In Croydon, south London, a quiet revolution is taking place that could have a profound impact on the relationship between local authorities and private residential developers. Tired of fighting with developers over viability assessments and levels of affordable housing, the council has simply taken control and set up a private sector development company to develop on its own land, at a profit, with the aim of providing 50% affordable housing across its portfolio of, currently, 50 sites.
It is not alone. EG reported last year that councils in Manchester, Birmingham, Runnymede and the London boroughs of Ealing and Newham are doing the same. The councils stress that these spin-off developers are not there to replace or compete with the private sector. They are designed to deliver revenue (from PRS development), to fill a gap where the market is not delivering and to set quality standards.
This is not traditional local authority housebuilding. Taking advantage of low long-term borrowing rates and getting around government rules that restrict the use of council revenues to build, these new development vehicles are, whether they think so or not, competing with the private sector. They may be willing to take more risk on sites that private developers would consider unviable, but their business models clearly make them for-profit operations – “best consideration” rules require them to pay market prices for land, they are borrowing money to build at market rates and they are assuming a return on cost similar to any private developer. If Croydon’s company can trade profitably and provide 50% affordable housing, why can’t other private sector developers?
Something had to happen. In May, BNP Paribas Real Estate reported that London councils achieved an average of 24% affordable homes on planning agreements between 2009 and 2015. This was against typical targets of 50%. Delivery numbers are hard to find for the rest of the UK, but it is not unreasonable to assume that if it’s difficult in London, it’s much more difficult elsewhere.
So, we are in double trouble: low affordable numbers because they are delivered almost entirely through section 106 agreements with private developers that are not building enough anyway, and low because decent percentages are not being achieved.
Which brings us to viability. The dark art at the heart of this issue. For too long the balance of power in planning agreements has been tipped in favour of developers. Investment in local authority planning teams, slashed as a result of the crash, has not really recovered. As councils still battle with cuts, it doesn’t take a genius to work out the politics of cutting planning teams rather than more essential public services.
The lure of private sector salaries also makes a rebalancing of power look a long way off. Costly viability assessments, clever planning consultants and the volume of material submitted to stretched planning teams mean that affordable housing proposals are often not questioned closely enough.
So, what’s the answer? London mayor Sadiq Khan’s proposal to set a standard 35% affordable tariff across all London developments has potential. It is unclear yet whether this will be a simple non-negotiable rate or whether there will be incentives for provision at this level – circumventing the viability assessment would mean a cheaper and speedier planning process.
Unless the government changes its policy on local authority housebuilding (unlikely), or local authorities invest in the proper resources to challenge viability assessments (unlikely), or we rely on volume housebuilders to take responsibility and do the right thing by volunteering decent levels of affordable housing (!) then we have to find a way to break the system that is so heavily weighted against affordable provision.
Perhaps leading by example and showing other planning authorities that it can be done is the way forward. In that regard, Croydon’s brave experiment with its Brick by Brick development company could deliver something much more significant than some decent affordable housing.
Martyn Evans is chief executive of Uncommon
