The mark of the covenant on housing and planning

The recent Reserve Bank of Australia report The Effect of Zoning on Housing Prices put forward the argument that restrictive zoning is driving Australian house prices up - particularly in Melbourne and Sydney - arguing that that planning policy reform is necessary in order to meet projected population increases.

Many academics dispute the assumptions of such analyses. In addition, a closer look at the fine print indicates that there may be more to the story of zoning controls and housing.

Covenants are private agreements placed on property titles. As planning practitioners are aware, a planning permit cannot be granted under the Victorian system if it breaches a restrictive covenant on the land.

This means that, regardless of merit or public policy arguments, these private legal restrictions bind decision-makers and override planning considerations in a planning assessment.

Typically, private covenants dictate what building materials can be used, limit dwelling densities and numbers, and prohibit particular land uses or the sale of alcohol.

According to RMIT Centre for Urban Research Post-Doctoral Research Fellow Dr Elizabeth Taylor, following legislative changes in recent years covenants (historical and new) have come to re-exert a default influence in the Victorian planning system.

“Private covenants predate formal zoning and strategic planning, and have been partly superseded by them,” she said.

“With the emergence of exclusive residential estates, and before public zoning came in in the 1920s, you had quite a few decades where you’d try to stop someone building a high-rise or flat next door by putting a covenant on the land – essentially a private form of zoning.”

“If you look at suburbs like Toorak or Moonee Ponds, many of those properties will have covenants in place to protect how the houses look and operate so the overall density and characteristics of the suburb remain the same.

“This is something that real estate agents will emphasise to prospective buyers, that covenants are in place, so they will never be subjected to a block of flats overlooking your backyard.”

“This is something that homeowners have typically valued, and they will pay more money for the security of knowing what’s going to happen on their property and their neighbour’s property.

“And this keeps the value of their property stable: both covenants and early zoning controls were explicitly justified in terms of protecting housing values.”

Taylor, together with RMIT urban planning lecturer Dr Stephen Rowley, examined the power of covenants – from the past, and from more recent developments – in influencing contemporary housing and planning outcomes in Written in pencil or in ink: Private covenants and their legacies for housing and planning in Victoria.

To get a sense of how covenants influence actual planning decisions, Taylor and Rowley reviewed 75 VCAT cases discussing covenants between October 2013 and November 2016.

Two broad issues arose from this study, says Rowley.

“The first is those covenants that are simply nonsensical, whether because covenants were outdated, poorly drafted, or related to trivial matters,” he said.

“The second is those that are actively contrary to planning policy.”

For example, in the case of Wolf-Clark v Mornington Peninsula SC [2014] VCAT 217, a covenant from 1929 required that “the sanitary system of [the] house shall not be other than septic tank or the Kaustine system,” despite a modern sewage connection being available.

Muir v Bayside CC [2015] VCAT 1930 involved a covenant from 1956 that required a house to include “five main rooms,” potentially barring a modern open-plan house.

In contrast to the structured process of review that applies to proposed planning scheme controls, there is no consistent quality control mechanism for drafting covenants, says Rowley.

“This can lead to documents of troubling provenance gaining statutory force such as in Poulakis v Moreland CC [2016] VCAT 1017 where the Tribunal found itself interpreting a covenant involving words struck out in pencil and notated in red ink,” he said.

“In this case, the meaning of the document was partly deduced based on choices of stationery!

“This is less than the standard of rigour and clarity one would hope for from a binding statutory provision.”

The second major thread of covenants noted in Taylor and Rowley’s review was those that were contrary to the public interest.

“Single dwelling covenants remain a key example, comprising nearly half our sampled cases,” Taylor said.

“While not intrinsically contrary to the public interest, they will often be so when planning policy supports infill housing in established suburbs that are close to jobs and transport.”

Other covenants of dubious value in relation to the public interest involved bans on various business, including banks, real estate offices, shops, and laundries, usually put in place to discourage competition, said Taylor.

“In addition to their anti-competitive function, these can complicate the provision of important social infrastructure.

“For example, the question arose as to whether a child care centre was barred by a covenant preventing shops.

“Other covenants can apply outdated standards to modern tourism and entertainment uses, such as a 19th Century temperance covenant complicating an approval for a licensed restaurant in Ocean Grove, and a 1920s covenants barring all but one branch of bank from a section of Port Melbourne”

While purchasing certainty over neighbouring development can be attractive to prospective homebuyers, Taylor and Rowley found that the terms of the covenant typically left an option to amend the plans with the developer.

“If the developer’s intentions changed, it became clear that for residents the covenant involved no real enforceable promise therefore, home buyers buying in new estates across Melbourne with covenants may find less security than they anticipated,” Taylor said.

“In other cases, older covenants require homeowners to gain written approval for variations (say, to build in a material other than brick) from development companies that long since ceased to exist.”

Planning tribunals and other agencies are increasingly drawn into these complex legal dilemmas.

“The Victorian framework poses the question as to whether it is appropriate to place public authorities and Tribunals at the centre of disputes about such agreements, and to implicitly place the weight of the planning system behind seeming guarantees that may, in fact, turn out to be illusory,” Rowley said.

“This is especially the case when the developer then disbands and such a covenant becomes a dead-hand preventing further change.

“In one sense this is simply a cautionary tale for prospective purchasers relying on such promises.”

As always, there are no easy fixes, but there needs to be more attention paid to the statutory detail around covenants, says Taylor.

“The statutory detail around covenants and its interaction between private and public planning possibly has more impact than strategic planning documents,” she said.

“It has a very limited scope for public interest in decision making, while extending the administrative burden of permit assessments into private matters.

“If limits on density are indeed an issue in housing affordability (a claim many academics question), then we need to look beyond a simple explanation of reforming or removing government planning controls.

“Private and public controls on housing density have complex histories and legacies, and warrant a careful re-examination.”

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