How subsidies meant to fix housing affordability are enriching developers instead
Australia's affordable housing schemes promise supply — but the numbers behind one Sydney development reveal who is really collecting the windfall.
There is a version of the affordable housing story that governments tell with great confidence: we will ease planning rules, unlock density, partner with developers, and more Australians will have access to cheaper homes. It is a story about supply. The only problem is that the evidence from the schemes now operating across Australia suggests the supply being created is not the supply that was promised, and the people capturing the value are not the people the policy was designed to help.
The arithmetic is not subtle: developers gain far more than the community benefit they are required to deliver
The Chimes apartment block in Potts Point tells the story with unusual clarity. The 1960s building currently holds 80 one-bedroom and studio apartments that the NSW government's own analysis describes as cheap for the area. A development consortium linked to billionaire James Packer's real estate firm NPACT and developer Time and Place wants to replace them with 21 luxury homes and 23 affordable apartments. The mechanism is a NSW bonus scheme introduced in 2023 that allows developers to build 20 to 30 per cent above local height and density limits in exchange for devoting 10 to 15 per cent of floor space to affordable units for a minimum of 15 years.
University of Sydney emeritus professor of planning Peter Phibbs ran the numbers for Four Corners. His analysis found the density bonus could add $31.9 million to the value of the project. The 15-year affordable housing obligation, by his estimate, would cost the developer around $2 million. The arithmetic is not subtle. The policy is offering a return several times larger than the cost of the community obligation it requires in exchange. That is not a design flaw someone missed. It is the structure of the deal.
The policy is offering a return several times larger than the cost of the community obligation it requires in exchange. That is not a design flaw someone missed. It is the structure of the deal.
The affordable units, for what it is worth, will sit on the lower floors with no access to the building's swimming pool, reached through a separate entrance from the luxury apartments. The developer frames this as keeping costs down for affordable tenants through separate strata arrangements. Critics call it a poor door. Either way, the 80 cheaper units that exist now would be replaced by 23 discounted ones, for 15 years, after which they revert to market rate. The net count of affordable homes in the area falls. The developer's asset base grows considerably.
Time and Place says the current building has serious structural problems including concrete cancer, and that the 23 new units will provide secure housing for essential workers in a suburb where they cannot otherwise afford to live. These are not trivial points. But they sit alongside a financial structure that would make any developer with a marginal site and an ambitious set of plans look twice at what the scheme offers.
Density bonuses do not fix housing affordability — they redistribute the gains to whoever holds the development rights
This pattern, where the incentive available to developers substantially exceeds the community benefit they are required to deliver, is not unique to this project or this state. It is the predictable result of what happens when governments try to manufacture supply outcomes by subsidising private developers operating in constrained land markets. The value created by relaxed planning rules flows to whoever holds the development rights. If the exchange ratio between the subsidy and the affordable component is generous enough, the affordable housing becomes a rounding error on a larger profit calculation rather than the point of the exercise.
The deeper problem is that the schemes do not actually address what makes Australian housing expensive. Decades of supply restriction through slow approvals, zoning limits, infrastructure levies, and resistance to density have produced some of the least affordable housing markets in the developed world relative to median incomes. Demand-side subsidies and developer incentives do not fix that constraint. They layer additional money and development rights on top of a restricted market, and the value ends up captured by asset owners and developers rather than tenants. The evidence from comparable markets is consistent: cities and countries that liberalise zoning broadly and speed up approvals see rents stabilise. Tokyo has kept rents relatively flat through permissive zoning and continuous supply expansion. Houston's minimal zoning restrictions produce housing costs well below comparable American cities. The mechanism that works is not the mechanism Australia is primarily deploying.
What is being deployed instead is a system that allows governments to announce affordable housing numbers, gives developers a profitable pathway through planning restrictions they would otherwise face, and delivers a fraction of the promised benefit on a temporary timeline. Federal Housing Minister Clare O'Neil has defended the government's affordable housing measures while indicating openness to debating how discounts are set. That is a narrower conversation than the evidence warrants. The question is not how deep the discount is. The question is who captures the value the policy creates, and whether the structure of the incentive is delivering what the policy claims to be for. On current evidence, those are not the same thing.
Sources
ABC News — How property developers are benefiting from Australia's housing crisis
Frequently Asked Questions
How do NSW affordable housing density bonus schemes work?
NSW's 2023 scheme allows developers to build 20 to 30 per cent above local height and density limits if they devote 10 to 15 per cent of floor space to affordable rental units for a minimum of 15 years. After the 15-year period, those units revert to market rate. The planning uplift the scheme grants can be worth tens of millions of dollars on a single project.
Why are developers profiting from affordable housing schemes if the schemes are meant to help renters?
The schemes create value by unlocking density that would otherwise be blocked by planning rules, and that value flows to whoever holds the development rights. When the financial gain from the planning uplift substantially exceeds the cost of the affordable housing obligation — in the Chimes case, $31.9 million in added value against a $2 million obligation — affordable housing becomes a minor cost on a larger profit, not the purpose of the project.
Do affordable housing schemes increase the total number of affordable homes available?
Not necessarily, and sometimes the reverse. In the Chimes case, demolishing 80 existing cheap units to build 23 discounted ones produces a net loss of 57 affordable homes in the area, and even those 23 are only discounted for 15 years before reverting to market rate. The scheme counts new affordable units without accounting for existing affordable stock that is destroyed to make way for the development.
What housing policies actually keep rents affordable long-term?
The evidence from comparable cities points to broad zoning liberalisation and continuous supply expansion as the mechanisms that stabilise rents — cities like Tokyo, which maintains permissive zoning, and Houston, which has minimal zoning restrictions, have avoided the severe affordability deterioration seen in more restricted markets. Targeted developer incentive schemes layered on top of otherwise constrained planning systems tend to redistribute the value of planning permissions rather than expanding supply at scale.
What is a 'poor door' in Australian apartment developments?
A poor door is a separate entrance for affordable housing residents in a mixed-tenure development, physically distinct from the entrance used by market-rate residents. In the Chimes proposal, affordable tenants would use a separate entrance and would have no access to the building's swimming pool. Developers argue separate strata arrangements keep costs down for affordable tenants; critics argue they encode a visible hierarchy of residents into the building's design.