AFFORDABLE HOUSING FEASIBILITY STUDY

FINAL Prepared for

JUNE 2017 Parramatta City Council
© SGS Economics and Planning Pty Ltd 2017
This report has been prepared for Parramatta City Council. SGS Economics and
Planning has taken all due care in the preparation of this report. However, SGS and
its associated consultants are not liable to any person or entity for any damage or
loss that has occurred, or may occur, in relation to that person or entity taking or
not taking action in respect of any representation, statement, opinion or advice
referred to herein.
SGS Economics and Planning Pty Ltd
ACN 007 437 729
www.sgsep.com.au
Offices in Canberra, Hobart, Melbourne, Sydney
 TABLE OF CONTENTS

1. INTRODUCTION 3

1.1 Background 3
1.2 Scope of our work 3
1.3 Structure of this report 3

2. RESIDUAL LAND VALUE MODELLING 4

2.1 Residual land value analysis 4

2.2 The Model 5
Key parameters 7

3. DEVELOPMENT SCENARIOS, COSTS AND REVENUES 8

3.1 Development scenarios 8

3.2 Revenue and cost assumptions 9
Gross Residual Value per sqm 9
Construction costs per sqm 10
Infrastructure contributions 11
Value capture policy 11
Special infrastructure contribution 11
ARH contributions 12
Purchase cost of land 12

4. FEASIBILITY RESULTS 13

4.1 Key results 13

Feasibility of handing over ARH at no charge 13
Feasibility of handing over ARH at cost 14
4.2 Additional ARH scenarios 15

5. CONCLUSION 19

LIST OF FIGURES

FIGURE 1: CHANGE IN RESIDUAL LAND VALUE WITH UP-ZONING 4

FIGURE 2: SNAPSHOT OF RLV MODEL 6

LIST OF TABLES

TABLE 1: UNIVERSAL ASSUMPTIONS AND INPUTS USED BY RLV MODEL 7

TABLE 2: CASE STUDY SITES 8
TABLE 3: DEVELOPMENT YIELDS UNDER EXISTING AND PROPOSED CONTROLS 9

Affordable housing feasibility study 1

 TABLE 4: ESTIMATED GRV PER SQM OF GFA 10
TABLE 5: CONSTRUCTION COSTS PER SQM 10
TABLE 6: PURCHASE COST OF LAND 12
TABLE 7: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 10% ARH CONTRIBUTIONS AT NO
CHARGE 13
TABLE 8: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 10% ARH CONTRIBUTIONS AT
COSTS 14
TABLE 9: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 8% ARH CONTRIBUTION AT COST 15
TABLE 10: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 5% ARH CONTRIBUTIONS AT
COSTS 16
TABLE 11: RESULTS OF THE FEASIBILITY ASSESSMENT - 15% ARH CONTRIBUTION AT NO COST
ON GOVERNMENT SITE 16
TABLE 12: RESULTS OF THE FEASIBILITY ASSESSMENT – 10% OF THE VALUE UPLIFT AS ARH 17
TABLE 13: RESULTS OF THE FEASIBILITY ASSESSMENT – 15% OF THE VALUE UPLIFT AS ARH 17
TABLE 14: RESULTS OF THE FEASIBILITY ASSESSMENT – 20% OF THE VALUE UPLIFT AS ARH 18
TABLE 15: RESULTS OF THE FEASIBILITY ASSESSMENT – 5% OF TOTAL DWELLINGS UNDER
CURRENT CONTROLS + 10% OF VALUE UPLIFT AS ARH 18

Affordable housing feasibility study 2

 1. INTRODUCTION

1.1 Background
City of Parramatta Council (CoP) has released an Affordable Housing Discussion Paper for
comment. Stakeholder feedback on the Discussion Paper, together with other research, will
be used to assist in the development of an Affordable Housing Policy for the whole local
government area (LGA).
One of the options considered by this Paper to provide for more affordable housing is to
impose a 10% of yield requirement for Affordable Rental Housing (ARH) on private land and a
30% of yield requirement for ARH on government land. It is proposed that these
requirements are in addition to the current development contributions, any Special
Infrastructure Charges and Value Capture Policy (for the CBD) that may apply to the new
development.
CoP requires a research report that assesses the economic feasibility impacts of introducing
such an affordable housing program in the LGA.

1.2 Scope of our work

SGS has been commissioned by CoP to undertake this research project. More specifically, our
work is to help CoP understand:
▪ General impacts and site specific impacts of imposing a 10% of yield Affordable Rental
Housing requirement on private land and a 30% of yield requirement for ARH on
government land (in context with the current and proposed other levies that could also
apply (Sect 94, Value Capture Policy for the CBD, and the SIC)
▪ The model in question is based on the developer handing the given number of affordable
rental dwellings over to Council at no charge. This should be the base case for feasibility
testing, but we also want to understand how feasibility would be impacted if this was
modified to an at-cost charge to Council (or whatever body we identify to own the assets)
The impacts are to be modelled for six sites in the LGA.

1.3 Structure of this report

The rest of this report has been structured as follows:
▪ [Chapter 2] Overview of residual land value analysis and key assumptions utilised
▪ [Chapter 3] Development scenarios for six sites modelled
▪ [Chapter 4] Key findings of the site-level analysis
▪ [Chapter 5] Conclusions

Affordable housing feasibility study 3

 2. RESIDUAL LAND VALUE
MODELLING

This chapter first provides an overview of the residual land value (RLV) analysis,
which will be used in this report to understand the impact of the proposed ARH
contribution on development feasibility. Following this, a number of key
assumptions used in the RLV modelling are detailed.

2.1 Residual land value analysis

Within a number of parameters set by land economics, a developer will determine their best
(highest) price for a candidate site on a residual basis. That is, they will start with the
expected gross revenues generated from the project upon completion (gross realisation value
– GRV) and deduct their margin for profit and risk plus all other development costs
(construction, approvals, design, marketing etc) to arrive at a residual amount that can be
offered to the land owner.
If a piece of land is up-zoned, it follows that the residual land value will increase. This is
illustrated in the following diagram. In fact, the marginal increase in the land value is a direct
measure of the additional development rights conferred by the planning changes.

