Why a London council is asking for affordable housing from commercial schemes

A ground-breaking policy in Westminster City Council's draft local plan would require affordable housing from office and hotel schemes. Some consultants and lawyers fear the move may render many commercial schemes unviable, but others see it as an innovative way to plug the affordable housing gap.

Cardinal Place, Westminster (pic: Dom Fellowes, flickr)
Cardinal Place, Westminster (pic: Dom Fellowes, flickr)

The latest consultation on Westminster's draft plan closed on 31 August and the plan is set to go to public examination later this year. It contains an unusual policy intended to boost the supply of affordable housing across the high-value central London borough. 

In addition to the provision of affordable housing in residential schemes, contributions to Westminster’s affordable housing fund will be sought from commercial developments above a certain threshold in the Central Activities Zone (CAZ) for the first time, "to ensure mixed, inclusive and cohesive communities", the document states. 

In what commentators said would be a first for a London borough, Westminster’s policy would also extend to hotel schemes, as well as offices. The draft plan details a stepped approach to off-site financial contributions (see box, below) based on the planned size of development, ranging from 15-35  per cent for offices between 1,000-2,749 square metres, and 15 per cent for hotels between 2,500-6,500 square metres. Above these thresholds, the affordable housing contribution must be delivered on site "unless it is demonstrably impracticable or unviable to do so", the plan states. 

Mixed use policies, where commercial developments above a certain size must include some residential elements, is not new. Camden is one example of a London borough that says it "aims to secure the provision of homes as part of a mix of uses in a non-residential development, ideally with on-site provision". However, the policy does not include a specific affordable housing requirement, a council spokesman said. 

Westminster has had a mixed-use policy since the adoption of its Unitary Development Plan in 2007, which required the provision of residential within commercial developments, with a proportion to be delivered as affordable units if a certain threshold was triggered. "At that time, commercial developments were more profitable than residential and there were concerns that this would lead to a loss of character and diversity if residential development did not come forward," the council’s spokesman explained. 

However, as house prices soared in the ensuing years, the scales tipped in favour of residential – helped by the government’s introduction of office-to-residential change of use permitted development (PD) rights in 2013. Westminster reports that it lost a total of 720,000 square metres of office floorspace to residential conversions between 2013 and 2018. Having secured an Article 4 exemption from PD rights earier this year, the council amended its policy to incentivise office development, by reducing the amount of residential floor space required alongside commercial elements in a mixed-use scheme.  

"Despite these changes, it is felt that the current policy is not incentivising growth in office floor space, nor contributing sufficiently to the delivery of affordable housing in the CAZ," the local plan states. Over the last five years, less than 10  per cent of homes in the CAZ have been affordable units, according to the council. The spokesman added: "We cannot shy away from the fact that there is a national housing crisis, so we’re determined to pull our weight by creating more homes for average earners and middle income families." 

However, consultants and lawyers expressed concerns about the emerging policy's impact on development. "Westminster’s policy is a novel approach, but it could give rise to a lot of complications and force developers to address significant financial and logistical challenges," said Nick de Lotbinière, head of London planning at consultancy Savills. 

The most pressing of these is the impracticality of delivering on-site affordable units within commercial schemes. "Affordable housing becomes a drag on development when it has to be provided on site," he said. "It is hard to see how you could successfully integrate a floor or two of affordable housing into a prestigious office block serving as an international headquarters, without splitting up the building’s core to provide separate entrances, and dividing the service charge." 

Integrating affordable housing into a luxury Westminster hotel would be an even bigger logistical and social challenge, said Hannah Quarterman, senior associate at law firm Hogan Lovells. "It would be a burden for hotel operators, which have not been subject to this before, and then there’s the prestige angle – will they want affordable housing on site?"

In addition, the cost of making in-lieu payments could hit the pot of other infrastructure contributions by developers to councils – although Mike Kiely, chairman of the Planning Officers Society, said the market would adjust so the additional costs are absorbed in potentially lower land values. "People always moan about paying taxes, but in London especially there is a fairly good understanding of the importance of keeping the city competitive and making it easier for people to live and work here so that businesses can retain talent," he added. 

Kiely said he was aware of several other inner city London boroughs mulling new ways to fund affordable housing, though none are as progressed in their plans as Westminster. Hogan Lovells’ Quarterman said few London boroughs are likely to follow suit unless they, too, benefit from similarly high, inner-city land values that support schemes’ viability. 

"The policy will make it challenging for people to bring forward large office and hotel schemes in the current market, as the additional financial commitment will push up already high development costs," said Matt Richards, London-based planning director at Savills. Developers may respond by deliberately keeping the size of their schemes below the minimum threshold, he suggested. "This is not helpful for addressing office or affordable housing supply." 

A Westminster council spokesman defended the evidence underpinning the draft policy: "We’ve looked carefully at the viability of this policy and confident that it will have no adverse impact on development in Westminster – the majority of schemes that are typical in Westminster would be viable under this policy as demonstrated by our local plan viability evidence."

"The proposal complicates the development process," said Matthew White, partner and head of planning at law firm Herbert Smiths Freehills. "But it is a response to the housing crisis and developers may have to accommodate it even if they don’t like it." Claims that it would deter developers were "alarmist", he said, adding: "Westminster has justified the policy this far and I think it will go through, eventually."  

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