Jay Das offers an update on the London mayor’s new planning guidance, aimed at boosting affordable housing supply in the capital
London mayor Sadiq Khan was elected on promises of more affordable homes. His plans and aspiration for the capital’s affordable housing is now set out in Homes for Londoners – Affordable Housing and Viability Supplementary Planning Guidance (SPG), issued last month. The mayor has powers to direct planning policy throughout the city, and in the event that local London councils fail to effect his planning policies, he has the power to decide on such planning applications himself. Developers and applicants still have the ability to appeal to central government (ie the secretary of state) if they are unhappy with the mayor’s decision.
The main components of the SPG are as follows:
Fast track route
The fast track (FTR) route will remove the requirement for viability assessments on planning applications which provide at least 35% affordable housing (measured by habitable rooms) on-site. In addition to this basic requirement, the affordable housing scheme will need to meet the tenure mix identified in the SPG, including: at least 30% social/affordable rent; at least 30% intermediate products with London living rent and/or shared ownership; and the remaining 40% determined by the local planning authority based on the local planning policy.
A section 106 legal agreement will be required to ensure that good progress is made in delivering the scheme and a review mechanism is required in the event that agreed levels of progress are not made within two years (or other timeframe agreed with the planning authority) of the grant of planning permission.
Viability tested route
For schemes that don’t meet the 35% threshold (or require public subsidy) a detailed affordable housing viability assessment will be required to support the application.
The guidance stresses that it expects developers to strive to achieve at least 40% affordable housing with or without grant funding, and for at least 50% or 60% affordable housing to be achieved by registered providers and on public land.
The guidance also sets out the approach to be taken in preparing a viability assessment, including the assumptions and approach to be adopted to existing use value and comparable benchmark land value. Clarity on the correct approach will be welcomed by all in the housebuilding industry.
Build to rent
Build to rent (BTR) has been given policy backing. The SPG now identifies BTR as a class worthy of its own recognition and has defined this particular category as comprising developments of at least 50 units containing covenants for at least 15 years, providing self-contained units let separately for long-term tenancies of three years or more. The SPG supports BTR secured through a section 106 agreement providing for clawback in the event that these units are sold on the open market within 15 years of construction. BTR discounted market rent units falling within the SPG definition can count towards affordable housing and are exempt from the tenure requirement for other schemes. Viability assessments will be scheme-specific (recognising that BTR has different financial, profit, sales, marketing, rate of disposal and development risk drivers) and will not fall within FTR.
The mayor has gone further by stating in the SPG that support for BTR could include boroughs working with the Greater London Authority and delivery partners encouraging long-term institutional investment, supporting institutional investment on public land and investigating real estate investment trusts and other vehicles to attract investment into the sector.
Support for BTR, in the form of backing for offsite manufactured housing (OTR) has also followed in the paper, Designed, sealed, delivered: The contribution of offsite manufactured homes to solving London’s housing crisis, published by the London Assembly planning committee following the adoption of the SPG, which calls on the mayor to support OSM. In it, Nicky Gavron, chair of the planning committee of the London Assembly, says: “Today’s offsite manufactured homes are characterised by their high quality, precision engineering, digital design and eco-efficient performance… Construction within a factory environment achieves quality control that ensures fast builds and lengthy lifespans”.
In London, the mayor is signalling his support for OSM through his affordable homes programme and innovation fund. The London Assembly report states that OSM is suitable for all tenures, but has particular financial suitability for the rental sector, with many examples of both public and private sector developers being attracted to the counter-cyclical nature of rental homes and the delivery of a fast rental stream that OSM enables.
Clarity for a complex problem
It is recognised that London is suffering from chronic housing shortage and a drive to increase affordable housing should result in a general increase in the numbers of houses being built. In that context, greater clarity of policy with respect to affordable housing and BTR will assist developers when acquiring and designing schemes.
The dynamics of viability are complicated, and will remain so, regardless of the further guidance contained in the SPG. No planning authority wants to find itself in a position where it has supported development at the expense of affordable housing and then subsequently finding that greater numbers of affordable housing should have been achieved. As a consequence, relatively complicated provisions have to be included in a legal agreement covering such viability provisions. The SPG has not been able to move away from the requirement for a section 106 agreement and it makes it clear that viability reviews will be required in relation to the FTR options if development is delayed beyond two years (unless otherwise agreed) from grant of permission. In any event there would be a requirement for early and late stage reviews.
Pic credit: Dinendra Haria/REX/Shutterstock
Jay Das is a planning partner at Wedlake Bell LLP
