London affordable housing provision to be incentivised under new guidance

London Mayor will controversially disclose developer’s viability assessment financial information to incentivise provision of at least 35% affordable housing.

In August 2017 the Mayor of London published Supplementary Planning Guidance (SPG) “Affordable Housing and Viability”. The intention behind the SPG is that it will “help achieve his goal to invest more in affordable housing bringing forward more public land for affordable homes, and to increase the amount of affordable housing delivered through the planning system”.

The SPG provides guidance to ensure that existing policy is “as effective as possible” and to provide consistency in approach across London. It does not introduce new policy though.

The SPG’s main aim is to increase the number of affordable homes delivered through the planning system and to embed the requirement for affordable housing into land values and to make the viability process more consistent and transparent. The SPG also sets out the Mayor’s preferred approach to implementing London Plan Policies 3.11 (Affordable housing targets), 3.12 (Negotiating affordable housing on individual private residential and mixed use schemes) and 3.13 (Affordable housing thresholds). This includes setting out situations in which the Mayor may consider directing that he is to be the Local Planning Authority for the purposes of determining an application or directing refusal. These situations include where he considers that opportunities for affordable housing may have been missed for reasons such as the unsatisfactory provision or insufficient scrutiny of viability information.

Threshold approach

One of the most significant aspects of the SPG is to set out a “threshold approach” whereby applications that meet or exceed 35% affordable housing provision without public subsidy (or 50% where on public land, without grant) together with a number of other criteria will be “fast tracked” and not be required to submit viability information at the application stage. Such scheme will however be subject to an early viability review which will be triggered if an agreed level of progress is not made within two years of planning permission being granted (or a timeframe agreed by the LPA and set out in a Section 106 agreement).

Viability tested route

Where schemes do not meet the 35% affordable housing threshold (or in the case of public land 50%) or require public subsidy to do so, they will be required to follow the “viability tested route” which will involve submission of detailed viability information at the application stahe which will be scrutinised by the local planning authority and where relevant the Mayor, and treated “transparently”. If it is concluded that a greater level of affordable housing could viably be supported, a higher level of affordable housing will be required which may exceed the 35% threshold. In addition early and late viability reviews will be applied to each scheme that do not meet the threshold in order to ensure that affordable housing contributions are increased if viability improves over time. This will include an assessment at the stage at which 75% of units are sold or let. The Mayor also encourages local planning authorities to apply the affordable housing threshold approach to applications for sites which are capable of delivering ten or more homes.

Preferred affordable housing mix

The Mayor’s preferred affordable housing tenure mix includes a range of products to meet different needs, principally low cost rented accommodation to meet general needs, and London Living Rent and shared ownership to meet intermediate needs.

Vacant building credit

The Mayor’s view in relation to vacant building credit, which is the Government’s policy to bring forward sites containing vacant buildings which would not otherwise come forward for development, is that it will not be appropriate to apply it in London. The Mayor’s reason for this is that “sites in London already come forward for development” and “their affordable housing requirements are already subject to viability testing and thus not preventing sites from coming forward”.

Standardised approach to viability assessment

The SPG also provides detailed guidance on viability assessments, aiming to establish a standardised approach, including a preference for using Existing Use Value Plus as the comparable Benchmark Land Value when assessing viability.

Build to rent

Specific guidance is also given on Build to Rent developments, recognising that they differ to the traditional build for sale model. It also provides guidance on the requirement for covenant and clawback arrangements through Section 106 agreement if homes are sold out of the Build to Rent sector, and in relation to affordable housing, that provision must be included for units to remain at an affordable price in perpetuity or that subsidy is recycled for alternative affordable housing provision.

“Transparency of information”

The Mayor sets out in the SPG that he will treat information submitted as part of and in suppot of a viability assessment “transparently” and that this information should be available for “public scrutiny and comment like any other elements of a planning application”, as should any review or assessment of the appraisal carried out by or for the LPA. “Transparency” means that information will be made public. In very exceptional circumstances there may be legitimate reasons for keeping limited elements of viability information confidential. For this to be the case the SPG advises that the local planning authority or Mayor where relevant would “need to be convinced that the public interest in maintaining the exception outweighs the public interest in disclosing the information”.

Comment

The SPG emphasises that it does not introduce new policy, however it does introduce new mechanisms for delivering on policy targets and some of these may prove to be unpopular with developers.

The most controversial of these mechanisms will be the disclosure of financial information to the public. Viability assessments often include commercially sensitive information which a developer would not want competitors to have access to. Adopting a principle of “transparency” puts developers at risk in terms of disclosure of that information and also puts the onus on them to justify its exclusion without certainty that they will succeed in excluding such information.

The “fast tracking” proposal by the Mayor provides a useful mechanism for incentivising the provision of a minimum of 35% affordable housing as there will be no requirement for a costly or lengthy viability assessment procedure or the risk initially of confidential financial information coming in to the public domain. It will be interesting to see how this incentive plays out in practice.

Developers will welcome the acknowledgement in the SPG that viability assessments in relation to private rented sector housing needs to be tailored to that tenure type as the financial model for its provision is quite different from that for housing for sale on the open market.

We have recently produced one of the first Section 106 agreements in London to deal with a tie on the provision of housing as private sector rented and discount market rental housing with a clawback mechanism for disposals on the open market before a set date, typically 15 or 20 years. We envisage this mechanism to become standard for these tenure types and will on the whole be accepted by developers as a reasonable and acceptable approach to the provision of these tenures.

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