How draft guidance aims to boost London affordable housing delivery

New draft guidance from London's mayor proposes a fast track for subsidy-free schemes that provide more than 35 per cent affordable homes, but experts are divided as to how much the plan would encourage applicants to increase proportions of affordable housing.

London mayor Sadiq Khan
London mayor Sadiq Khan

London mayor Sadiq Khan’s pre-election pledge to ensure that half of all homes built in London are "genuinely affordable to rent or buy" was a key part of his pitch to voters. Since moving into City Hall, the mayoral team has given several hints of how they might seek to use Khan’s planning powers to make good on this promise. But it was only this week that detailed proposals emerged, in the form of draft affordable housing and viability supplementary planning guidance.

Perhaps the most eye-catching element of the draft guidance is the proposed fast track for subsidy-free schemes that meet an affordable housing threshold of 35 per cent, calculated on the basis of habitable rooms. Under the proposals, such schemes would be freed from the requirement to provide detailed viability information, as long as the affordable housing is provided on site, and meets the borough’s specified tenure mix.

Developments that do not meet those criteria, on the other hand, would face scrutiny of their viability calculations. They would also be reviewed to ensure that affordable housing contributions are increased if viability improves over time. Schemes that come in above the threshold would only undergo such a review if an agreed level of progress was not made within two years of permission being granted, the document says.

The draft guidance, which only applies to schemes that include ten or more homes, also aims to establish a standardised approach to assessing viability. It says that scheme viability assessments should "usually" calculate the revenue generated by a scheme by comparing the value of the built-out scheme, minus development costs, to the site’s existing use value (plus a premium to incentivise the landowner to release it).

This contrasts with the method advocated by, among others, the Royal Institution of Chartered Surveyors, which says that market value, rather than existing use value plus a premium, should be used as the benchmark. Viability information relevant to planning determinations should, other than "in very exceptional circumstances", be publicly available, the guidance adds.

How the affordable housing element of London schemes should be divided is also covered by the document. It says that at least 30 per cent of the affordable homes on housing schemes in the capital should be social or affordable rent products, with rents "that will generally be significantly less" than the 80 per cent of market rates that is the national norm for affordable rent. Another 30 per cent should be shared ownership or rent-to-buy, with the boroughs free to determine the tenure of the remaining 40 per cent, it says.

It also advises local planning authorities that they should recognise the "inherently lower returns" that build to rent schemes can offer compared to mainstream build for sale homes, and take these into account when considering applications for build to rent schemes. 

The draft guidance was published alongside details of how the mayor would spend the £3.15 billion from 2016-21 for affordable housing allocated to him in the chancellor’s Autumn Statement.

Because the proposals are contained in a guidance note, and do not have the same weight as national or London Plan policy, some commentators have questioned how much impact they will have. But Nick Fell, partner at consultancy Rapleys, said. "Given that more than half of London boroughs are Labour controlled, one can expect many of them to start referring to it in pre- and post-application discussions in short order. For schemes that are referable to the mayor, it provides a clear indication of the Greater London Authority’s attitude to any affordable housing offer."

Opinion varied as to how much the prospect of avoiding detailed viability assessment discussions would encourage applicants to increase proportions of affordable housing.

Jeremy Castle, director at property firm Deloitte Real Estate, agreed that the offer of a fast track would be an incentive. But he said that the 35 per cent threshold, plus the conditions that schemes should be subsidy-free and provide the affordable homes on site, set "quite a high bar". He added that the approach would only incentivise applicants who were close to meeting the threshold anyway. "On schemes that are a long way from the 35 per cent affordable housing figure, it is unlikely to make a difference," he said.

Furthermore, applicants might be deterred from choosing the fast track by fear of legal challenge from objectors and commercial competitors, who might want to know how, in the absence of a detailed viability assessment, the scheme in question had demonstrated that it had met the London Plan requirement to provide the "maximum reasonable amount" of affordable housing, said Sheridan Treger, senior associate at law firm Berwin Leighton Paisner.

But Mike Kiely, board chair of the Planning Officers Society, said that the combination of the 35 per cent threshold and the viability assessment guidance sent a strong signal to developers who were "taking the mickey" by overpaying for land, then hoping to compensate for it by securing permissions for schemes with a small affordable housing element.

The consultation on the draft SPG runs until 28 February 2017.

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