FIGURE 1: CHANGE IN RESIDUAL LAND VALUE WITH UP-ZONING

Gross return $ from sales

post-rezoning or approval for higher
value use and/or density

Developer Margin
for Profit and Risk
Gross return $ from sales/rent
pre-rezoning or approval Future development costs after
Charges and Taxes rezoning and changes to height
Developer Margin
for Profit and Risk and FSR. Costs include
construction, charges and taxes
Development and a developer margin for profit
Charges and Taxes costs under and they increase by the
current zoning, Construction,
marketing increments shown.
Construction,
height and FSR.
and finance
marketing costs Land value increases from the base
and finance reflecting additional development rights
costs
which in turn reflect accessibility to
amenities and infrastructure enabled by
Land Value
the rezoning. This value is not created by
Land Value
the land owner or developer and a share
is appropriately captured for the
Pre rezoning Post rezoning community.
development values development values

Source: SGS Economics and Planning, 2017

A number of observations can be made from this diagram in respect of affordable housing
targets on up-zoned land.
▪ In the absence of any countervailing measure, the full value of the additional
development rights will be capitalised into the market price of the development site.
That is, the land trader or incumbent owner will gain 100% of this uplift for no particular
value adding effort on their part – hence the term ‘windfall gain’
▪ If the up-zoning is accompanied by an additional development cost – say a cash or in-kind
inclusionary requirement for affordable housing - this will squeeze the increment in land
value.

Affordable housing feasibility study 4

 ▪ The gap between this cost impost from the inclusionary requirement and gross value
uplift will represent the limit of what the developer will be prepared to pay for additional
density (that is, to purchase the full amount of density to fill out the environmental
envelope).
▪ If measures are put in place for public capture of 100% of the marginal increase in land
value occasioned by the up-zoning, the incumbent land owner will have little incentive to
release the land to a bona fide developer; this would reduce the supply of development
sites into the market and, possibly, reduce the supply of housing as a consequence.
▪ Similarly, if market trading in the lead up to the official up-zoning of the land in question
causes a bidding up of its price to the full extent of the residual land value attaching to
the additional development rights enabled by the official up-zoning, the scope for value
sharing including via the provision of affordable housing, will have been removed, at least
for the time that it takes for the incumbent owner to adjust to a lower than speculated
value for their land.
▪ It is not possible to manage the speculative bidding up of development site prices simply
by creating more development capacity on the site. This development capacity must be
determined by environmental sustainability and desired built form outcomes. From an
economic perspective the ultimate development capacity of an up-zoned site is
conceptually fixed. Any development capacity added beyond this envelope implies social
and environmental costs, which may well offset the value of affordable housing benefits
generated in the process.
It is also noteworthy from this discussion that the impact of affordable housing targets on
project viability does not occur in a static environment. Land traders and developers alike will
behave differently depending on how much notice they have these requirements. Clearly, a
‘price taking’ developer who has purchased a site and is confronted with an unscheduled
additional cost is more likely to resist this ‘impost’ compared to a developer who has the
opportunity to factor the cost of the affordable housing requirement into their feasibility
study and tendered land price.

2.2 The Model

For this project, SGS has developed a spreadsheet-based model, underpinned by the RLV
concept discussed above. The model calculates the residual value of a development after
deducting all the development costs from the sales revenues, in the current market.
The development costs include construction costs and contingencies, professional fees,
developer’s profit margin, marketing/financing/holding costs, infrastructure levies, value
capture charges (where applicable in the CBD), as well as costs (or lost revenue) associated
with providing required % of dwellings as ARH .
In summary, this model will identify the residual land value for each of the six sites
considered, under the following two development scenarios:
▪ A highest and best use scenario under the current planning controls
▪ The development outcome (with the upzoning) sought by the Planning Proposal received
by CoP.
The reason both existing and proposed controls will be tested is to address the assumption
that in many cases an ARH contribution may not be feasible where land values have been set
by the maximum development potential under the current controls. In these cases, the ARH
contribution may represent a cost impost not anticipated by the developer.
A development scenario can tolerate the ARH contribution, where the RLV after deducting
the costs of providing the required % of affordable housing is greater than the purchase cost
of the land. A snapshot of the model is provided in the figure overleaf.

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FIGURE 2: SNAPSHOT OF RLV MODEL
Section 0: Base data and assumptions
1 Local Government Area Parramatta_City_of <- Choose LGA from drop down menu
4 Viability threshold 1.25 <- Viable if RLV/current land value is greater than 1.25
5 Valuation of AH includes developer's margin? Yes <- Choose Yes or No (DEFAULT = Yes)
6 Local infrastructure contributions (above Section 94) (LIC) rate/sqm $ - $ per sqm GFA
7 State Infrastructure Charge (SIC) rate/sqm $ - $ per sqm GFA
8 Inclusionary zoning rate (AH as % of res. floor space) 10.0 %

1. Site value with current use

9 Precinct/site Site_6 <- Choose precinct or site from drop down menu
10 Site name Parramatta CBD - 118 Church st
11 Site area 1,727 sqm
12 Current value $ 11,337,426 <- Value from RPData or impute from sale of similar sites
13 Current value/sqm $ 6,565

2. Site value with current zoning ('highest and best use')

14 Precinct/site Site_6_current_zoning <- Choose precinct or site from drop down menu
15 FSR 6.00 :1
16 Gross realisation value (GRV) $ 8,800 per sqm GFA
17 Gross realisation value for residential (GRV) $ 10,000 per sqm GFA
18 Site preparation (demolition/remediation/services) $ 250 per sqm GFA
19 Construction cost $3,300 per sqm GFA
20 Professional fees/contingency (%) 20% per sqm GFA
21 Professional fees/contingency $ 710 per sqm GFA
22 Marketing/financing/holding costs (%) 10% per sqm GFA
23 Marketing/financing/holding costs, etc. $ 880 per sqm GFA
24 Developers margin for profit and risk (% of GRV) 20% per sqm GFA
25 Developers margin for profit and risk per sqm GFA $ 1,760 per sqm GFA
26 Section 94 contributions per sqm GFA $ 128 per sqm GFA
26 Residual Land Value per sqm GFA $ 1,772 (Item 16 - 18 - 19 - 21 - 23 - 25 - 26)
27 RLV per dwelling (based on market dwelling size) $ 142,000 Based on market dwelling size: item 2
28 Permissible floor area based on current FSR 10,362 sqm
29 Residential floor area based on current FSR 6,444 sqm
30 RLV based on current 'highest and best' use $ 18,363,536
31 Viability test (RLV/current land value) w/o AH 1.62
32 Local infrastructure contributions (above Section 94) $ -
33 State Infrastructure Charge (SIC) $ -
34 Affordable housing levy $ 6,444,000
35 RLV based on current 'highest and best' use and AH charges $ 11,919,536
35 Viability test (RLV/current land value) with AH 1.05

