A legal ruling on an affordable housing dispute between developer Parkhurst Road and Islington Council is expected to have widespread ramifications for viability assessments in London.
The pair were in court arguing over the way in which affordable housing quotas and viability are established.
The developer argued the RICS’s guidance note should form the basis of the assessment, while the council claimed its borough-wide target should be factored in. The high court found in favour of the council.
Developments across the capital could become unviable following the ruling, which is expected to embolden local authorities and the GLA when calling for more affordable housing commitments from applications.
The Parkhurst Road dispute
Parkhurst Road argued that a 10% affordable housing commitment was the “maximum reasonable amount of affordable housing” it could provide as part of the 96-home former Territorial Army Centre in Holloway, N7. Islington’s assessment argued that the developer should provide 34%.
The main cause of the dispute was the method used to calculate the site value.
The council argued that the site value needed to factor in the borough’s 50% affordable housing target in its development plan. Parkhurst Road argued the benchmark land value should be calculated on the basis of transactional evidence, quoting the RICS Financial Viability in Planning (2012) guidance note.
READ MORE: Time to overhaul development viability?
The initial appeal decision in June 2017 dismissed the scheme on the basis of insufficient affordable housing, agreeing with the council view that the benchmark land value used in the viability assessment should factor in local planning policy.
The inspector also upheld Islington’s view that an advanced-stage viability review was required to maximise the amount of affordable housing provided.
Parkhurst Road argued that this decision resulted from a legal error in the assessment of the evidence.
The landmark ruling
Although he found flaws in the approach taken by the council’s valuer that were not addressed properly by the inspector, Mr Justice Holgate, ruling on the appeal last week, dismissed the challenge.
He said that the effect of the policies in the London Plan and Islington Core Strategy (together with national planning policy guidance) is that where an applicant seeking planning permission for residential development in Islington proposes that the “maximum reasonable amount of affordable housing” is lower than the borough-wide 50% target on viability grounds, “it is his responsibility to demonstrate that that is so”.
He added: “The proposed residential development would accord with a number of development plan policies and objectives, particularly those that promote housing delivery.
“However, the appeal proposal would not provide the maximum reasonable level of affordable housing and the submitted planning obligation does not provide a suitable means for a viability review. Having had regard to the development plan as a whole, the appeal proposal is in clear conflict.”
Viability review
The judge took the unusual step of adding a postscript in which he addressed some of the difficulties raised by this case.
He said: “One of the key objectives in our planning system is efficiency in decision making, in order to avoid delay. In this context the present case strikingly illustrates the importance of seeking to overcome uncertainty on how viability assessment should properly be carried out.”
He said that this might be an “opportune” time for the RICS to consider revisiting the 2012 guidance note, Financial viability in Planning, “in order to address any misunderstandings about market valuation concepts and techniques”.
Will Lingard, senior director in CBRE’s London planning team, said the decision will “embolden” the GLA and many local authorities in their approach to viability when assessing planning applications. The mayor of London’s draft London Plan advocates a 35% affordable housing target, or 50% on public land, that will allow developers to bypass viability disputes.
READ MORE: What’s in Khan’s draft London Plan?
Lingard said: “This isn’t something developers are going to like but the really good thing about this is that it starts to stop these protracted delays over viability.”
A key consideration for both the appeal inspector and Justice Holgate was how well advertised and established the development plan policies are in relation to affordable housing requirements. “These are all matters we need to be mindful of when considering what weight should be given to the development plan in calculating the site value,” Lingard said.
An Islington Council spokesman said: “This decision reinforces the council’s long-standing position that developers should abide by the councils’ planning guidelines – rather than overpaying for land and then trying to bypass our affordable housing requirements.
“Everyone should have somewhere to live that is affordable, decent and secure – and developers must respect these priorities when they purchase sites in Islington.”
What next for the site?
This is the latest decision in a protracted wrangle over redevelopment of the site, which was acquired from the Ministry of Defence for £13.2m in 2013.
First Base, which owns a minority stake in Parkhurst Road, was appointed development manager. An earlier proposal for 150 homes, later reduced to 116 homes, was rejected by Islington in October 2014, and then by an inspector on design grounds in September 2015.
A Parkhurst Road spokesman said: “We are disappointed with the decision. We acquired the site from the Ministry of Defence through a competitive bidding process in 2013, and our approach to viability was previously approved by the planning inspectorate at appeal in 2015.
“Our record in Islington speaks for itself – all our schemes deliver a significant amount of affordable homes and jobs that help build thriving communities. It is therefore disappointing that the site remains empty after five years. We are reviewing our options for the site.”
How could the decision impact affordable housing requirements?
■ The GLA and many local authorities will feel emboldened in arguing for more affordable housing on sites by arguing viability methodology needs to factor in local planning policies.
■ The mayor of London’s draft London Plan will need to consider deliverability issues around housing and whether a specific strategic affordable housing target will bring a site forward.
■ The RICS guidance on viability, which uses market transactional evidence to calculate viability, could become less authoritative in viability assessments.
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