Out with the old, in with the new

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Out with the old, in with the new

Melbourne planning forecast

July 2014 marked the implementation of the most extensive changes to Victoria’s residential planning system in more than 20 years, with Victoria’s 79 municipalities adopting new residential zones and associated schemes under Planning Scheme Amendment VC116.

These changes follow the far less contentious Commercial and Industrial zoning changes implemented some 12 months earlier.

These planning reforms, driven by the current Victorian Government through its ‘Plan Melbourne’ vision, aim to streamline the Victorian planning process and help address an ever-present housing shortage as Melbourne grows to a projected 7.7 million people by 2051.

What are the new residential zones?

Under the new Planning Scheme, Residential 1 Zone (R1Z), Residential 2 Zone (R2Z), and Residential 3 Zone (R3Z) have been abolished and replaced with the General Residential Zone (GRZ), Neighbourhood Residential Zone (NRZ), and the Residential Growth Zone (RGZ). The current Township Zone (TZ), Mixed Use Zone (MUZ), and Low Density Residential Zone (LDRZ) have been retained, albeit with some updates.

  • Residential Growth Zone (RGZ) is the most development-friendly zone where building heights can be up to 13.5 metres (4 storeys) at the discretion of Council. RGZ sites are required to be within walking distance to train stations and other major transport infrastructure and within walking distance to retail hubs.
  • General Residential Zone (GRZ) has a similar objective to the current Residential 1 Zone, where moderate development is allowed, and dwellings may be built up to 9 metres in height at the discretion of Council.
  • Neighbourhood Residential Zone (NRZ) is the most restrictive zone where a maximum of two dwellings is preferred with a mandatory height limit of 8 metres. More than two lots may be allowed on larger sites only at the discretion of Council. This zoning was created to preserve areas of significant heritage or character value.

Many municipalities are still awaiting Minister approval for their proposed re-zonings. If you are located in a municipality yet to have the proposed zoning amendments approved by the Minister, your zoning will have defaulted to the new General Residential Zone (GRZ) on 1 July, 2014.

Why were the new zones implemented?

Minister for Planning Matthew Guy has publicly stated these changes are designed to bring greater certainty to planning approval processes and development, to help address Melbourne’s housing shortage, and “to direct residential development to defined areas and at the same time protect our suburbs from over-development”.

How are the new zones being adopted?

Whilst the planning scheme amendments do help improve the planning approval process, they also lend greater power to Councils, allowing them to implement politically motivated solutions for their respective ‘patches’, rather than a wider solution for Melbourne in accordance with the Metropolitan Planning Strategy.

The basic criteria to apply the NRZ outlined in Plan Melbourne stipulates: if a suburb or street has at least 80% of its dwellings as a single dwelling on a lot or an area does not have good infrastructure, transport and supporting service, then it would qualify for NRZ status. This criteria appears to have been exploited by many inner city and middle ring municipalities.

The principle guiding factors should have been limited to existing heritage overlays or neighbourhood character and areas with environmental or landscape significance.

Looking at a sample of metropolitan municipalities proposed or already approved residential zoning changes, it is evident many councils have locked up large tracts of their suburbs by implementing the most restrictive Neighbourhood Residential Zone (NRZ), which effectively excludes developments of medium density townhouses and small-scale apartments.

 

Municipality

Neighbourhood Residential Zone (NRZ)

General Residential Zone (GRZ)

Residential Growth Zone (RGZ)

Glen Eira

93%

5%

2%

Yarra Ranges

87%

9%

4%

Bayside

83%

14%

3%

Boroondara

77%

17%

6%

Kingston

75%

20%

5%

Yarra

74%

23%

3%

Port Phillip

73%

22%

5%

Mornington

67%

33%

0%

Whitehorse

51%

45%

4%

Maroondah

41%

58%

1%

Stonnington

37.5%

57.5%

5%

Cardinia

33%

67%

0%

Greater Dandenong

28%

61%

11%

Knox

26%

70%

4%

Melbourne

23%

73%

4%

Maribyrnong

16%

84%

0%

Manningham

9%

86%

5%

Monash

1%

99%

1%

 

On one hand, Mr Guy has (sensibly) committed to no further expansion of the Urban Growth Boundary (UGB), but at the same time allowed areas with some of the best transport infrastructure, retail hubs, schools, parks, and hospitals to potentially be ‘locked up’ from appropriate medium density development.

This will inevitably push development to high-rise developments in the CBD, mixed-use/commercial zones within many of these municipalities and the urban renewal precincts that have been identified, such as Fisherman’s Bend and Werribee.

This is not necessarily a bad thing, but herein lies the problem. To shift development to these areas is totally reliant on buyer demand in order for a developer to justify the risk to build in these areas.

Put simply, if a project is not viable, developers will not build in these areas.

 

How will these zones impact values and capital growth?

There will inevitably be ‘winners’ and ‘losers’ in the transition to the new zonings in the short and longer term. The changes will have a fundamental effect on how our neighbourhoods look, and potentially how much our home or investment property is worth.

The widespread adoption of the Neighbourhood Residential Zone (NRZ) and extremely limited adoption of the Residential Growth Zone (RGZ) will no doubt place significant pricing premiums on land within this growth zone, as developers compete for a relatively limited supply of well-located medium to high-density development sites.

Similarly, the restriction on the reasonable supply of development land in many parts of suburban Melbourne, particularly the leafy inner and middle eastern, south, and south eastern suburbs will only underpin already strong housing prices, particularly in the established housing market in these areas.

These leafy suburbs abundant in high quality amenities and character streetscapes will be heavily sought after for family homes and similarly, downsizers and investors will be looking for well located, established medium density solutions. Over time there will be fewer alternatives to established homes in the inner and middle suburbs, with townhouses and small-scale apartment buildings effectively restricted to only small pockets. With a limited supply of new housing choices in established areas, existing homes in these pockets should see values uplift over the longer term.

Conversely, the application of the NRZ to less affluent areas characterised by 1950’s, 60’s and 70’s housing and/or lacking in amenity could immediately deprive land owners from unlocking the value of their property by severely restricting subdivision potential. For example, a 1,200 square metre parcel of land may have yielded 6 or 7 townhouses under the previous planning scheme, could well be restricted to 2 or 3 lots under the proposed Neighbourhood Residential Zone.

Developer’s will also seek those areas that are more ‘pro’ development, which could see Council’s that have adopted the slightly more relaxed General Residential Zone in their municipality being swarmed by developer’s fuelling short-term price growth. However, this will likely be a short-lived phenomena as these areas densify and the character of the neighbourhood changes, potentially making these pockets less desirable and improving affordability over the longer term.

There has been much commentary on the potential negative impact’s the varied approach to the new zone’s adopted by Council’s will have on housing supply in Melbourne. What has been lost in the ‘noise’ is Council’s capacity to apply differing minimum lot sizes, height controls and site coverage ratios within schedules to each of the new zones.

Whilst the planning reforms have set out to create greater certainty with the way Melbourne will be developed, there is still significant uncertainty how these changes will impact current values and prospects for longer term capital growth for particular areas and property types.

 

What does it mean?

Given such a significant change to Melbourne’s planning system and an ever-changing property market there will inevitably be ‘winners’ and ‘losers’. For purchasers in this market, the key will be having the right professional advice and undertaking comprehensive due diligence before going through any property transaction process to ensure you are in the former and not the latter category.