3. Site value with upzoning

36 Precinct/site Site_6_new_zoning <- Choose precinct or site from drop down menu
37 FSR 6.61 :1
38 Gross realisation value (GRV) $ 8,900 per sqm GFA
39 Gross realisation value for residential (GRV) $ 10,000 per sqm GFA
40 Site preparation (demolition/remediation/services) $ 250 per sqm GFA
41 Construction cost $3,400
42 Professional fees/contingency (%) 20% per sqm GFA
43 Professional fees/contingency $ 730
44 Marketing/financing/holding costs (%) 10% per sqm GFA
45 Marketing/financing/holding costs, etc. $ 890
46 Developers margin for profit and risk (% of GRV) 20% per sqm GFA
47 Developers margin for profit and risk per sqm GFA $ 1,780 per sqm GFA
48 Section 94 contributions per sqm GFA $ 128 per sqm GFA
49 Residual Land Value per sqm GFA $ 1,722 (Item 38 - 40 - 41 - 43 - 45 - 47 - 48)
50 RLV per dwelling (based on market dwelling size) $ 138,000 Based on market dwelling size: item 36
51 Floor area based on upzoning 11,412 sqm
52 Residential floor area based upzoning 7,494
53 RLV based on upzoning $ 19,653,746
54 Viability test (RLV/current land value) w/o AH 1.73
55 Local infrastructure contributions (above Section 94) $ -
56 State Infrastructure Charge (SIC) $ -
57 Affordable housing levy $ 7,494,000
58 RLV based on upzoning and AH charges $ 12,159,746
59 Viability test (RLV/current land value) with AH 1.07

Land values
60 Current value $ 11,337,426
61 RLV based on current 'highest and best' use $ 18,363,536
62 RLV based on current 'highest and best' use and AH charges $ 11,919,536
63 RLV based on upzoning $ 19,653,746
64 RLV based on upzoning and AH charges $ 12,159,746
65 RLV based on upzoning, VPA and AH charges $ 11,901,704
Source: SGS Economics and Planning, 2017

Affordable housing feasibility study 6

 Key parameters
The following table summarises the universal assumptions utilised by this model.

TABLE 1: UNIVERSAL ASSUMPTIONS AND INPUTS USED BY RLV MODEL

Key assumptions Parameters

Average GFA per dwelling 80 sqm

Site preparation costs $250 per sqm of GFA

Professional fees 10% of the construction costs

Construction and design contingencies 10% of the construction costs

Marketing/financing/holding costs 10% of the GRV

Developer’s profit margin 20% of the GRV

Source: SGS benchmarks.

The construction costs and GRV rates vary between different development scenarios,
depending on the site locations, proposed uses and built forms. As such, these assumptions
are detailed in the following chapter, which discusses the development scenarios being tested
on the six sites.

Affordable housing feasibility study 7

 Note that as site 4 does not have a current FSR control, an average FSR of 2.5:1 is assumed in
reflection of the height limit and has been applied to the R4 zoned land to derive a residential
yield under the highest and best use scenario.
For sites partly or fully zoned B4, the following assumptions have been made with regard to
the retail/commercial floorspace on podium level/s:
▪ For land zoned B4 on site 1, a retail FSR of 0.5:1 is assumed to provide a ground level of
retail floorspace underneath the residential development.
▪ For site 6, it is assumed that the commercial floorspace under the highest and best use
scenario would be equivalent to the amount proposed under the Planning Proposal (i.e.
3918 sqm of GFA).
Further, we consider that the current uses on sites 2 and 3 reflect the highest and best uses
under the current controls. As such, no baseline scenario has been developed for these two
sites.
The following table shows the development yields under both existing and proposed controls
for each of the six sites.

TABLE 3: DEVELOPMENT YIELDS UNDER EXISTING AND PROPOSED CONTROLS

Development yield (sqm of GFA)

Site location Development scenarios Retail Commercial Residential

Granville
Site_1_current_zoning 1,505 5,670 16,555

Site_1_new_zoning 1,977 27,418

Rydalmere
Site_2_new_zoning 18,807 216,281
Melrose Park
Site_3_new_zoning 10,000 17,500 392,000
Epping
Site_4_current_zoning 31,440

Site_4_new_zoning 2,929 1,384 70,035

Carlingford
Site_5_current_zoning 11,050

Site_5_new_zoning 22,212
Parramatta CBD
Site_6_current_zoning 3,918 6,444

Site_6_new_zoning 3,918 13,352

Source: Developed by SGS based on information provided by Council.

3.2 Revenue and cost assumptions

Gross Residual Value per sqm
Once the development scenarios have been defined, a rapid market appraisal is completed by
SGS to identify an end sales value (or GRV) for each of the proposed uses within these
scenarios.
In the interests of meeting the short project timeline, this appraisal has been completed
mainly through desktop research, which has been focused on compiling the recent sale or
rental prices of comparable products in close proximity to the chosen sites.
In most cases, there is not sufficient information provided by Council to fully appreciate the
quality and unique offerings of the proposed development. As such, professional judgement
has been applied in deciding what the recent sales or on-the-market products are mostly
comparable to the uses included in the development scenarios, particularly in the case of
non-residential uses.
The GVR rates shown in the table below reflect what we consider to be most likely end sale
price of each proposed use under the current market conditions.

