As London mayor Sadiq Khan “nudges” developers towards 35% affordable housing in new guidance, with 50% a “long-term strategic aim”, Tim Hellier and Sheridan Treger question whether that adds up for developers in the real world
Mass government housebuilding has been off the table for decades. So politicians of all hues have long treated the development industry as if it could (and should) be the proverbial goose that lays the golden egg of meeting the UK’s wide spectrum of housing need. Of late, much tinkering with the goose’s environment is being proposed in order to prompt it to lay lots more eggs, and for more of them to be affordable. In his Autumn Statement, for example, chancellor Phillip Hammond acknowledged that spiralling house prices are damaging productivity, announcing the imminent publication of a housing white paper to include a comprehensive package of reforms to increase housing supply.
Affordable housing in London
New homes in traditional affordable housing categories are certainly not appearing in hoped-for numbers. Figures from the Department for Communities and Local Government show these down by more than half against last year’s statistics. The mayor of London, Sadiq Khan, has long suggested setting ambitious targets for developers, with a “strategic, London-wide target” of 50% affordable housing mooted in his overall vision for the capital, “A City for All Londoners”, released in late October.
And yet planning legislation requires individual planning applications to be decided in accordance with the development plan, unless material considerations indicate otherwise. In London that includes the London Plan. This states that “the maximum reasonable amount of affordable housing” should be sought on private residential and mixed-use schemes. In other words, there is no prescribed percentage for affordable housing. The “maximum reasonable amount” is determined on a scheme-by-scheme basis by carrying out a detailed study of site- and scheme-specific circumstances, known as a “viability assessment”.
Guidance
The mayor has now published draft supplemental planning guidance, “Homes for Londoners”, fleshing out his approach to affordable housing. Following the close of consultation at the end of February 2017, adoption is to follow in the summer.
This is the start of Khan’s long journey towards introducing 50% in the consultation draft of a new London Plan, to be published in autumn 2017. Even so, he will be mindful that proposed changes would be susceptible to modifications by a Conservative secretary of state, where there are material inconsistencies with the National Planning Policy Framework (NPPF). The NPPF has no fixed affordable housing requirements, supports the viability assessment approach and discourages deterring schemes with obligations and policy burdens.
Working with what you have
So, leaving 50% as political window-dressing for now, Khan’s draft guidance instead sets out a two-tier system. Developers offering a flat-rate of 35% affordable housing need submit no viability information at all. Offers below 35%, however, are to require a detailed viability assessment. The benefits of this threshold system are illusory. Developers will fear that consents off the back of less-than-robust assessments, or none at all, may be susceptible to judicial challenge.
Reality
The effectiveness of the draft guidance is tempered by the reality that private housebuilding is not a goose at all. It is a complex industry subject to uncertain market forces. Even in the boom market since 2009, the “maximum reasonable amount” of affordable housing on individual schemes hovered between 0% and 25%. Exceptions were largely local authority schemes that benefited from different economic dynamics and access to large swathes of publicly owned land.
And London development already sustains both mayoral and borough community infrastructure levies, in addition to other infrastructure costs secured in planning agreements. The effect of the government’s “starter homes” programme remains unknown, potentially requiring 20% of new homes in most schemes to be capped at £450,000 in London, with scope for off-site payments in lieu.
Far from toothless
The guidance is subsidiary in planning decisions to the London Plan and NPPF. Even so, for the under-35%-ers, ie almost all schemes, if the guidance is brought into force in its current form, it is not without bite. Boroughs politically aligned with the mayor can choose to follow his expectations on calculations in viability assessments having no hidden calculations or assumptions, and being standardised in accordance with a specified approach to values and costs.
The guidance also anticipates the viability process continuing years after the planning stage, with mechanisms to claw back uplifts after a scheme is implemented, and then once again when 75% of units have been sold. Developers would have to keep viability implications in mind throughout construction and marketing.
Even where boroughs ignore the guidance, it makes it clear that the mayor will use his powers to call in certain categories of scheme for his own determination, or direct borough refusal where he is unconvinced by viability assessments or an affordable housing offer. The time and risk involved in a mayoral decision for a locally supported scheme is a stick in itself.
In any event, the guidance proposes publicly disclosing viability assessments other than in exceptional circumstances. Whatever approach is taken by boroughs, this leaves developers, with schemes which must be referred to the mayor for consultation, in a quandary where information includes highly sensitive commercial matters.
The future
So the world of viability assessments evidencing a “maximum reasonable amount” of affordable housing continues. However, the mayor has raised the temperature around debate over their inputs and outputs at the borough level, with the prospect of many more mayoral call-ins where his powers apply. The more realistic hope may be to encourage developers to increase their affordable offer even by a few percentage points.
Whatever happens, achieving permission for many London schemes has become more complicated in uncertain times.
Tim Hellier is head of planning and environment, and Sheridan Treger is a senior associate at Berwin Leighton Paisner
