//
[2025] NSWLEC 1492
General information, not legal advice.
Land and Environment Court (NSW)
2025-07-10
O’Neill C
Original judgment source is linked above.
Zoe will write a short plain-English summary of this judgment and email it to you for free: what it was about, what the court decided and why. It can take up to a minute.
General information, not legal advice.
Or create a free account to save it and ask Zoe follow-up questions.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: LFD Homes Pty Ltd v The Council of the City of Sydney [2025] NSWLEC 1492
Hearing dates: 8 and 12-14 May 2025
Date of orders: 10 July 2025
Decision date: 10 July 2025
Jurisdiction: Class 1
Before: O’Neill C
Decision: The orders of the Court are:
(1) The appeal is dismissed.
(2) Development Application No. D/2023/700 for the conversion of an existing 32-bedroom boarding house to provide four attached dwellings with associated alterations and additions, and associated subdivision of the site from two lots into four lots, is refused.
(3) The exhibits, other than Exhibit 1, are returned.
Catchwords: DEVELOPMENT APPLICATION – change of use from 32 room boarding house to 4 dwellings – the proposed change of use would result in the unacceptable loss of affordable rental boarding house accommodation in the local area – the existing boarding house could be viable and able to achieve a reasonable return following the renovation works
Legislation Cited: Environmental Planning and Assessment Act 1979 s 8.7
Land and Environment Court Act 1979 s 34
Environmental Planning and Assessment Regulation 2021
State Environmental Planning Policy (Housing) 2021 Pt 3, ss 45, 46, 47, 48
Sydney Local Environmental Plan 2012
Cases Cited: Crighton Properties Pty Limited v Kiama Municipal Council (2006)146 LGERA 271
Georges River Council v Eskander [2024] NSWLEC 98
Texts Cited: Guidelines for Retention of Existing Affordable Rental Housing October 2009
Category: Principal judgment
Parties: LFD Homes Pty ltd ATF The LFD Homes Unit Trust (Applicant)
The Council of the City of Sydney (Respondent)
Representation: Counsel:
A Galasso SC (Applicant)
J Lazarus SC (Respondent)
Solicitors:
Mills Oakley (Applicant)
The Council of the City of Sydney (Respondent)
File Number(s): 2023/428688
Publication restriction: No
COMMISSIONER: This is an appeal pursuant to the provisions of s 8.7(1) of the Environmental Planning and Assessment Act 1979 (EPA Act) against the refusal of Development Application No. D/2023/700 for the conversion of an existing 32-bedroom boarding house to provide four attached dwellings with associated alterations and additions, and associated subdivision of the site from two lots into four lots (the proposal), at 58-64 Selwyn Street, Paddington (the site), by The Council of the City of Sydney (the Council).
The appeal was subject to conciliation on 13 June 2024, in accordance with the provisions of s 34 of the Land and Environment Court Act 1979 (LEC Act). As agreement was not reached, the conciliation conference was terminated, pursuant to s 34(4) of the LEC Act.
Part 3 Retention of existing affordable rental housing of SEPP Housing (Pt 3) applies to the proposal at s 46(1)(a). It was uncontroversial that the existing development is a “low-rental residential building” within the meaning of the definition under s 45, because the existing development was being used as a boarding house during the relevant period (being the period commencing 5 years before the day on which the application was lodged on 7 August 2023).
The proposal is permitted with consent in relation to a building to which Pt 3 applies, at s 47(1). In determining whether to grant consent, the consent authority, or the Court re-exercising the functions of the consent authority, must take into account the following:
The Guidelines for the Retention of Existing Affordable Rental Housing, published by the Department in October 2009 and the following—
(a) whether the development will reduce the amount of affordable housing in the area,
(b) whether there is available sufficient comparable accommodation to satisfy the demand for the accommodation,
(c) whether the development is likely to result in adverse social and economic effects on the general community,
(d) whether adequate arrangements have been made to assist the residents who are likely to be displaced to find comparable accommodation,
(e) the extent to which the development will contribute to a cumulative loss of affordable housing in the local government area,
(f) whether the building is structurally sound, including—
(i) the extent to which the building complies with relevant fire safety requirements, and
(ii) the estimated cost of carrying out work necessary to ensure the building is structurally sound and complies with relevant fire safety requirements,
(g) whether the imposition of an affordable housing condition requiring the payment of a monetary contribution would adequately mitigate the reduction of affordable housing resulting from the development,
(h) for a boarding house—the financial viability of the continued use of the boarding house.
accommodation comparable with accommodation provided within an existing low-rental residential building the subject of a development application to which Pt 3 applies because—
(a) it is in the same or a neighbouring suburb, and
(b) it is let at the same rental level as, or not more than 5% higher than the rental level of, the Part 3 accommodation, and
(c) it is available for occupation on the day the development application is lodged…
Sufficient comparable accommodation, under s 47(2)(b), is conclusively taken not to be available if, for the 3 months occurring immediately before the application is lodged, the average vacancy rate in private rental accommodation for Sydney, as published monthly by the Real Estate Institute of New South Wales, is less than 3%, at s 47(3).