Affordable housing feasibility study 9

 TABLE 4: ESTIMATED GRV PER SQM OF GFA
Average
GRV per sqm GRV
Site location Development scenarios Retail Commercial Residential per sqm
Granville
Site_1_current_zoning $5,400 $5,300 $8,200 $7,300

Site_1_new_zoning $5,400 $8,200 $8,000

Rydalmere
Site_2_new_zoning $3,000 $7,900 $7,500
Melrose Park
Site_3_new_zoning $6,300 $3,000 $9,400 $9,000
Epping
Site_4_current_zoning $11,500 $11,500

Site_4_new_zoning $4,700 $6,700 $11,500 $11,100

Carlingford
Site_5_current_zoning $8,100 $8,100

Site_5_new_zoning $8,100 $8,100

Parramatta CBD
Site_6_current_zoning $6,700 $10,000 $8,800

Site_6_new_zoning $6,700 $10,000 $8,900

Source: SGS estimates, 2017

Note the last column in the table above shows the average GRV per sqm for each scenario
used in the RLV model. This is calculated as a weighted average of the GRVs of the proposed
uses, while taking in account the mix of development yield shown in Table 3.

Construction costs per sqm

The per-sqm construction cost rates used in this analysis are sourced from the Rawlinson
Construction Handbook 2017. The selected rates for each scenario are displayed in the table
below.

TABLE 5: CONSTRUCTION COSTS PER SQM

Average
Construction cost per sqm cost per
Site location Development scenarios Retail Commercial Residential sqm
Granville
Site_1_current_zoning $2,038 $3,336 $3,879 $3,600

Site_1_new_zoning $2,038 $4,009 $3,900

Rydalmere
Site_2_new_zoning $2,816 $3,879 $3,800
Melrose Park
Site_3_new_zoning $2,038 $2,816 $3,879 $3,800
Epping
Site_4_current_zoning $3,879 $3,900

Site_4_new_zoning $2,038 $2,816 $3,879 $3,800

Carlingford
Site_5_current_zoning $3,879 $3,900

Site_5_new_zoning $4,009 $4,000

Parramatta CBD
Site_6_current_zoning $2,568 $3,810 $3,300

Site_6_new_zoning $2,568 $3,810 $3,400

Source: SGS calculations using per sqm rates from Rawlinson Construction Handbook 2017

Note the rates for commercial and residential development above take into account the cost
of constructing required underground parking per sqm of GFA. For example, according to the
Parramatta LEP, 1.2 car spaces (including visitor parking) are required for every dwelling
developed in the Parramatta CBD. Based on 30 sqm per car space and 80 sqm of GFA per
apartment, every sqm of residential GFA needs to provide 0.45 sqm (30/80*1.2) of
underground car parking, which costs approximately $1768 per sqm or $795 per sqm of
residential GFA. Adding this cost to the per-sqm construction cost of around $3015 for high-

Affordable housing feasibility study 10

 rise apartment gives a total cost of $3810 per sqm for residential development, as shown in
the last row of the table above. For sites outside the CBD, a different parking provision rate of
1.5 spaces per dwelling is used to calculate the total construction cost.
In addition to the variation in parking provision rate, the variation in the per sqm cost also
reflects the built form assumed for each scenario. For example, a higher rate is used in the
‘Site_1_new_zoning’ scenario, because the residential development is likely to exceed 9
storeys, which has higher structure cost, compared to the development (below 9 storeys)
under the ‘Site_1_current_zoning’ scenario.
As with the GRV rates, a weighted average construction cost (in the last column) is calculated
for each scenario and is inputted into the RLV model.

Infrastructure contributions

S.94/S.94A contributions
S94 or S.94A contributions have been calculated for each scenario, using the following rates
prescribed in Council’s development contributions plans:
▪ Epping
o $184.99 per sqm of retail GFA
o $42.71 per sqm of commercial GFA
o $250 per sqm of residential GFA
▪ Parramatta CBD – 3% of the development costs
▪ Rest of the Parramatta LGA – 1% of the development costs.

VPA
On top of these contributions, we note that a VPA offer valued at $89.8 million has been
received by Council for the Melrose Park site. Of this amount, $31.7 million is associated with
the on-site provision of new parks and open space, as well as provision of community and
child care facility. As we expect that the $31.7 million is largely made up of the land value for
dedicated open space and construction costs of the community and child care facility (which
have already been taken into account in the RLV analysis), we have deducted that amount
from the $89.8 VPA offer to avoid potential double-dipping. This returns a remaining VPA
offer of $58.1 million for provision of off-site infrastructure.
Similarly, the VPA offer received for the Epping site has not been included in this analysis. This
is because the land dedication for public open space as part of this offer does not add costs to
the development equation, when the land acquisition cost is already included in the RLV
analysis. However, the other parts of the VPA offer, including embellishment and
maintenance of open space, as well as contributions towards a community facility, will result
in additional costs to the developer, but has not been included in this analysis due to lack of
costings for these items.

Value capture policy

In addition to local infrastructure contributions, a value capture charge is applied to the
Parramatta CBD site. This charge is $150 per sqm of additional residential floorspace up to an
incentive FSR level. This has been derived from 20% of the land value uplift associated with
the additional FSR above the current control.

Special infrastructure contribution

According to a media release by Transport for NSW back in 2015, a special infrastructure
contribution (SIC) will be implemented along the Parramatta Light Rail Corridor, with the levy
expected to be set at around $200 per sqm of new residential floorspace subject to
consultation.
Note this feasibility analysis has not included the SIC levy, given the uncertainty around when
this levy may come into place and its actual amount. Further, the sales price assumptions
used in this study is based on a current market appraisal of the proposed uses, and therefore
may not have taken into account any inflationary impact that the Light Rail project will have

Affordable housing feasibility study 11

 on sales price. As such, including SIC in this testing would exaggerate its impact on
development feasibility.

ARH contributions
As per requirements in the brief, the ARH contributions have been calculated for each
scenario under two options:
▪ Option 1: 10% (or 30% on government-owned land) of the dwellings handed over to
Council at no charge - In this case, the contributions are calculated as 10% (or 30% on
government-owned land) of the residential GFA valued at the market GRV rates
mentioned above.
▪ Option 2: 10% of the residential GFA handed over to Council with an at-cost charge – the
contributions are calculated as the difference between the value under option 1 and
costs of constructing the 10% of the dwellings as ARH.

Purchase cost of land

The purchase price paid for each site has been extracted from historical sales records
provided by RPdata, except from site 2 which is owned by the government. These prices are
provided in the table below.

