research Institute, new generation boarding houses are attracting key workers and young professionals. Wheeler adds shift workers, short-term secondments, singles, students, those needing emergency accommodation and even “dead beat dads” – divorced men who suddenly have to move out but still want to be near the kids.

Importantly, the projects Wheeler is working on (which range from around 20-40 units in each development) are being built with extremely high efficiency and comfort in mind. In these developments the tenants are not directly paying for energy or water bills, which explains the sustainability drive.

This is a risk-reduction strategy for the owners to protect from bill shocks, but more importantly it also minimises tenant turnover – thanks to increased comfort – and reduces maintenance and repairs, thanks to Wheeler’s sustainability approach, which prioritises what he calls the “three L’s” – long life, loose fit and low impact.

One of Wheeler’s completed project is in the inner-city suburb of Annandale. Wheeler says the development has tried to get energy use so low there is practically nothing a tenant could do to cause a high bill.

The project has been built with high thermal mass, is heavily insulated, mechanically ventilated with fresh air, uses LED lighting, has double-glazed windows and most apartments – except some that face North in one building – have no airconditioning.

The low energy and water bill sell, however, has always been a difficult one, Wheeler says, which is why commercial offices have tended to focus on green buildings as means of improving productivity, absenteeism and health. It is similar for the boarding house market too, where most of the overheads are spent on management.

Sustainability here has been sold as lowered long-term costs around maintenance and management. Having LED lights, concrete walls and roofing, and low-VOC linoleum flooring means lower repair costs. And having a stable, comfortable indoor environment, natural light and soundproofing means less tenant turnover, which translates into hugely reduced costs for the owners. It’s a great crossover of environmental and economic sustainability.

“Essentially what we’re selling is the idea of a building that is easy to maintain,” Wheeler says.

He believes sustainability hasn’t always prioritised low maintenance and longevity, though, predicting that the green “glamour homes” of the past 10 years will soon have to be “pulled apart and redone”.

The emergence of a new asset class

Wheeler says Australia has traditionally had a very monocultural approach to housing investment, which makes the boarding house phenomenon particularly exciting.

Traditionally banks have provided loans to individuals for a property on individual land. More recently lending has gone to developers as a construction loan, which is then paid back through the sale of individual units. The difference with boarding houses, compared to a typical apartment complex investment, is that the boarding house is being built as a business, rather than as property to be on-sold for capital gain.

The attraction with boarding houses is the long-term return from rent that can be commanded, which Wheeler estimates is in the 8-9 per cent ballpark, compared with the typical rental housing return of 5-6 per cent – an “incredibly good return on investment” attracting a lot of interest, including from self-managed super funds.

“A huge number of [boarding houses] are being planned and built,” he says, “and a lot are being built with super money.

“A lot of investors haven’t told anyone because they’ve found a good investment and they don’t want others to know.”

The banks have been slow to see the benefits in the boarding house market, which is why private investors have stepped in to fill the gap, Wheeler says.

He sees the banks as the biggest handbrakes on development in the country – and particularly green development.

“Banks are the biggest drag on the Australian economy because they are cautious and avaricious,” he says.

Wheeler says banks have typically had great difficulty investing in things like hotels and boarding houses, which never attract the 70-80 per cent of lending a traditional apartment development would command, for instance. Instead banks typically lend only 50-60 per cent of the required funds for these project, and with a higher interest rate due to perceived risks, which Wheeler says are “nonsense”.

The boarding house model is much more attractive than motels or a backpackers, he says, where there are hugely transient populations with short-term stays of a day to two weeks. The minimum stay in a boarding house is three months, and occupancy rates are typically upwards of 95 per cent – “irrespective of where they are or the price point”.

On that point the boarding houses are going into areas in which it would be a tough sell for traditional residential apartments. For example the Annnadale development is right on the heavily congested Parramatta Road – “a great location for boarding houses, and terrible for residential”, Wheeler says.

The attraction for tenants, Wheeler says, is the closeness to amenities like Royal Prince Alfred Hospital, the University of Sydney, cafes, the city centre and public transport links.

The SEPPAH allows construction of boarding houses in General Residential; Medium Density Residential and High Density Residential zones as well as Neighbourhood Centre, Local Centre and Mixed Use zones. They can even be approved in R2 Low Density Residential zones, provided they are close to public transport. And with increased densification on many city governments’ agendas, boarding houses could become a smart low-cost solution for key workers that desperately need to get closer to the city and they jobs.

