The long awaited SPG on Affordable Housing and Viability in London, published on 29 November, has already been criticised by some London Assembly members as representing a dilution of the Mayor’s electoral pledge of achieving 50% Affordable Housing.
With the average provision of Affordable Housing in London during the last year of just 13%, the Mayor may have begun to appreciate the complexity of property development and the realisation that an appropriate balance must be struck between developer return, the provision of Affordable Housing and other public benefits captured through S106 Agreements and CIL liability.
Whether or not he has grasped a true appreciation of how the financial dynamics work, only time will tell. Place too much planning related burdens on development and the supply tap will quickly be turned off, particularly in a climate of global economic uncertainty inevitably exacerbated by BREXIT even if the ‘soft’ variant is the eventual outcome.
The low level of delivery of Affordable Housing last year is more likely to be the result of a combination of high land values and the burden of CIL on top of S106 obligations rather than the alleged “smoke and mirrors” approach employed by developer consultants in formulating viability assessments.
A more detailed briefing note is attached and some of the key headlines now follow:
The new threshold of 35%
The Mayor proposes a threshold of 35% affordable housing (based on habitable rooms), which will dictate whether your application goes down Route A or Route B. The headline is that applications that:
- meet or exceed 35% (without public subsidy), and
- meet the specified tenure mix (30% low cost rent; 30% intermediate; 40% determined by the LPA), and
- all other requirements and obligations,
are not required to submit viability information. This is Route B.
An early review mechanism applies even if Route B is applicable where an “agreed level of progress” in implementing a planning permission is not made within two years of the permission being granted.
At this point, any financial surplus above the initial agreed profit level will be split 60 (LPA)/40 (developer).
Route A: Applicable where the 35% threshold not met
To justify the level of affordable housing provision, viability evidence will need to be submitted in a standardised and accessible format.
Viability transparency will be paramount
The Mayor is intending to treat viability information transparently.
The SPG suggests that all viability information relevant to planning determinations should be publically available. To the extent that the LPA has not published the information, the Mayor reserves the right to refer to/publish the information as part of his stage 1 and 2 consideration.
Part 3 of the SPG provides 10 pages of detailed Guidance on Viability Assessments. It sets out the specific approach the Mayor will use, addressing build costs, justification of developer profit, and emphasises his preference for an Existing Use Value + approach to determining benchmark land value.
Review mechanisms to encourage prompt delivery and clawback contributions wherever surplus arises are proposed.
The same early review mechanism under Route B applies where an “agreed level of progress” in implementing the permission is not made within two years of the permission being granted.
Moreover, a clawback is proposed near the end of the development phase. Having assumed all that development risk, once 75% of units are sold (or if unsold, 3 months prior to practical completion) a review will occur, again with a 60 LPA/40 Developer split in surplus.
If the Mayor is not satisfied with the viability information submitted by the applicant or the level of scrutiny given by the LPA, the Mayor will consider directing that he is to be the Local Planning Authority for the purposes of determining or refusing an application.
Build to Rent
The draft SPG is supportive of the considerable role build to rent/PRS provision can play in London and recognises that the financial dynamics of PRS are different to build to sell. Generally, the same Route A/B approach applies to build to rent schemes. The Mayor seeks views on the operation of the clawback mechanism in the event units are sold out of PRS in the covenant period. There are two options:
Option 1: submission of market sale and build to rent viability appraisals, where the clawback represents the initial loss of affordable housing based on a traditional market sale scheme, less any affordable homes already provided (our emphasis); or
Option 2: build to rent only viability appraisal, but fixed clawback equivalent to 35% affordable housing.
The new SPG will supersede section 3.3 (Build to Rent) and Part 5 (Viability) of the March 2016 SPG. The rest of that SPG will remain relevant and sit alongside the new draft SPG.
Consultation runs from 29 November 2016 to 28 February 2017.