As Australia’s urban populations continue to rise, so too does the need for innovative, affordable housing solutions. Enter the New Generation Boarding House (NGBH) – a modern take on shared housing that offers smart, self-contained micro-apartments tailored to today’s diverse tenant demographics. From students and essential workers to single professionals and retirees, NGBHs are gaining popularity as a smart solution for both renters and investors.
Backed by the State Environmental Planning Policy (Affordable Rental Housing) or AHSEPP, which first came into effect in 2009, these developments offer multiple incentives for investors and a viable pathway to address Australia’s housing shortage. As affordability and rental pressure dominate property discussions in 2025, NGBHs are proving to be one of the most compelling property investment strategies for the years ahead.
What Is a Boarding House Under AHSEPP?
Under the AHSEPP, a boarding house is defined as a form of affordable rental accommodation that typically includes:
- Long-term stays of three months or more
- Shared or private facilities (kitchens, bathrooms, laundries)
- Self-contained studio-style rooms
- Exclusions: hotels, motels, group homes, backpackers, or aged-care facilities
NGBHs are purpose-built to deliver efficient living spaces with modern amenities, without the stigma associated with traditional boarding houses.
Why Are New Generation Boarding Houses Gaining Momentum?
1. Significant Tenant Demand
NGBHs cater to renters who prioritise affordability, flexibility, and proximity to services. As housing affordability worsens in capital cities, demand for micro-apartment living continues to grow. Many tenants opt for self-contained studios over expensive one-bedroom apartments in high-density towers.
2. High Rental Yields and Stable Cash Flow
Compared to traditional rentals, NGBHs typically offer superior cash flow. A five-bedroom NGBH renting rooms individually may generate 40–60% more in weekly income than a standard family lease. This strategy provides investors with a positive cash flow asset that often covers holding costs from day one.
3. Government Incentives for Developers and Investors
In 2025, the following incentives remain attractive:
- $10,000 subsidy per room (if kept affordable for 5 years)
- Land tax exemption
- Floor space bonuses for developments in specific zones
- Reduced parking requirements (0.5 spaces per room)
- Eligibility for CGT discounts under affordable housing provisions
These benefits improve financial feasibility and make NGBHs one of the few asset classes with substantial government backing.
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Facts and Demand Trends
Between 2017 and 2019, applications for boarding houses in NSW surged by over 400%. Post-pandemic, this trend has only accelerated as supply remains short and rental demand surges. Cities like Sydney and Melbourne will require over 40,000 additional affordable rental units each year to keep up with demand. Investors are now turning to NGBHs as a reliable, cash-flow-friendly investment option that aligns with government policy and community need.
Benefits of NGBHs for Investors
- Immediate Rental Demand: Essential workers, students, and singles are increasingly choosing micro-apartments.
- Strong Yields: Weekly returns per room often exceed standard residential rental income.
- Lower Vacancy Risk: Smaller rental amounts appeal to wider tenant bases, reducing vacancy periods.
- Portfolio Diversification: A boarding house investment balances capital growth assets with high-yield performance.
What to Know Before You Invest
- Understand Local Planning Controls: While AHSEPP provides a statewide framework, local councils can impose restrictions that may affect design or approval timelines.
- Do Your Feasibility Study: Thoroughly model your income, expenses, yields, and capital outlay before committing. Factor in development, holding, and compliance costs.
- Get the Right Legal Advice: Boarding houses may have different compliance obligations compared to typical rentals. Know your rights and responsibilities.
- Design with Tenants in Mind: Self-contained studios with private bathrooms and kitchenettes attract more stable and respectful tenants.
- Be Prepared to Manage or Outsource: Consider professional management, especially for multi-room dwellings with frequent turnover.
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.
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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