TABLE 6: PURCHASE COST OF LAND

Site no. Site name Purchase price

1 Granville $6,500,000
2 Rydalmere $53,400,000 (as per VG estimate)

3 Melrose Park $144,500,000

4 Epping $64,659,833

5 Carlingford $9,628,594

6 Parramatta CBD $11,337,426

Source: SGS calculations based on RPData sales record

Note the price of site 2 has been based on the Valuer General estimate, whereas the price of
site 6 has been inflated from the last sale price of $5.9 million in 2007 to 2015 (when most of
the other sites were bought), using the capital growth rate for houses in Parramatta suburb
over the intervening period.
As discussed earlier, the development is deemed feasible, when the RLV after deducting all
the development costs including ARH contributions is greater than the purchase price of the
land (remembering that in some of these cases the purchase price of the land may have
included a premium or speculative component in anticipation of a future upzoning).

Affordable housing feasibility study 12

 4. FEASIBILITY RESULTS

Using the inputs and assumptions discussed earlier, a RLV is calculated for each
scenario with and without the ARH charge. This chapter presents the key results
and findings from the feasibility assessment.

4.1 Key results

Feasibility of handing over ARH at no charge
The table below provides the RLVs for each site under both the current and proposed
controls. These results are based on the assumption that the ARH dwellings would be
provided to Council at no charge.

TABLE 7: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 10% ARH CONTRIBUTIONS AT NO CHARGE
Parramatta
Granville Rydalmere Melrose Park Epping Carlingford CBD
1 Purchase cost of land $6.5M $53.4M1 $144.5M $51.3M $9.6M $11.3M
RLV based on current 'highest and
2 $10.5M $53.4M1 $21M2 $88.7M $7.1M $18.4M
best' use
RLV based on current 'highest and
3 -$3.0M N/A N/A $52.5M -$1.9M $11.9M
best' use and ARH contribution
Viability test under current controls
4 with ARH contribution (i.e. item 3/ -0.47 N/A N/A 1.02 -0.19 1.05
item 1)
5 RLV based on upzoning $16.9M $80.3M $583.7M $197.8M $11.6M $32.5M
RLV based on upzoning and ARH
6 -$5.6M -$432.3M $215.2M $117.2M -$6.4M $19.2M
contribution
RLV based on upzoning, VPA/value
7 N/A N/A $157.1M N/A N/A $16.6M
capture and ARH contribution
Viability test under new controls with
8 -0.86 -8.10 1.09 2.28 -0.67 1.46
ARH contr (i.e. item 7 or 6/ item 1)
Source: SGS calculations, 2017
1. Since the Rydalmere site is owned by the government, no sale record exists in RPData. As such, the VG estimate is used as a proxy for the price
that would be paid for the site, or the current underlying land value (i.e. RLV under the current ‘highest and best’ use)
2. We believe the current use on the Melrose Park site reflects the highest and best use under current zoning and controls. According to the VG
estimate, the site was worth $21 million in 2015 before it was revalued to $100 M by VG following the sale of site for $144 M in Aug 2015.
Therefore, $21 million is used as a proxy for the current underlying value under the existing zoning and controls.

Two viability tests have been performed. The first one calculates the ratio of the RLV after the
ARH contributions under the current ‘highest and best’ use scenario, compared to the
purchase price paid for the land. This test found that the 10% ARH target is only feasible for
the Epping and Parramatta CBD sites under the current controls. In the cases of Granville and
Carlingford, the 10% ARH contribution is not viable and would represent a cost impost to the
development under the current controls.
The second test calculates the ratio of the RLV after the ARH contributions (in addition to any
VPA and value capture charges) under the new planning controls sought by the developer,
compared to the purchase price for the land.
This test found that the 10% ARH contribution becomes much more feasible for the Epping
site, with the additional residential yield sought by the Planning Proposal. Also, the 10% ARH
target is still feasible for the Parramatta site under the higher FSR scenario, even with a value
capture charge levied at $150 per sqm of the bonus floorspace.

Affordable housing feasibility study 13

 The Melrose Park development under the Planning Proposal can also meet a 10% ARH target,
after a VPA contribution valued by the developer at $89.8M.
On the other hand, the Planning Proposal for the Rydalmere site would not be able to meet
the 30% ARH target proposed by CoP for government-owned land. This is because the
development only generates a RLV of around $80M without the ARH contributions, which is
greater than the current valuation of the land but not enough to give away 30% of the new
dwellings for free. In practice a 30% ARH contribution on the government owned land would
require the government to sell the land at less than its currently estimated value.
With the upzoning, the 10% ARH contribution is still not viable on the Granville and
Carlingford sites. This can be expected as the ARH levy was not anticipated by the developer
who bought these sites without factoring in the costs of providing ARH at no charge.
Interestingly, the modelling also suggests that the proponents for the Carlingford and Epping
site paid more than what these sites would be worth under the current ‘highest and best’ use
scenario (i.e. item 2 in the table above), in anticipation of a future upzoning. Generally, the
price paid for the development site should be less than or comparable to the current
underlying land value, in absence of a speculation on additional development potential.

Feasibility of handing over ARH at cost

As an alternative option, the feasibility impact of providing ARH ‘at cost’ is also examined.
Under this option, the developer will be producing the required ARH to cover costs, therefore
these ARH dwellings would not have any impact on the RLV. In other words, this option
effectively compresses the ‘saleable’ residential yield by the % required for ARH across all
development scenarios.

TABLE 8: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 10% ARH CONTRIBUTIONS AT COSTS
Parramatta
Granville Rydalmere Melrose Park Epping Carlingford CBD
1 Purchase cost of land $6.5M $53.4M $144.5M $51.3M $9.6M $11.3M

RLV based on current 'highest and $10.5M $88.7M $7.1M $18.4M

2 $53.4M $21M
best' use
RLV based on current 'highest and $9.8M $79.8M $6.4M $17.6M
3 N/A N/A
best' use and AH charges
Viability test under current controls 1.51 1.55 0.66 1.56
4 N/A N/A
with AH (i.e. item 3/ item 1)
5 RLV based on upzoning $16.9M $80.3M $583.7M $197.8M $11.6M $19.7M

RLV based on upzoning and AH $15.3M $46.2M $529.1M $184.4M $10.4M $28.9M
6
charges
RLV based on upzoning, VPA/value N/A N/A $471.0M N/A N/A $27.1M
7
capture and AH charges
Viability test under new controls with 2.35 0.87 3.26 3.59 1.08 2.39
8
AH (i.e. item 7 or 6/ item 1)
Source: SGS calculations, 2017

Compared to providing ARH for free, this option has a much smaller impact on development
feasibility. As can be seen from the results above, all developments under the new controls
would be viable with provision of 10% ARH at cost. With provision of 30% ARH at cost, the
Rydalmere site can be sold for up to $46 million, which is $6 million less than the VG
valuation.
Under the current controls, the 10% ARH contribution would still be viable, except for the
Carlingford site, where the RLV under the current residential FSR is less than the purchase
price paid for the site.