The continued use of a boarding house is financially viable if the rental yield of the boarding house is at least 6%, at s 47(4). The rental yield of the boarding house is determined pursuant to s 48(4), as follows:
(4) In this section—
rental yield means the rental yield for a period, expressed as a percentage, determined by the consent authority in accordance with the following formula and taking into account the Guidelines for the Retention of Existing Affordable Rental Housing, published by the Department in October 2009—
where—
RY is the rental yield.
Y is the gross rental income from the boarding house for the period.
E is the total expenses for the boarding house, excluding expenses that have been charged to residents, for the period.
D is the capital depreciation of the boarding house for the period.
V is the total value of the boarding house were it to be purchased for the purposes of continuing its use as a boarding house.
U is the estimated cost of carrying out work referred to in section 47(2)(f)(ii).
Part 3 applies to existing affordable housing in the form of boarding houses and low-rental residential flat buildings. It requires development consent to be obtained when these forms of housing are proposed to be developed and sets out criteria that must be considered to gauge the impact of the development on the availability of affordable housing in the area.
To ensure consistency of process and fairness of decisions, the Policy requires that the assessment of these criteria must be in accordance with these guidelines.
In determining applications that reduce low rental accommodation, either by a direct loss of rooms/units or a change in their rental characteristics, care must be taken not to penalise owners wishing to take reasonable measures to maintain the value and income-generating capacity of their asset or to ensure a safe, healthy and hygienic standard of accommodation for the tenants. While potentially increasing rent levels, upgrading may nonetheless be necessary to ensure continued availability of acceptable rental accommodation.
A Sydney vacancy rate of less than 3% is deemed to indicate that insufficient comparable accommodation is available… no weight can be given in assessment of this criteria to information purporting to show a sufficiency of comparable accommodation and no further analysis is required to conclude that sufficient comparable accommodation is not available.
According to the Guidelines, where the vacancy rate for Sydney is less than 3%, it must be concluded that there is not sufficient comparable accommodation. In those circumstances, a development proposing a loss of such accommodation is likely to cause adverse social and economic effects on the general community. The Guidelines include a list of potential adverse social and economic impacts on the general community.
The Guidelines include the following regarding arrangements to assist displaced residents find alternative accommodation:
Where a development is likely to result in displacement of existing residents, arrangements to assist those residents to find satisfactory alternative accommodation must be identified. This is a particularly important consideration for residents who may be at a competitive disadvantage in the rental market such as people who are elderly, unemployed, living with disability or on welfare benefits.
The following options should be considered:
• the provision of accommodation in other premises in the same ownership/management or by arrangement with other owners/managers;
• a written agreement with a local estate agent giving displaced residents first option for comparable accommodation that comes onto the market;
• payment of relocation costs or ex-gratia disruption payments;
According to the Guidelines, regarding s 47(2)(e), the individual contribution which a particular low rental building makes to the overall supply of low rental accommodation may be small, but the cumulative impact of many such losses is significant. It is therefore important to consider each application in the context of long-term cumulative trends.
The Guidelines include the following regarding the cost of structural and fire safety upgrading, s 47(2)(f):
It is vitally important that acceptable levels of health, amenity and safety be maintained in low rental housing. In some cases, a building may be currently providing low rental accommodation only because it is in sub-standard condition. The cost of undertaking work necessary to achieve acceptable housing standards needs to be considered in assessing an application for alteration or demolition of such a building.
To substantiate a claim that the cost of the work required is prohibitive, work schedules should be prepared and assessed by a suitably accredited building industry professional such as an architect, licensed builder, quantity surveyor or building surveyor.
A balanced assessment of the other criteria…will commonly find that the development satisfies some criteria and not others, with varying degrees of acceptable and adverse impacts. Where it is clear that the overall impact is major and adverse and cannot be adequately mitigated, serious consideration should be given to refusal…
In other cases, the imposition of an affordable housing condition may be an appropriate way to enable the development to proceed while mitigating its impact.
The assessment of financial viability is only required for boarding house DAs and is a crucial part of the assessment of those applications…
The method used to evaluate financial viability is based on rental yield. Clause 50[now 47](4) provides that a boarding house is viable if the rental yield determined under clause 51[now 48](5) is greater than 6%.
In the private rental market, net yields measured by this method are generally much lower than 6%. Most investors expect, however, that a private rental property will realise greater capital gain than a boarding house when it is sold. A higher yield threshold for boarding houses compensates the investor for lower expectations of capital gain.
Financial viability assessments submitted by applicants need to be carefully reviewed, especially when the property is initially assessed as not being viable. In general, there are two situations which will prompt a review of the initial assessment. The first is when the initial assessment is close to the 6% threshold.
• To provide for the housing needs of the community.
• To provide for a variety of housing types and densities.
• To enable other land uses that provide facilities or services to meet the day to day needs of residents.
• To maintain the existing land use pattern of predominantly residential uses.
Six resident objectors gave evidence at the commencement of the hearing onsite. They object to the change of use of the site from a boarding house on the following bases:
the change of use will result in a loss of boarding rooms and affordable housing within the locality;
the detrimental impact of the displacement on the current residents of the boarding house; and
the impact of the loss of the boarding house residents on the community.
