As the population of Australia grows, so does the need for more affordable housing schemes in its biggest cities. This trend has created an opportunity for a new generation of boarding houses to come into the market. No more battered old houses; it is the era of smart and efficient ‘micro-apartments.’ These properties attract a variety of tenants from workers, students, young professionals to retired individuals and single citizens. These affordable and modern studios are an amazing investment opportunity.
The State Environment Planning Policy (Affordable Rental Housing) (AHSEPP) was announced on the 31st of July in 2009. This policy gave an opportunity to several housing solutions including the new generation boarding houses to combat homelessness. The purpose of establishing this policy was to increase and diversify affordable rental and social housing in New South Wales. Although this new notion of “New Generation Boarding House” (NGBH) has generated a lot of interest from the business community from the time it was announced, this is still a fairly new concept, since it has taken a lot of time for people to accept boarding house as a separate breed from the ordinary hostels.
What is the Boarding House?
A boarding house is a type of affordable rental accommodation that accommodates a wide range of tenants, including singles, retirees, students, and young couples. The term “boarding house” is used by the AHSEPP which corresponds to a building that:
- Is either completely or partly lets in tenants.
- Provides tenants with a place to live in for 3 months or more.
- May have a shared living space like a communal living room, bathroom, or a kitchen or laundry.
- Has rooms, some or all of which may have private kitchenettes and ensuite facilities that accommodate one or more lodgers.
Lodging cannot be called a boarding house if it hosts backpackers’ accommodation, group house, serviced apartments, senior housing, or a hotel/motel accommodation.
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Facts and Statistics
In New South Wales, the total number of applicants for boarding houses and independent living accommodations has experienced a dramatic surge in recent years. According to Cordell Connect, data shows that between 2017 and 2018, applications had more than doubled, from 27 to 65. This number again experienced a phenomenal boost when it doubled again in 2019 to 131 applications.
The Australian Housing and Urban Research Institute has shown that there is an immediate need to build and develop more affordable house since the private rental market is not generating enough rental accommodations to meet the demands of the public in bigger cities. Sydney, which has been predicted to be one of the most highly populated cities in the coming years, will need more than 40000 new rentals each year to accommodate the needs of the growing population and fight homelessness.
Generally, the council’s standard development application process applies for boarding house applications, and all applicants will have to submit their applications to the council. Each proposal must consider the environmental impact the project will have on the community, as well as provisions of any local environment plans and development control plans applicable to the area. The assessment of submitted proposals is required to consider the infrastructural design and environmental impact.
The AHSEPP allows boarding house to be built in the following zones or equivalent zones for the local council area;
- R1 General Residential
- R3 Medium Density Residential
- R4 High-Density Residential
- B1 Neighborhood Centre
- B2 Local Centre
- B4 Mixed-Use
The state government policy allows the development of boarding houses in densely to medium populated areas, and in low-density areas if the location of the boarding house is 800 meters from a railway station or 400 meters from a bus station.
Moreover, if the boarding house will be built in an R2 Low Residential Zone, it cannot have more than 12 rooms, otherwise, the application will most likely be rejected. (as of February 2019)
Incentives for investors for building new generation boarding house;
- Subsidy worth of $10,000 per room contingent on if the rent stays affordable for 5 years.
- Developers will not be levied land tax.
- Investors get floor space incentives. i.e. a bonus of a minimum of 0.5:1 if the current FSR is 2.5:1 or less.
- Less parking is required. i.e. 0.5 car spaces per boarding room in all locations. (as of June 2018)
- Can qualify for additional capital gains tax discount
There are several other incentives that you can get by investing in this new era of boarding houses; find out more by clicking here.
Why Are They A Good Investment?
The increase in investment in boarding houses is due to the combined reasons of a more stable revenue generation as compared to common backpacker hostels and due to the changes in legislation in Sydney. As the legislation is still developing, therefore the competition is almost non-existent. This is still an untapped market that is waiting to be discovered!
Investing in a boarding house is also a low-risk venture for developers. Moreover, one can avoid any additional fluctuations in tenants, as is the case with a backpacker accommodation.
Planning Provisions for Boarding House
The following titles give an overview of the AHSEPP boarding house planning controls;
Maintaining the character of the local area:
The AHSEPP requires each proposal to align its design to the character of the local area.
Accessibility needs for R2 Low-Density zones:
Boarding house can be built in low-density areas given that the residential property is close to public transport services:
1. Sydney Region:
- The property should be within 800m walking distance of a railway station or a Sydney Ferry wharf.
- The property should be within a 400m radius of a light rail station or a bus stop which operates regularly from 6 am to 9 pm on weekdays and 8 am to 9 pm on weekends.
2. Outside of Sydney Region:
The property should be within a 400m radius walking distance of land within a B2 local center or B4 mixed-use zone, or something within an equivalent land use zone.
Frequently Asked Questions
Q. What are the necessities for kitchens and bathrooms in boarding house?
A. Adequate kitchen and bathroom facilities must be accessible inside the boarding house for the use of each resident. A few or the entirety of the boarding rooms may be self-contained with a food arrangement zone (kitchenette), ensuite facilities (toilet, shower, and wash basin) for the exclusive use of residents of that room – nonetheless this is just an alternative, not an obligatory necessity.
Q. What’s the positive impact of NGBH to the community?
A. These new generation boarding houses have a very positive effect on the community by changing the way people think about regular boarding houses and their residents. People commonly have a negative impression of people who live in a boarding house, dubbing them as hooligans and a potential threat. But these new generation boarding houses have played a major role in changing this mindset, along with helping to reduce homelessness and providing affordable housing to the community.
Q. What are the common rules inside a boarding house?
A. According to rlc.org.au, there are some basic house rules that every new resident should be briefed with. These house rules might not necessarily be in the contract but should be followed, nevertheless. Some of the common house rules include;
- You should keep your room reasonably clean, secure, and in a reasonable state of repair.
- You are not allowed to make loud noises which could disturb your fellow inhabitants.
- The proprietor can enter your premises at a reasonable time on grounds to carry out inspections.
Q. Are visitors allowed to sleep overnight in a boarding house?
A. This depends on the rules set by the proprietor. In some cases, residents are not allowed to host guests overnight, while in some, guests must pay a per-night charge to stay the night.
Q. How safe is it to live in a boarding house?
A. Living in new generation boarding houses is safe and secure as these boarding houses are generally equipped with the latest fire safety and security devices.
Q. Do other local council planning controls proceed to apply?
A. If the AHSEPP doesn’t unequivocally supersede a nearby local council planning control, at that point the local planning control keeps on applying.
Q. What occurs if there is a contention between the controls in local environmental control and the State Environmental Planning Policy (SEPP)?
A. If there is an irregularity between the AHSEPP and the applicable council’s local environmental plan (LEP), the arrangements of the AHSEPP will supersede those in an LEP to the degree of the irregularity.
Q. Does BASIX apply?
A. The AHSEPP doesn’t change the use of the Building Sustainability Index (BASIX).
Q. Do I need a site compatibility certificate for development under SEPP?
A. For the most part, no. Just development under Division 5 of the AHSEPP requires a site compatibility certificate.
Conclusion
So if you like give New Generation Boarding House investment strategy a go, make sure you get educated, have the right team in place, run a thorough feasibility study, and budget accurately for all the additional expenses you will incur and don’t forget to include the increased time it will take to look after the property.
What are the best suburbs to build New Generation Boarding House? What suburbs in Australia have a high room rental demand and have a good capital growth? These are the most common questions property investors ask and it involves a lot of time researching to find answers to all of these.
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