Affordable housing feasibility study 14

 4.2 Additional ARH scenarios
Following the feedback from Council staff on the draft report, we have been asked to test a
number of additional ARH scenarios as follows:

Private sites Government site

5% of total project dwelling yield at no cost

8% of total project dwelling yield at no cost 15% of total project dwelling yield at no cost

10% of the value uplift from the rezoning/upzoning as

ARH contributions

15% of the value uplift from the rezoning/upzoning as

ARH contributions

20% of the value uplift from the rezoning/upzoning as

ARH contributions

A hybrid ARH option is also added, which comprises a 5% levy of total dwelling yield under the
current zoning/controls and 10% of value uplift from the rezoning.
The following section discusses the feasibility results for the additional scenarios described
above.

8% of total project dwelling yield at no cost

The table below shows the feasibility results on five private sites, if 8% of the total dwelling
yield is handed to Council as ARH at no cost. The Granville and Carlingford sites remain
unfeasible, after reducing the ARH requirement from 10% to 8% of the total dwelling yield.

TABLE 9: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 8% ARH CONTRIBUTION AT COST

Granville Melrose Park Epping Carlingford Parramatta CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M
RLV based on current 'highest and
2 $10.5M $21M2 $88.7M $7.1M $18.4M
best' use
RLV based on current 'highest and
3 -$0.3M N/A $59.7M -$0.1M $13.2M
best' use and ARH contribution
Viability test under current controls
4 with ARH contribution (i.e. item 3/ -0.05 N/A 1.16 -0.01 1.17
item 1)
5 RLV based on upzoning $16.9M $583.7M $197.8M $11.6M $32.5M
RLV based on upzoning and ARH
6 -$1.1M $288.9M $133.3M -$2.8M $21.8M
contribution
RLV based on upzoning, VPA/value
7 N/A $230.8M N/A N/A $19.2M
capture and ARH contribution
Viability test under new controls with
8 -0.17 1.60 2.60 -0.29 1.70
ARH contr (i.e. item 7 or 6/ item 1)
Source: SGS calculations, 2017

5% of total project dwelling yield at no cost

The table below shows the feasibility results on five private sites, if 5% of the total dwelling
yield is handed to Council as ARH at no cost. After reducing the ARH requirement to 5% of the
total dwelling yield, the Carlingford site remains unfeasible whereas the Granville site
becomes marginally feasible with a feasibility ratio of 0.87.

Affordable housing feasibility study 15

TABLE 10: KEY RESULTS OF THE FEASIBILITY ASSESSMENT – 5% ARH CONTRIBUTIONS AT COSTS

Granville Melrose Park Epping Carlingford Parramatta CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M
RLV based on current 'highest and
2 $10.5M $21M2 $88.7M $7.1M $18.4M
best' use
RLV based on current 'highest and
3 $3.7M N/A $70.6M $2.6M $15.1M
best' use and ARH contribution
Viability test under current controls
4 with ARH contribution (i.e. item 3/ 0.58 N/A 1.37 0.27 1.34
item 1)
5 RLV based on upzoning $16.9M $583.7M $197.8M $11.6M $32.5M
RLV based on upzoning and ARH
6 $5.6M $399.5M $157.5M $2.6M $25.8M
contribution
RLV based on upzoning, VPA/value
7 N/A $341.4M N/A N/A $23.2M
capture and ARH contribution
Viability test under new controls with
8 0.87 2.36 3.07 0.27 2.05
ARH contr (i.e. item 7 or 6/ item 1)
Source: SGS calculations, 2017

15% of total project dwelling yield at no cost on government site

The table below displays the feasibility results for the government site in Rydalmere, if 15% of
the project dwelling yield is handed back to Council as ARH at no cost. As can be seen below,
the development remains ‘unfeasible’, because the ARH contribution levied at 15% of the
total project dwelling yield is greater than the RLV of the proposed development.

TABLE 11: RESULTS OF THE FEASIBILITY ASSESSMENT - 15% ARH CONTRIBUTION AT NO COST ON
GOVERNMENT SITE

Rydalmere - Government site

1 Purchase cost of land $53.4M

2 RLV based on current 'highest and best' use $53.4M

RLV based on current 'highest and best' use and ARH
3 N/A
contribution
Viability test under current controls with ARH
4 N/A
contribution (i.e. item 3/ item 1)
5 RLV based on upzoning $80.3M

6 RLV based on upzoning and ARH contribution -$176.0M

RLV based on upzoning, VPA/value capture and ARH
7 N/A
contribution
Viability test under new controls with ARH
8 -3.30
contribution (i.e. item 7 or 6/ item 1)
Source: SGS calculations, 2017

10% of the value uplift as ARH contributions

The table below displays the feasibility results for five private sites, if 10% of the value uplift
from rezoning or upzoning is levied as an ARH contribution. In this case, the ARH contribution
is a proportion of the uplift in land value the developer would be enjoying if the additional
development right is granted. As such, the levy would not impact on the development
feasibility, as shown below.
An affordable housing yield has also been calculated by dividing the monetary contribution by
the average sale price of new dwellings (it should be noted that by working with a Community
Housing Provider willing to purchase dwellings at cost, the feasibility equation might be
changed for a developer and additional dwellings may be able to be provided compared to

Affordable housing feasibility study 16

 those assumed at market sale prices). The Melrose Park site can generate 51 ARH dwellings,
whereas the relatively smaller site can only contribute one ARH dwelling.