The applicant relied on the expert evidence of Roberta Ryan (social planning), James Ruben (valuation), Jeremy Swan (town planning), Paul Moore (structural engineering) and Luke Sheehy (fire engineering).
The Council relied on the expert evidence of Allison Heller (social planning), Christopher Milou (valuation), Daniel Stanley (town planning), Hari Gohil (structural engineering) and Allan Harriman (fire engineering).
The rental yield within the meaning of s 48(4) of SEPP Housing is determined by the consent authority, in accordance with the formula and taking the Guidelines into account.
Mr Ruben calculated the rental yield as 1.32% and Mr Milou as 4.22%, or 4.67% with fire rectification works.
The calculation of the percentage rental yield has two roles under SEPP Housing, firstly, the continued use of the boarding house is deemed financially viable under s 47(2)(h) if the rental yield is at least 6%. Secondly, if the boarding house is financially unviable and the use is changed, the value of the contribution that may be sought by the consent authority depends on the determined rental yield percentage, at s 48(3).
Mr Ruben’s estimate of the gross rental income for the period is $266,161.00 (Exh 7, p 16). According to Mr Ruben, “the passing tariffs in the subject property range from $120 to $300 (including GST) per week” (Exh 7, Appendix 1, Expert opinion of James Ruben, p 20). He then stated that he adopted market tariffs for the boarding house of between $150 and $200 per week per room including GST, on the basis of the nature of the rooms and the presentation and quality of the building (Exh 7, Appendix 1, p 20). However, the rental income in his market rent assessment table range from $120 to $300 per week per room, with 5 rooms vacant.
According to Ms Heller, the residents were paying $145-$300 per week per room (Exh 6, p 28).
In Mr Milou’s opinion, Mr Ruben’s adopted market tariffs for the boarding house are significantly below market levels for the Paddington area and is understated, notwithstanding the poor condition of the boarding house. According to Mr Milou, the lowest asking rent for a single bedroom within a share house in Paddington is $280 per week for a single bedroom with shared amenities in a six-bedroom share house. There are two rooms at $280 on the website he referred to and no other rooms below $300 per week (Exh 7, p 19). Mr Milou adopted a weekly rent of $287.13 on average per room across 32 boarding rooms, resulting in a value of $458,182.00 (exc GST) and assuming full occupancy on the basis that the vacancy rate is low for boarding houses in Paddington.
Both valuation experts have estimated the rental income. The gross rental income could have been a factual matter determined by obtaining the Profit and Loss Statement for the operation of the boarding house for the one year period prior to notice being given to the residents that the boarding house was closing. As that information is not in evidence, the alternative is to determine the rental income in accordance with the formula in the Guidelines, as follows:
Gross rental income is the cash income produced by the boarding house. Gross rental income can be obtained from the applicant’s Profit and Loss Statement. Otherwise it will be estimated by the following formula:
Y = r x 52 x (1 – v)
where:
r = total rent/week
v = vacancy rate
The vacancy rate for boarding houses is generally low by industry standards due to demand for low rental accommodation substantially exceeding supply in recent years. A vacancy rate of 4% has commonly been applied, representing 2 weeks vacant per year, but this varies with the location, configuration and condition of the building.
According to Ms Heller, the residents were paying $145-$300 per room per week. I have therefore based the gross rental income on an average weekly rent per room of $222.50, as Ms Heller’s evidence is derived from interviews with the residents. Without knowing the weekly rent for each of the 30 rooms, I have averaged the range. I accept Mr Ruben’s position that one boarding house room was used for storage and one was used by a caretaker who lived there rent-free (Exh 7, Appendix 1, p 21), so that historically the total number of rented boarding rooms was 30 for the purpose of determining what the value of the gross rental income was when the boarding house was operating. The value for “r” is therefore 30 x $222.50, which equals $6,675.00.
Adopting the suggested vacancy rate from the Guidelines of 4%, the formula is as follows:
Y = $6,675 x 52 (1 – 0.04)
Y = $333,216.00
According to Mr Ruben, the market value of the boarding house is $9,500,000 and it is his evidence that this value reflects the continued use of the site as a boarding house.
In Mr Milou’s view, Mr Ruben’s market value estimate has had regard to the underlying residential value of the properties (given the potential for a change of use to four dwellings). It is his evidence that the valuation of $9,500,00 is consistent with the purchase price of the properties in December 2022. According to Mr Milou, the boarding house was marketed by the real estate agent as an underdeveloped land holding with potential for repositioning in a highly desirable residential area (source cited). The price paid, in his opinion, reflected the purchaser’s intention to convert the properties to four residences rather than continuing the operation as a boarding house.
According to Mr Milou, if the boarding house is valued as an on-going concern, it would be less than Mr Ruben’s valuation. Mr Milou concluded that the value of the boarding house is $7,840,000.