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  1. Thanks Tone, good to hear that the new PM sees the value in the typology. It is a state SEPP after all but but if the Commonwealth can further ‘incentivise’ development of BH then even better. These really are a key plank in making cities affordable IMHO

  2. Well done Tone.In reference to the haves and have nots, Neutral Bay and Cremorne contained many boarding houses until very recently. Occupying former grand Federation manions, these housed the economically down, the recently divorced, the lost souls of past ages and the odd wino. The well heeled locals simply accepted these. Sadly, white bread suburbia has generated the Cromer and recent Rose Bay responses to the less fortunate. Have a look at some of the initiatives in the USA – a country where homelessness is rampant.

  3. To Nicolas Loder. Spot on, but Cromer is in the heart of Tony Abbott’s electorate of the northern Sydney beaches. Our experience has been that the greater the wealth of an area, the greater the resistance to affordable solutions like BH. The westies are much more accepting of BH’s than the rich mansion owners that make up “Save OUR Suburbs” of the eastern suburbs and the lower north shore. And BTW counterintuitively, in other circumstances I have chatted BH’s with our new PM and he is very supportive, even if there isn’t one in Point Piper, yet!

  4. To David Ikin, apologies about the the term used, I was discussing the stigma that still attaches to BH’s. I was ‘channelling’ the common phrases used in the real estate world, most of whom oppose BH’s and who are against anything out of their ordinary orbit. That’s why the pejorative is in inverted commas. My point is that there is a huge variety of people who need this different kind of accommodation, and for lots of different reasons, most of which the traditional marketplace ignores. I hear the term a lot from BH opponents (like the Cromerites) but agree that it is offensive, and won’t use again outside the context I have explained. Apologies for the offence.

  5. Hi Tina – I think what you ask for goes to the heart of the problem – it’s about an appetite/need and policy co-ordination – if an AHSEPP flounders because of finance then it is a non-co-ordinated answer to what is a wicked problem.
    Universal Design is one aspect, (thank you Jane) finance and policy others. And yes, lower operating cost for the boarder/tenant and for the owner may make the developments attractive to a developer for financial reasons, but beware – the ire of Cromer-ites (refer SMH 7 October)with 800 submissions against a boarding house in Sydney’s northern beaches shows there is little love lost between the haves and the have nots in Greater Western Sydney. Good Design cannot alleviate all ills. I think the 496page Report from Federal Parliament of May 2015 would suggest just that: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Affordable_housing_2013/Report

  6. The use of the term “dead beat dads” in your article is insulting to single fathers. Dead beat dads would only refer to those fathers that refuse to support their children, financially or otherwise. To lump all men going through separation / divorce into that category is disgraceful.

  7. Seems the thrust of this initiative is to generate financial return for investors that are more attractive than investment in other more traditional housing types and procurement methods. Surely we need to devise other financial vehicles for delivering boarding house accommodation if the objective is to control housing affordability for those on low incomes. Avenues to low cost ownership are the way we need to go especially so that retirees can lock in housing costs in advance of a time when their income becomes reliant on superannuation or aged pension with less potential to match the growth of rents.

    1. How about some of our brilliant readers and thinkers answer this post? At first glance it seems to me that designing more efficient houses that cost less to run is a great start to housing in retirement. And I gather that the high yield is because there are lower operating costs compared to regular boarding houses. But I am not sure the purpose of the apartments was to generate financial return for investors (most of whom seem to be retirees with self managed super funds).

  8. Re universal design. I lived in country WA. To be in Perth for weekly chemo therapy and to be where I could better control exposure to infection ( eg kids coming and going from school etc) with compromised immune system I was able to stay in “Crawford Lodge” . Being a land surveyor come financial adviser and always interested in good sustainable design I couldnt help thinking “I could live like this permanently”. Junk, caravans and boats etc can always be stored out on the fringes of town.. if you must have them.
    The units are so well built, the insulation is good. The privacy and sound is good. You can do small food stuff in the kitchenette, or wander down a few doors to one of the shared kitchens for serious cooking , use of freezer, oven etc or use the BBQ. There are lockers for dry food supplies. And of course being central there are shops only a short walk. The shared laundries are much better than in a typical house and never a problem to share. No one steals your undies 🙂 The rooms have gantries in the ceiling for moving a patient to and from the wet room if a sling is needed.. sure… why not build that in so people can stay even with high care needs. Everywhere on the place is wheelchair accessible, with ramps or lifts.
    The Cancer Council offices and other services are in the central building so one reception desk serves all. Costs were covered by the $60 a day PATS scheme for country patients.
    A great village design in every way. Here is a link to a video tour. https://www.youtube.com/watch?v=5CEJXs-LvKc

  9. This is a great move and I hope it continues. There is just one thing that could make boarding house dwellings better – accessibility. There is a growing cohort of older single women in rented accommodation who are basically starving in order to meet rental payments. A boarding house should be a cheaper form of rental, but if it means the bedroom is in a loft it could make it difficult for people as they age. I’m sure they could be designed with the principles of universal design in mind.