TABLE 12: RESULTS OF THE FEASIBILITY ASSESSMENT – 10% OF THE VALUE UPLIFT AS ARH
Parramatta
Granville Melrose Park Epping Carlingford CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M

2 RLV based on current 'highest and best' use $10.5M $144.5M $88.7M $7.1M $18.4M
RLV based on upzoning and VPA/value
$16.9M $525.6M $197.8M $11.6M $29.9M
3 capture charge

4 Value uplift1 (i.e. item 3 - item 2) $6.3M $381.1M $109.1M $1.9M $11.5M

5 ARH contributions ($) (i.e. 10%*item 4) $0.6M $38.1M $10.9M $0.2M $1.2M

6 ARH contributions (dwellings) 1 51 12 0.3 1

RLV based on upzoning and AH
$16.2M $487.5M $186.9M $11.4M $28.7M
7 contributions
Viability test (RLV/purchase cost of land)
2.50 3.37 3.64 1.18 2.54
8 with AH (i.e. item 7 / item 1)
Source: SGS calculations, 2017
1. Value uplift has been calculated as the difference between the RLVs under the current and proposed controls after any VPA or value capture
charges. Except for Carlingford, it was calculated as the difference between the purchase price of land and RLV under the proposed controls.

15% of the value uplift as ARH contributions

The table below displays the feasibility results for five private sites, if 15% of the value uplift
from rezoning or upzoning is levied as ARH contribution. For the reason explained above, the
levy would not impact on the development feasibility as shown below.
Under this option, the affordable housing yield on the Melrose Park site increases to 76
dwellings. The Epping site can also contribute around 18 ARH dwellings.

TABLE 13: RESULTS OF THE FEASIBILITY ASSESSMENT – 15% OF THE VALUE UPLIFT AS ARH
Parramatta
Granville Melrose Park Epping Carlingford CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M

2 RLV based on current 'highest and best' use $10.5M $144.5M $88.7M $7.1M $18.4M
RLV based on upzoning and VPA/value
$16.9M $525.6M $197.8M $11.6M $29.9M
3 capture charge

4 Value uplift1 (i.e. item 3 - item 2) $6.3M $381.1M $109.1M $1.9M $11.5M

5 ARH contributions ($) (i.e. 10%*item 4) $1.0M $57.2M $16.4M $0.3M $1.7M

6 ARH contributions (dwellings) 1 76 18 0.4 2

RLV based on upzoning and AH
$15.9M $468.4M $181.4M $11.3M $28.2M
7 contributions
Viability test (RLV/purchase cost of land)
2.45 3.24 3.53 1.17 2.48
8 with AH (i.e. item 7 / item 1)
Source: SGS calculations, 2017
2. Value uplift has been calculated as the difference between the RLVs under the current and proposed controls after any VPA or value capture
charges. Except for Carlingford, it was calculated as the difference between the purchase price of land and RLV under the proposed controls.

20% of the value uplift as ARH contributions

The table below displays the feasibility results for five private sites, if 20% of the value uplift
from rezoning or upzoning is levied as ARH contribution. For the reason explained above, the
levy would not impact on the development feasibility as shown below.

Affordable housing feasibility study 17

 Under this option, just over 100 ARH dwellings can be generated by the Melrose Park
development, whereas the Epping site can contribute up to 24 dwellings.

TABLE 14: RESULTS OF THE FEASIBILITY ASSESSMENT – 20% OF THE VALUE UPLIFT AS ARH
Parramatta
Granville Melrose Park Epping Carlingford CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M

2 RLV based on current 'highest and best' use $10.5M $144.5M $88.7M $7.1M $18.4M
RLV based on upzoning and VPA/value
$16.9M $525.6M $197.8M $11.6M $29.9M
3 capture charge

4 Value uplift1 (i.e. item 3 - item 2) $6.3M $381.1M $109.1M $1.9M $11.5M

5 ARH contributions ($) (i.e. 10%*item 4) $1.3M $76.2M $21.8M $0.4M $2.3M

6 ARH contributions (dwellings) 2 101 24 1 3

RLV based on upzoning and AH
$15.6M $449.4M $175.9M $11.2M $27.6M
7 contributions
Viability test (RLV/purchase cost of land)
2.40 3.11 3.43 1.16 2.43
8 with AH (i.e. item 7 / item 1)
Source: SGS calculations, 2017
3. Value uplift has been calculated as the difference between the RLVs under the current and proposed controls after any VPA or value capture
charges. Except for Carlingford, it was calculated as the difference between the purchase price of land and RLV under the proposed controls.

5% of total dwellings under current controls + 10% of value uplift

As discussed above, this is a hybrid option which comprises a 5% levy of total dwelling yield
under the current zoning/controls and 10% of value uplift from the rezoning.
As shown below, this option would be feasible on most of the five private sites tested, with
only the Carlingford site found marginally unviable, while generating significantly more ARH
dwellings compared to a 20% value uplift levy.

TABLE 15: RESULTS OF THE FEASIBILITY ASSESSMENT – 5% OF TOTAL DWELLINGS UNDER CURRENT CONTROLS + 10% OF VALUE
UPLIFT AS ARH
Parramatta
Granville Melrose Park Epping Carlingford CBD

1 Purchase cost of land $6.5M $144.5M $51.3M $9.6M $11.3M

2 RLV based on current 'highest and best' use $10.5M $144.5M $88.7M $7.1M $18.4M

3 RLV based on upzoning $16.9M $525.6M $197.8M $11.6M $29.9M

4 ARH contributions ($)

- 5% of the dwellings under current zoning $6.8M $184.2M $18.1M $4.5M $3.2M

- 10% of the value uplift $0.6M $38.1M $10.9M $0.2M $1.2M

5 ARH contributions (dwellings) 11 296 32 7 5

RLV based on upzoning and AH
$9.4M $303.2M $168.8M $6.9M $25.5M
6 contributions
Viability test (RLV/purchase cost of land)
1.45 2.10 3.29 0.72 2.25
7 with AH (i.e. item 6 / item 1)
Source: SGS calculations, 2017