To inform his estimate, Mr Ruben considered a schedule of sales of comparable boarding houses (Exh D, section 6). He considered the sale price of two of the comparable boarding houses most relevant to his estimate, one in Redfern and one in Annandale. He said that both had been recently renovated and were in modern condition, and they were both sold as an on-going concern to investors. Mr Ruben adjusted both sales in order to establish a per room market value for the boarding house the subject of the appeal, on which he based his valuation. He notes that both comparable boarding houses have a superior condition of improvements, a smaller number of rooms and an inferior location when compared to the boarding house the subject of the appeal. He considered both boarding houses to be superior on a rate per room, which is $401,667 for the Redfern boarding house and $384,286 for the Annandale boarding house.
For the Redfern boarding house, Mr Ruben added 5% to the value for location, removed 5% for size, 15% for condition and 15% for configuration (the Redfern boarding house has ensuites, whereas the boarding house the subject of the appeal does not). Mr Ruben’s adjusted value for an individual boarding house room, based on the Redfern sale, is $280,000. Mr Milou disagrees with some of these adjustments, including the adjustment for size and configuration, and his adjusted value is $240,000.
According to Mr Milou, typically a discount would apply if a purchaser were buying four terrace houses in a row as opposed to a single terrace house. This is known in the industry as an ‘in one line’ discount and it is common for this to be above 10% of the individual values of each boarding house. In his view, at least a 10% discount would be warranted.
In Mr Milou’s opinion, the adjustment for the condition of each of the comparable sales also appears to be understated, as the boarding house is in a condition well below acceptable living conditions and an appropriate allowance for the differences in the condition, including the disruption and timing allowances required for works to be undertaken, needs to be factored in.
For the Annandale boarding house, Mr Ruben added 10% to the value for location, and removed 5% for size, 15% for condition and 15% for configuration. Mr Ruben’s adjusted value for an individual boarding house room, based on the Annandale sale, is $290,000. Mr Milou disagreed with some of these adjustments, including configuration which he said is insufficient, and his adjusted value is $250,000.
Mr Ruben adopted a value of $295,000 per boarding room for the boarding house, which he noted sits just slightly above the adjusted value reflected by these two sales, and is, in his opinion, supported by the broader schedule of sales included in his individual report (Exh D, section 6). Mr Milou adopted a value of $245,000 per boarding room for the boarding house, which is the average of his adjusted sales values for the Redfern and Annandale boarding houses.
I accept Mr Milou's evidence that the valuation of the boarding house of $9,500,000 assumes the potential change of use to four residential dwellings, as it is the purchase price of the property in December 2022. The boarding house was marketed as “4 giant early century terraces, each 6.5 metres wide each offered in one line. One of Paddington's last significant, undeveloped land holdings. Currently used as a boarding house with 30 rooms”. I accept his opinion that the price paid probably reflects the purchaser’s intention to convert the properties to four residential dwellings rather than continuing the operation of a boarding house. That the purchaser’s intention was to change the use is also evidenced by the lodgement of the application in August 2023, merely eight months after the purchase of the boarding house in December 2022.
I accept Mr Milou’s evidence that the adjustment for the condition of each of the comparable sales is understated. The condition of the boarding house is well below acceptable living conditions, which was evident during the site view, and as evidenced by the Quantity Surveyor’s estimated cost (QS cost estimate, Exh 5, tab C) to renovate the boarding house as well as the evidence of the structural and fire experts. Mr Milou adjusted the sales price of the Redfern and Annandale boarding houses by -20% to account for the sub-standard condition of the boarding house, including the disruption and timing allowances required for works to be undertaken, which is an additional 5% compared to Mr Ruben’s adjustment for the condition of the boarding house.
I accept Mr Milou’s adjustment analysis of the Redfern and Annandale boarding houses and his conclusion that the value of the boarding house rooms is between $240-250,000. If I take the higher of the two, Mr Milou’s adjusted value for the Annandale Boarding House of $250,000 per room, the market value of the boarding house, $250,000 x 32, is $8,000,000. This value accounts for the sale price of the boarding house of $9,500,000 reflecting the likely change of use and Mr Ruben’s understated adjustment for the sub-standard condition of the boarding house. As there are 32 rooms in the now unoccupied boarding house (disregarding the one resident who has chosen not to leave), I have used the total number of boarding rooms without reference to the historical use of two rooms for storage and a caretaker.
Mr Milou’s reasoning to subtract the cost of the renovation works, $4,187,463 from his estimate of the value of the boarding house of $7,840,000, to conclude that the value of the boarding house is $3,652,000 is plainly incorrect, because he has already accounted for the sub-standard condition of the boarding house in his valuation. Mr Milou adjusted the sale price of both the Redfern and Annandale boarding houses by -20% to account for the sub-standard condition of the boarding house the subject of the appeal. Therefore, the value of $240-250,000 per room for the boarding house already included an adjustment for its sub-standard condition. Mr Milou has averaged these values to $245,000 per room for the boarding house and multiplied his adjusted value by 32 rooms to conclude that the value of the boarding house is $7,840,000. He cannot then double dip as it were and remove the cost estimate for the renovation works from the valuation which has already been adjusted for the sub-standard condition of the boarding house.
