Bulletins | September 25, 2017

Making London Affordable

Hot on the heels of issuing new planning policy guidance for affordable housing in London the Mayor refused a revised application on 5 September relating to the New Scotland Yard building (which was previously approved with only 4% on site affordable housing and a commuted payment of £10 million).  The amended application sought to increase the residential units by 27 without any additional affordable housing application.  While Westminster City Council approved the revised application the Mayor has directed a refusal.  We will have to wait and see whether the developer will challenge the refusal and test the weight of the new SPG.  The new guidance “Homes for Londoners – Affordable Housing and Viability Supplementary Planning Guidance (SPG)” issued in August 2017 provides for the following:

Fast Track Route (FTR) 

The FTR will remove the requirement for viability assessments on planning applications which specifies:

  • at least 35% (of the habitable rooms) affordable housing on-site;
  • the scheme meets the tenure mix identified in the SPG, including, at least 30% of Low Cost Rent (Social Rent/Affordable Rents); at least 30% intermediate products with London Living Rent and/or Shared Ownership; and the remaining 40% being determined by the local planning authority based on the local planning policy; and
  • there is no public subsidy involved.

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 agreed levels of progress are not made from (within two years/any other timeframe agreed with the planning authority) the grant planning permission.

Viability Tested Route (VTR)

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 matters such as existing use value and comparable Benchmark Land Value.  Clarity on the correct approach will be welcomed by all in the housebuilding industry.

Built to Rent (BtR)

BtR has now 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; and
  • 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 BtRs have different financial/profit/sales and marketing/rates of disposal and development risk drivers) and will not fall within FTR.

The dynamics of viability are complicated, and will remain so, regardless of the further guidance contained in the SPG.  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 in the event that development is delayed beyond two years (unless otherwise agreed) from grant of permission and in any event there would be a requirement for early stage and late stage reviews.

We wait to see the weight that London local authorities will give to the new SPG.  In the meantime those working to a lean timetable from land acquisition to planning permission would do well (where circumstances permit) to try and comply with the FTR threshold and agree their section 106 agreements as early as possible.