Affordable housing feasibility study 18

 5. CONCLUSION

The feasibility testing completed for this research report has found a varying impact of the
ARH contributions on different sites within the Parramatta LGA. The analysis represents a
robust test of the different possible ARH contributions but the sites and developments
considered are only a selection based on current proposals, and may not necessarily be
representative of the range of development circumstances across the LGA. The results for the
Carlingford site in particular, where regular ‘non-feasible’ results were returned, seem at odds
with what might be expected, indicating that the combination of the underlying existing site
value, construction costs and sale values used in the analysis may not reflect what is
achievable at other sites in this locality. In addition, the Parramatta Light Rail (and any future
Special Infrastructure Contribution) is likely to have an inflationary impact on achievable sale
values in the corridor it will serve, but best estimates for current achievable values are utilised
in the modelling (and for similar reasons no SIC is assumed).
In addition, it should be noted that the feasibility analysis has been completed without the
benefit of a Quantity Surveyor (QS) input on costs, and the revenue assumptions utilised by
this analysis have been developed based on a rapid market appraisal conducted largely
through desktop research. It is recommended that Council engage the services of QS and a
valuer to cross check the cost and revenue assumptions, should Council wish to utilise this
work for more detailed negotiations on ARH contributions with the proponents for the sites
and Planning Proposals considered in this report.
Key findings and policy implications from the site-specific feasibility analysis are summarised
in the table below:
Key findings from the feasibility testing Policy implications

Development proposals seeking a rezoning or significant
uplift in residential yield from the current controls are
more likely to meet the required ARH target at no charge
while keeping the overall development feasible,
compared to the redevelopment under the current
controls.
The implication for the Affordable Housing policy is that a
10% ARH contribution at no charge is mostly likely to be
acceptable where it applies to land being up-zoned (i.e.
the planning controls are being amended or modified to
allow additional development potential). The extent that
any development will remain feasible after a contribution
of affordable housing will often depend on the additional
density or value uplift that is being generated (and
whether the site was purchased at a value that reflected
its pre-rezoning potential).

The provision of 10% ARH at no cost tends to be not
feasible for developments, where the residential GRV is
lower than $9000 per sqm (i.e. Granville and Carlingford)
or the site was bought by the developer for a price much
higher than what it would be worth with the current
zoning and controls.
These sites remain unfeasible, after reducing the % of the
dwelling requirement to 5%.
This highlights that there may be some sub-markets
where it is more difficult to make a ‘free’ affordable
housing contribution ‘work’ from a feasibility perspective,
while still satisfying environmental and planning
standards. It is possible that a more modest percentage
target for affordable housing should apply as the
inclusionary standard. Affordable housing contributions
beyond this could be based on a share of the uplift in land
value, as is being contemplated for the value capture
charge in the CBD. This approach was tested in the
‘hybrid’ example shown in Table 15 and found to be
feasible (at the percentages tested) in all cases except for
the Carlingford site (see discussion below).

A premium price is often paid for the development site The implication for the policy is that its general
when there is a speculation on an upzoning or rezoning, application should not be ‘retrospective’, particularly if a
which would result in a significant uplift in the land value. higher percentage ARH contribution is expected. In other

Affordable housing feasibility study 19

 Under these cases, an ARH levy requiring a % of the
dwelling yield is more likely to be unviable, because such
a charge was not anticipated by the developer in the price
for the land.
words, it is best to apply to future Planning Proposals or
sites which are sold after the policy has been adopted.
Goodwill negotiations on sites not in this category (i.e.
sold more recently in anticipation of a change to
development controls) could still proceed with the policy
as a guide to desirable outcomes.

The provision of 30% ARH at no cost on government land
in Rydalmere is found not feasible, because the uplift in
land value from the rezoning is not high enough to hand
over 30% of dwellings as affordable housing for free.
However, the Rydalmere development can provide 30%
ARH at cost if the site is sold to the developer at a
discount of around 10%.
The development remains unfeasible, after reducing the
% of the dwelling requirement to 15%.
The implication is that the government may have to
subsidise the development by selling the land at a
discounted price, compared to what it might otherwise
receive given the development controls, in order to make
the provision of a high percentage (such as 30%) of ARH
on government land. This may still be desirable, but the
implication of the effective subsidy needs to be
recognised.

The provision of 10% ARH at cost is found feasible for
almost all of the development scenarios tested.
An ‘at cost’ ARH contribution consistent with the
proposed policy could probably apply to all Planning
Proposals going forward, without having regard to when
the subject site was purchased, provided the proposed
additional density (FSR) for residential development is
greater than 10%.

A levy capturing up to 20% of the value uplift from
rezoning has little impact on development feasibility, but
this option would only generate a modest amount of ARH
dwellings particularly on small sites.
By definition, a value capture charge would not impact on
development feasibility. Typically, 50% of value uplift is
suggested as a realistic (though not uncontested) upper
limit for such a charge to fund public benefits. If applied
to all Planning Proposals at this rate the ARH contribution
would be considerable (it could be provided in cash for
equivalent ARH dwellings). However, there are other
public benefit ‘claims’ for value capture levies (including
transport and other infrastructure, for example as
proposed in the CBD) so it is probably unrealistic for a
50% levy to apply solely to provide ARH.

A hybrid option of 5% ARH requirement of total dwellings
under the current controls plus 10% of value uplift from
the additional development right is found feasible across
most of the private sites tested.
This finding reinforces the policy implication discussed
above regarding a hybrid approach. Specifically, it
suggests that a modest percentage of dwelling yield
would be anticipated as an ‘inclusionary’ ARH
contribution under the current controls, while
proponents seeking additional development rights would
pay an additional ARH levy based on a share of the uplift
in land value gained from upzoning.

This option is likely to be more effective in terms of

generating a ‘base’ quantum of ARH dwellings through
the inclusionary component, compared to relying on a
value capture levy applying to Planning Proposals and
rezonings only.

The above conclusions, based on the feasibility analysis in this report, do not constitute
recommendations for Council’s Affordable Housing Policy. The findings and implications need
to be considered - and the final policy settings decided (i.e. ARH based on an inclusionary
standard, a share of value capture or a hybrid approach) - by reference to Council’s
Affordable Housing Discussion Paper and in particular the ARH target of 9,500 dwellings.
Given the anticipated amount of development going forward and the additional land value
created it would be possible to create a closer link between the identified need and the

Affordable housing feasibility study 20

 ultimate policy settings. These might also be calibrated by reference to other delivery options
and public benefit needs, as well as potential impacts on development.

Affordable housing feasibility study 21

Contact us
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