The QS cost estimate for structural upgrade works, fire safety, finishes/fitments, exit signage/emergency lighting and mould cleaning, including contingencies, professional fees, project management and council’s fees is $4,187,463 (Exh 5, tab C). Some of these renovation works would be required to upgrade the boarding house to a condition comparable with the boarding houses listed in the Sales Evidence (Exh D, section 6), as each individual property in the list includes a comment to the effect that the boarding house the subject of the sale has been internally renovated to a good standard.
I have removed the costs for seismic restraint and replacement of the stairs (items 1.1, 1.2, 1.3 and 1.4, Exh 5, tab C) from the QS cost estimate, as the structural engineering experts agreed that seismic restraint is not essential (refer to [58]). I accept Mr Harriman’s evidence that the four buildings are appropriately classified under the Building Code of Australia (BCA) as Class 1B (refer to [59]) and as such, the fire safety engineering experts agreed that the replacement of the stairs and the fire separation of internal walls, floors and ceilings within each terrace house are not required (items 1.4, 2.4, 2.5, 2.6 and 2.7). The cost of the renovation works, taken from the QS cost estimate and deleting those identified items, is as follows:
Item 1 Structural upgrade works $1,241,772
Item 2 Fire safety $563,779
Item 3 Finishes/Fitments $830,856
Item 4 Exit signage/Emergency Lighting $26,391
Item 5 Mould cleaning $13,961
Sub-total $2,676,759
22.5% contingency, fees, management $602,271
TOTAL $3,279,030
The QS cost estimate does not include the cost for the remedial work to the roof cladding and rainwater goods for each building, which the structural engineers agreed is necessary for the structural integrity of the buildings. The QS cost estimate does not make an allowance for the investigation and repair of isolated defects in timber floors.
The renovation works would be required to improve the condition of the boarding house to equate with those boarding houses used in the Sales Evidence. The QS cost estimate is rounded to $116,000 per room for the renovation works including an allowance for the remedial work to the roof cladding and rainwater goods and the investigation and repair of isolated defects in timber floors. The renovation works are not the same as the works referred to under s 47(2)(f) of SEPP Housing and I deal with that estimated cost separately at [65].
If the value of the boarding house is $250,000 per room in its current sub-standard condition, and the cost of the renovation works is in the vicinity of $116,000 per room, then the value of the boarding rooms would be $366,000 after the renovation works, which is broadly consistent with the value per room of the group of boarding houses in the Sales Evidence, including the Redfern and Annandale boarding houses, allowing for relevant adjustment values such as configuration as the boarding house would not have ensuite bathrooms, but excluding an adjustment value for condition.
The value of V under s 48(4) of SEPP Housing is $8,000,000.
The structural engineering experts agreed that the primary structure of the buildings is in a reasonably structurally sound condition. They agreed that there are isolated defects in the timber floors which require further intrusive investigation, however, remedial work required would be localised. They agreed that the lightweight enclosures to verandahs were constructed to a poor standard, have lacked adequate maintenance, and are in need of significant remedial work so as to function in a structurally satisfactory manner. There is evidence of supporting timber posts being affected by rot, and sub-standard supporting brick piers, which require demolition and reconstruction of those affected additions. They agreed that the waterproof membranes in shower recesses must be replaced to avoid water penetration and deterioration of structural elements. They agreed there is evidence of rainwater penetration which requires remedial work to the roof cladding including the rainwater goods - flashings, gutters and downpipes. The structural engineering experts agreed that the defects are largely the result of poor and inadequate maintenance over time. They agreed that the identified required works are necessary regardless of the future use of the buildings.
The valuation experts disagreed on the value for U, Mr Ruben estimated $4,187,263 and Mr Milou $831,000 (Exh 11, p 4). Mr Ruben noted that Mr Milou’s allowance does not include the 22.5% allowance made by the QS cost estimate for contingency, fees and management.
I do not accept Mr Ruben’s adoption of the QS cost estimate as the estimated cost of carrying out work necessary to ensure the building is structurally sound and complies with relevant fire safety requirements, because the QS cost estimate includes works in addition those works contemplated under s 47(2)(f)(ii), such as finishes/fitments and mould cleaning.
I accept the agreed evidence of the structural engineering experts that seismic restraint is not essential (TR126839 pp 30 and 32).
I prefer and accept Mr Harriman’s evidence that the four buildings are appropriately classified under BCA as Class 1B, because each terrace house is separated by a party wall and there are no openings within the party walls. Party walls between attached dwellings project above the roof line for the express purpose of the fire separation of dwellings. I accept that the enclosure of some rear verandahs or minor rear additions have compromised the integrity of the fire separation between the terrace houses and this needs to be rectified by extending the party walls in some locations. Each terrace house operates effectively as a boarding house, independently from the adjoining terrace house, as each terrace house has between 7 and 9 rooms with shared kitchen and bathrooms (as well as kitchenettes in some rooms) within that terrace house. Subject to the sub-division of lots, it is possible for one of the buildings to be sold individually and it could continue to operate as a boarding house within a terrace house. Further evidence that each building has been considered as independent of the others is the Fire Safety Order issued by the Council in 2001 for one of the buildings.
