By Alan Weiss
Over recent months, we’ve seen a gold rush of developers scrambling to secure sites, with some paying prices that can only be described as highly speculative.
The NSW Government’s latest housing reforms — the Low- to Mid-Rise Housing Program and the 30% Affordable Housing Floor Space Bonus — are not theoretical planning ideas. They are hard numbers that determine:
- how many units you can build,
- how many you can sell,
- and how much the land beneath your feet is now worth.
Strip away the jargon and the Government’s objective is simple:
- Increase dwellings quickly in areas with entrenched undersupply.
- Make high-value areas like the Eastern Suburbs deliver more housing.
Below is the straight-talk explanation of what the reforms actually do, and how developers are using them to unlock value from R3 sites.
The Low- to Mid-Rise Program: Your New Base Density
The Low- to Mid-Rise Housing Program sets non-discretionary FSR and height standards in R3 and R4 zones located near centres, shops, and transport.
Density settings:
| Distance to Centre/Station | FSR | Max Height |
|---|
| 0–400 metres | 2.2:1 | 22 m (approx. 6 storeys) |
| 400–800 metres | 1.5:1 | 17.5 m (approx. 4 storeys) |
Example: 1,500 sqm site in Rose Bay (Inner Area)
- Base FSR: 2.2
- Base GFA: 1,500 × 2.2 = 3,300 sqm
If the project is dominated by 3-bedroom apartments (~150 sqm internally), the base yield is:
This is your starting point before applying any bonus.
The Affordable Housing Bonus: The 30% FSR Multiplier
To boost supply of discounted rental housing, the Government offers:
- 30% additional FSR
- 30% additional height
- In exchange for 15% of total GFA being provided as affordable rental housing for 15 years
Using the same site:
- Bonus FSR: 2.86:1
- Total GFA: 1,500 × 2.86 = 4,290 sqm
- Affordable GFA required: 4,290 × 15% = 643.5 sqm
The key insight
If the project is 3-bed heavy, you cannot allocate 150 sqm 3-bed plates to the affordable component — it destroys the feasibility.
Developers therefore allocate the affordable GFA into:
- 1-bed units: 55–60 sqm
- 2-bed units: 70–85 sqm
This produces roughly nine affordable units, preserving the bulk of the GFA for premium 3-bed stock.
Corrected yield under the bonus:
- Affordable: 9 × 1–2 bed units
- Market: ≈ 24 × 3-bed units
- Sellable market units: 24
- Base scheme market units: 22
Net gain: +2 sellable market units
Plus 9 long-term affordable rental units retained by the developer.
While the uplift seems modest, in premium suburbs even two extra 3-bed units can represent millions of dollars in additional profit.
This is why developers are aggressively pursuing R3 sites — especially those within 400 metres of centres.
The Real Cost: What Rent Does the Developer “Give Up”?
Affordable units must be rented at approximately 80% of market rent.
Using current Eastern Suburbs numbers:
- 1-bed with parking (market): ~$900 per week
- 2-bed with parking (market): ~$1,100 per week
Affordable rents:
- 1-bed: $720 pw
- 2-bed: $880 pw
Assume the affordable mix is:
Year 1 rental income
At full market rent: $462,800 per year
At affordable rent: $370,240 per year
Year 1 “discount”: ~$92,560
Over 15 years (2.5% CPI)
- Total market rent potential: ≈ $8.3m
- Total affordable rent received: ≈ $6.6m
- Cumulative discount: ≈ $1.66m
So the developer gives up around $1.6m in rent over 15 years.
But in exchange, the developer:
- Gains 30% more FSR
- Secures 2 additional sellable 3-bed units
- Retains 9 well-located units that are likely to experience strong long-term capital growth
From a feasibility perspective, the exchange often makes sense.
Holding Strategy: Where Do Developers Store the Affordable Units?
Because the affordable units:
- generate long-term income,
- carry a 15-year rental covenant, and
- are likely to appreciate substantially,
they are rarely held in an individual’s name.
Common structures include:
1. Special-Purpose Trusts
2. Company Owned by a Trust
3. SMSF (Self-Managed Super Fund)
Why This Matters for Landowners and Developers
These reforms will significantly reshape development patterns in the Eastern Suburbs.
For developers:
- The scheme provides a genuine mechanism to increase yield
- Even in tightly constrained suburbs traditionally capped by character and height controls
For landowners:
- Your site may now be substantially more valuable
- But only to developers who understand how to extract the bonus
- And only if the affordable component is efficiently designed
For the broader market:
- Expect more units, higher density, and more rental supply
- Expect flatter capital growth for older apartments as new stock enters the market
Whether you’re holding, selling, or developing, these changes are already reshaping the landscape.
