Real Estate image

50% affordable housing in London – really revolutionary?

Article

Posted by , on

Summary: This blog examines what the new Mayor’s aspiration for a target of 50% affordable housing in London means in practice for individual planning applications.

So, you say you want a revolution?

After much drama and rhetoric, Europe’s “year of revolutions” in 1848 culminated in a return to the arch-conservative status quo. French novelist Jean-Baptiste Alphonse Karr mused that “the more things change, the more they stay the same”[1]. We can assume he was not talking about the aspirations of the new Mayor of London, Sadiq Khan, for affordable housing provision in the capital. But, once all is said and done, is this true also of what the Mayor’s proposed new targets might ultimately mean for London? Or is this the start of a quiet revolution in affordable housing?

A City for All Londoners

Expanding on his election manifesto, on 24 October Mr Khan published for consultation a document entitled “A City for All Londoners”. It points out that nowhere is the pressure on London felt more acutely than in housing, with many Londoners being unable to afford a decent home to rent or buy, and only 13% of homes given planning permission last year being “affordable”. So, it continues, “as Mayor I want to do a lot – working towards a strategic, London-wide target for 50 per cent of new homes built in London to be affordable”.  

London developers – living in interesting times

Developers in London already live in interesting times, the implications of a potentially “hard Brexit” still being uncertain for housing demand in the capital. What does the new Mayor’s aspiration mean for individual planning applications?

How it stands

Whatever any Mayor’s aspirations, long-established legislation creates a clear framework in which planning applications must be decided. They must be determined in accordance with the relevant development plan, unless material considerations indicate otherwise.

The development plan for London applications includes the London Plan, which states that “the maximum reasonable amount of affordable housing should be sought when negotiating on individual private residential and mixed use schemes”. In other words, there is no prescribed level of affordable housing in London policy. The baseline sought is the “maximum reasonable level”. And that is commonly derived from a detailed study of site and scheme specific circumstances known as a “viability assessment”.

To change one you must change all…

Changing the London Plan could take at least two years. It would still have to be consistent with national policies. And the National Planning Policy Framework is clear that pursuing sustainable development requires careful attention to viability and costs:

  • Sites and the scale of development identified in development plans should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened.
  • To ensure viability, the costs of affordable housing requirements should take account of the normal cost of development and mitigation and provide competitive returns to a willing developer to enable the development to be deliverable.

Any proposed changes to the London Plan will be subject to an examination in public. And, if the Communities Secretary, Sajid Javid, considers that there are inconsistencies with national policy, he can require any changes by the Mayor to be modified. Mr Javid is, of course, a Conservative…

Working with what you have…

“A City for All Londoners” is probably the start of a journey towards changing the London Plan for Mr Khan. But, for now, he is proposing to work within the constraints of existing planning policy. He is to be issuing supplementary planning guidance later this year (known as an “SPG”). Rumours are that it will be released for consultation in late November/early December. It may come into force in early Summer 2017, or sooner.

The SPG would be released after the Autumn Statement. That gives rise to speculation that the Mayor may wish to broker with Government how its “starter home” scheme would be factored into the capital’s affordable housing measures. With “starter homes” defined as those costing less than £450,000 in London, a price still unattainable for many, it may be difficult to find common ground on whether these should be carved out of Mayoral affordable housing targets. And that is effectively what will happen on major sites in London if, as proposed, Government stipulates in law that 20% of the homes built on those schemes have to be “starter homes”.

So what might be in the draft SPG?

The new SPG is mooted to include the following:

  • Since comments made back in July by Deputy Mayor for Planning, Jules Pipe, there have been growing rumours of a two-tier system, attempting to standardise viability assessment and transparency. Developers offering a flat-rate of 35% affordable housing or more may benefit from reduced or even no viability assessment requirements.
  • If developers offer below 35%, however, they will require a full viability assessment, subjected to robust scrutiny, to justify why that is the “maximum reasonable amount” of affordable housing their scheme can accommodate (i.e. the test in the London Plan which requires a site-specific assessment with no prescribed percentage expectations). Arrangements below the bench-mark may be subject to rigorous review mechanisms before and during development to capture any uplifts.
  • Proposed tenure splits may be fixed percentages for social rented and intermediate housing, with the remainder at the discretion of the local planning authority (to allow flexibility for local need).
  • There may be exemptions for the build-to-rent sector, which operates on a  different financial model to build-to-sell.

Taking a reality check

In reality, the Mayor’s strategic 50% target, and even the two-tier SPG approach, will be tempered by the London Plan. Ultimately, the SPG will just be another material consideration in the planning balance, with the London Plan being given greater weight as individual applications have to be determined in accordance with it (and, again, it has no prescribed affordable housing percentage requirements).

In practice the GLA must recognise that 35 and 50% are ambitious and largely unachievable targets. Even in the “boom” market since 2009, the “maximum reasonable amount” of affordable housing for even major commercial schemes, following professionally and independently scrutinised viability assessments, has hovered between 0 and 25% at most. Exceptions were largely local authority schemes which benefited from different economic dynamics and access to large swathes of publicly owned land. And affordable housing is not the only planning gain in the picture - London development must already sustain both Mayoral and Borough community infrastructure levies in addition to the costs of other infrastructure costs secured in planning agreements.

Even the benefits of the two-tier system above and below the 35% benchmark are largely illusory. Those rare schemes which might be capable of offering above the benchmark will be wary of taking advantage of a light-touch viability assessment. Fear of judicial challenge by objectors or competitors may prevail.

Encouragement

So is all of this talk of 35 or 50% really nothing more than a form of “nudge theory” in action? That is the concept in behavioural science and politics which argues that influencing decision-making by tone, moral pressure and indirect suggestion can achieve non-forced compliance. In other words, the Mayor’s more realistic hope may be to change the temperature of discussions, to encourage developers to increase initial affordable housing offerings even by a few percentage points, even if neither 35 nor 50% will ever be achieved in individual cases.

The more things change…

Whatever any top-down policy or statute says, if a sensibly designed scheme is not reasonably viable because of prescriptive requirements in that policy or statute, nobody will be taking it forward. That is recognised in national policy and the current London Plan.

And yet planning is nothing if not political. And Britain’s politics right now are nothing if not uncertain. Just last week the High Court held that Parliament must vote on whether the UK can start the process of leaving the EU. If upheld in the Supreme Court, it is not beyond the realms of possibility that a chain of events could be unleashed resulting in a general election which the Conservatives might not win. A different Government might be more amenable to prescribed affordable housing requirements and Mayor Khan’s efforts to change the London Plan accordingly. Or that different Government might consider that the status quo is the price of deliverable housing schemes.

But scenarios like that aside, the world of viability assessments which interrogate the “maximum reasonable amount” of affordable housing, based on site-specific factors, is more than likely to continue. As will healthy debate over the inputs and outputs of those assessments. All that might change in practice is the GLA’s tone and basic expectations in those discussions.

That means that viability assessments will need to be all the more reasonable and robust in evidencing that they are providing the “maximum reasonable amount” of affordable housing, specific to their particular circumstances. And, as ever, looking at the bigger picture, it remains key to get the local planning authority and key stakeholders on board with a shared vision for the scheme and its public benefits from the off. Whatever changes, that always stays the same. 

 

[1]         “Plus ça change, plus c'est la même chose.”

Stay informed

Sign up to receive email alerts from our award winning Expert Insights team

Sign up now

See more insights by category

This site uses cookies to help us improve our services and your browsing experience. For further information about cookies, including about how to change your browser settings to no longer accept cookies, please view our privacy policy.