The BCA classification of the four buildings has implications for the extent of works required to ensure the buildings comply with relevant fire safety requirements. The fire safety engineering experts agreed that Class 1B classification for each building means that the stairs in each building do not need to be replaced (item 1.5 of the QS cost estimate, Exh 5, tab C) and the fire separation of internal walls, floors and ceilings is not required (items 1.4 and 2.4-2.7).
I do not accept the Council’s submission that the fundamental requirement of this criterion is structural soundness and that the word “including” is used by way of clarification rather than enlargement. The Council submitted that the extent to which the building complies with relevant fire safety requirements in (i) and the estimated costs in (ii) are each referable only to whether the building is structurally sound, rather than being independent enquiries to be undertaken by the consent authority into fire safety matters and costs that are not related to the structural soundness of the building.
The Guidelines state the following in relation to this criterion:
It is vitally important that acceptable levels of health, amenity and safety be maintained in low rental housing. In some cases, a building may be currently providing low rental accommodation only because it is in sub-standard condition. The cost of undertaking work necessary to achieve acceptable housing standards needs to be considered in assessing an application for alteration or demolition of such a building.
The criterion directs consideration of firstly the extent to which the building complies with relevant fire safety requirements; and secondly the estimated cost of carryout work necessary to ensure the building is structurally sound and complies with relevant fire safety requirements. For the buildings to be safe, they must be both structurally sound and comply with the applicable fire safety requirements. The cost of the works identified by the structural engineering experts as being essential to the structural soundness of the buildings, as well as the cost of the works identified by the fire experts as being essential to the fire safety of the buildings is the numerical value of this criterion. By subtracting the cost of the works required to make the boarding house safe from the total value of the boarding house, the rental yield percentage accounts for the costs required to spent to make the boarding house safe for occupation. From the evidence of the structural engineers and the fire experts, the buildings are not currently safe for use as a boarding house.
The QS cost estimate included the following allowances for carrying out work necessary to ensure the building is structurally sound and complies with relevant fire safety requirements:
Fire
Smoke detectors and alarm systems item 2.10 $17,594
Fire sprinkler system item 2.11 $93,834
Hydrant coverage item 2.12 $47,200
Exit signage/Emergency lighting items 4.1-4.2 $26,391
Extension of party walls item 2.3.1 $21,800
Structural
Structural upgrade works items 1.6.1-1.6.8, 1.6.9-1.6.12 $257,378
Waterproof membrane shower recess item 3.2.5 $2,340
Sub-total $466,537
22.5% contingency, fees, management $104,971
TOTAL $571,508
Y $333,216.00
E $86,067.00
D $0
V $8,000,000.00
U $1,000,000.00
I accept the agreement of the social planning experts that the loss of the boarding house will contribute to ongoing cumulative loss of affordable housing options for lower income earners in the area (Exh 6, pp 4, 6). I accept Ms Heller’s evidence that there is a dwindling supply of older style, cheaper boarding houses in the inner city according to service providers (Exh 6, p 5). It is her evidence that the older style traditional boarding houses are for low-income earners, whereas the new generation boarding houses (boarding rooms with ensuite bathrooms and kitchenettes) are out of reach of low-income earners because they are targeted at key workers and moderate-income earners (TR126839 p 179). According to Ms Heller, the loss of older style traditional boarding houses is resulting in low-income earners not being able to access suitable affordable housing in the inner-city which is impacting the socio-economic diversity of the population in the inner-city. The diminishing options for low-income earners in the city, coupled with their rising numbers, is leading to rising rates of homelessness. In her view, the retention of older style traditional boarding houses is necessary to retain low-cost rental housing in the inner-city to avoid or mitigate the impacts arising from the loss of this housing option (Exh 6, p 7).
According to Professor Ryan, The NSW Fair Trading Boarding House Register shows 23 registered boarding houses located in Paddington, other than the boarding house the subject of the appeal (Exh 6, p 47). Ms Heller noted that there were 26 boarding houses in Paddington in September 2024. There has been a decline of the number of rooms in older style traditional boarding houses of 48 rooms in the Sydney local government area between 2015 and 2024 (Exh 6, p 25).
The social planning experts agreed that the proposal will result in the reduction of 32 boarding rooms of affordable housing suitable for very low to low-income earners in the area. They agreed there is very little of that sort of accommodation in the local area and numbers are in decline. The reduction in boarding rooms as a result of the proposal is a loss of affordable housing for a cohort of the population who are significantly socio-economically disadvantaged (Exh 6, p 26).
According to the Guidelines, this criterion is the most fundamental of the criteria and its determination will affect how each of the other criteria are assessed. The proposal is the most obvious example of development that reduces low rental accommodation as it is for a change of use.
The town planning experts agreed that the average vacancy rate in private rental accommodation for Sydney, as published monthly by the Real Estate Institute of NSW, was 1.6-1.7% for the three-month period preceding the lodging of the application (Exh 4 [19]). The social planning experts agreed the rental vacancy rate for the inner Sydney area was less than 3% for the three-month period preceding the lodging of the application (Exh 6, p 4), according to Ms Heller, the vacancy rate in Sydney from June 2024 to August 2024 has averaged 1.6%, indicating a very tight rental market (Exh 6, p 27).
As the average vacancy rate in private rental accommodation for Sydney as published monthly by the Real Estate Institute of New South Wales was less than 3% for the 3 months prior to the lodgement of the application, then sufficient comparable accommodation is conclusively taken not to be available, as deemed under s 47(3) of SEPP Housing.
I accept that sufficient comparable accommodation to satisfy the demand for the accommodation is not available.
According to the Guidelines, a development proposing a loss of affordable rental housing accommodation, where there is not sufficient comparable accommodation in the locality to satisfy the demand, is likely to cause adverse social and economic effects on the general community.
The town planning and social planning experts disagreed on whether the proposal will result in adverse social and economic effects on the general community. Mr Swan and Professor Ryan's view is that the proposal's social and economic impacts can be mitigated according to the measures outlined in the SIMP with improved outcomes anticipated for the most disadvantaged and vulnerable residents (Exh 6, p 31). According to Ms Heller, the social and economic effects on the general community as a result of the proposal cannot adequately mitigated by the measures outlined in the SIMP (Exh 6, p 23).
I accept Ms Heller's evidence that there is insufficient comparable accommodation available in the locality to satisfy the demand for affordable rental housing (Exh 6, p 27). Less housing choice contributes to a loss of household diversity increasing the social isolation of remaining low-income residents. Insufficient comparable accommodation increases competition for existing affordable rental housing which can lead to an increase in rents, making housing less affordable for the community generally.
I accept Professor Ryan’s evidence that a large number of the boarding house residents have not been relocated to the same or a neighbouring suburb (TR126839 p 162). The boarding house residents have had to move out of an area with good access to services, transport and employment.
The displacement of the boarding house residents has caused a break down in established social networks, likely to have resulted in social dislocation for those displaced residents and the community they have been displaced from. I accept Professor Ryan’s evidence that the relocation of the boarding house residents would have been very stressful and disruptive for them. I accept Ms Heller’s evidence is that the boarding house residents described themselves as a family who supported each other and that those close social network connections have been lost as a result of the closure of the boarding house. I accept Ms Heller’s evidence that the impact of the loss of those social connections is greater on this vulnerable cohort, and the social planners’ agreement that the impact is greater again on those who have lived at the boarding house for a long time. There were 12 residents who had lived at the boarding house for more than 20 years.
I accept Professor Ryan’s opinion that comparable accommodation may not be the most desirable outcome for the most vulnerable and disadvantaged residents displaced by the closure of the boarding house (Exh 6, p 27). I accept her opinion that a boarding house room in a terrace house may not be a suitable living arrangement for older or disabled residents who cannot easily navigate stairs (TR126839 p 159). Given the sub-standard condition of the boarding house, including the deficiencies identified by the structural engineering experts and fire experts requiring attention to ensure the buildings are structurally safe and comply with fire regulations, the reality is that the boarding house was providing very low rental accommodation only because of its sub-standard condition. The sub-standard condition of the boarding house would have required the existing residents to be relocated, either for the essential works to be undertaken to ensure the safe operation of the boarding house, or for the proposal.
The Council submitted that the terms of the provision require that arrangements need to have been undertaken prior to lodging the application and no arrangements were made to assist the residents prior to lodging the application. Further, whatever steps are relied upon by the applicant must amount to an 'arrangement', and arrangement within the context of an environmental planning instrument means, "something in the nature of an understanding between two or more persons". (Crighton Properties Pty Limited v Kiama Municipal Council (2006)146 LGERA 271 per Preston CJ at [42] and Georges River Council v Eskander [2024] NSWLEC 98 per Robson J at [57]). Those arrangements must be adequate to achieve the purpose of assisting displaced boarding house residents. The arrangements do not have to be perfect, but they do have to be adequate.
The social planning experts disagreed on whether the arrangements made to assist the displaced residents of the boarding house to find comparable accommodation have been adequate.
In November 2024, there were 27 men and one caretaker residing at the boarding house (Exh J, p 1). According to Ms Heller, 12 of the residents had lived at the boarding house for more than 20 years. All the residents were offered relocation support in the form of financial and relocation assistance, case management services offered by the Newtown Neighbourhood Centre (NCC) through its Boarding House Outreach Services (BHOS) program and individual assistance from Homes NSW and other agencies. Throughout the primary relocation phase, November 2024 to February 2025, there were weekly meetings between the support agencies and the residents.
The social planning experts agreed that there are 3 boarding house residents remaining. Of those, two have agreed to vacate by the end of June, and the applicant has agreed to provide those residents with financial assistance to assist with their relocation. One of those two residents accepted case management through the NNC BHOS and is currently waiting for allocation to new accommodation via Homes NSW, the other declined case management. There is one resident who has declined support and despite being given 7 months’ notice to leave, has not left the boarding house (Exh J, pp 16, 18 and 19).
I am satisfied by the evidence before me that adequate arrangements were made to assist the residents who have been and will be displaced to find comparable accommodation.
I accept Ms Heller’s evidence that boarding houses serve a critical role in housing a cohort of the population who are significantly socio-economically disadvantaged. The ongoing long-term cumulative trend is the loss of affordable rental housing for low-income earners. A much higher rate of people live in boarding houses in the inner-city than in Greater Sydney, according to the 2021 Census data (Exh 6, p 29). The population living in boarding houses in Paddington and surrounding suburbs has decreased from 3,329 to 2,682 residents since 2015. In this context, the loss of 32 traditional boarding house rooms is significant (Exh 6, p 26).
The social planning experts agreed that the loss of 32 boarding house rooms as a result of the proposal will contribute to a cumulative loss of affordable housing in the local government area (Exh 6, p 9). I accept Ms Heller’s evidence that while the loss is a relatively small proportion of the overall count of housing classified as affordable to very low-income earners, it is significant in relation to the diminishing supply of older style traditional boarding houses and other private rental housing affordable to the lowest income earners (Exh 6, p 10).
I accept the valuation experts’ agreement that the boarding house was financially unviable, because they agreed that the estimated rental yield within the meaning of s 48(4) of SEPP Housing is less than 6% (Exh 7, pp 3 and 23 and Exh 11, p 5).
According to the guidelines, the determination of the financial viability of the boarding house is a crucial part of the assessment of the application, as follows:
The underlying principle is that it would be unfair and counterproductive to seek the continued operation of a boarding house where that operation could not provide a reasonable return on investment. The continued operation of a non-viable boarding house can have adverse consequences such as inadequate expenditure on maintenance, leading to reduced amenity, health and safety for lodgers and neighbours.
It is acknowledged that returns on boarding houses vary due to site specific characteristics and property cycle factors. The 6% threshold is based on case studies in the boarding house sector and analysis of the residential property market more generally. This figure attempts to balance the returns from income and capital gain obtained from boarding houses with those from other sectors of the residential property market.
In the private rental market, net yields measured by this method are generally much lower than 6%. Most investors expect, however, that a private rental property will realise greater capital gain than a boarding house when it is sold. A higher yield threshold for boarding houses compensates the investor for lower expectations of capital gain.
The boarding house in its current sub-standard condition is unviable because the rents charged for the boarding rooms are at the bottom of the rental market in the locality. According to the Guidelines, when a boarding house is assessed as financially non-viable, the values used for the various elements of the rental yield formula should be reviewed to determine whether they reflect normal industry practice. Upgrading a boarding house could increase its viability by decreasing maintenance and management costs (expenses), reducing vacancies or increasing rents (but at a level below the land tax exemption threshold).
As the boarding house is now vacant, the buildings could be upgraded to ensure a safe, healthy and hygienic standard of accommodation for the future tenants and to increase the viability of the boarding house by decreasing maintenance and management costs and increasing rents. By improving the condition of the boarding house to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in this desirable location. Both the Annandale and Redfern boarding houses were sold as ongoing concerns, where Redfern was sold for $401,667 per boarding room and Annadale for $384,286 per boarding room (Exh 7, pp 12-13). With increased rents, the boarding house may no longer provide accommodation for the very low-income earner, but it would remain an older style, traditional boarding house with shared bathrooms and kitchens within each terrace house. According to Ms Heller, older style traditional boarding houses are declining in number, and their cumulative loss impacts the lowest income earners, as these are the lowest priced private rental housing in the market (Exh 6, p 25).
The proposal would result in the unacceptable loss of affordable rental boarding house accommodation, and it is reasonable to seek its continued operation.
The loss of 32 boarding house rooms in an older style, traditional boarding house is unacceptable in the context of the shortage and decline of this form of accommodation and its loss would contribute to the cumulative loss of affordable housing options for low-income earners in the inner-city.
The evidence before me establishes that there is not sufficient comparable accommodation available in the inner city to satisfy demand and the ongoing long-term cumulative trend is the loss of affordable rental housing for low-income earners. The retention of existing affordable rental housing in the form of older style traditional boarding houses in the inner-city is necessary to avoid the detrimental impacts on low-income earners when this style of housing is lost. Boarding houses serve a critical role in housing a cohort of the population who are socio-economically disadvantaged and vulnerable.
The reduction in affordable rental housing for low-income earners in the inner-city results in adverse social and economic impacts on the general community, including less housing choice for residents and a loss of household diversity; increased competition for the remaining affordable rental housing leading to increased rents for affordable rental housing and making housing less affordable for the community generally; low-income residents having to pay more for housing; the displacement of existing low-income earners who can no longer afford to live in the inner-city causing break down of established social networks; and low-income earners becoming homeless.
I accept the agreement of valuation experts that the continued use of the boarding house is not financially viable because the estimated rental yield for the boarding house in its current sub-standard condition is less than 6%. If the boarding house was upgraded to equate with the condition of those boarding houses used by the valuation experts in the Sales Evidence, the boarding house should also be viable and able to achieve a reasonable return in this desirable location.
The orders of the Court are:
The appeal is dismissed.
Development Application No. D/2023/700 for the conversion of an existing 32-bedroom boarding house to provide four attached dwellings with associated alterations and additions, and associated subdivision of the site from two lots into four lots, is refused.
The exhibits, other than Exhibit 1, are returned.
**********
LFD Homes Pty Ltd
The Council of the City of Sydney [2025] NSWLEC 1492