The implications of raising the affordable housing exemption threshold

Most practitioners agree that a proposed move to temporarily increase the threshold beneath which schemes are exempt from affordable housing provision by a factor of four or five would see less low-cost homes built. While some say this would cause problems for councils dependent on smaller sites, supporters of the measure believe it would help SME developers and raise overall housing delivery.

Housing development sites: sites of up to 50 homes could be exempt from affordable housing requirements under proposed new rules (Pic: Getty)
Housing development sites: sites of up to 50 homes could be exempt from affordable housing requirements under proposed new rules (Pic: Getty)

Among the plethora of planning changes announced by the government last month was a proposal to temporarily raise the threshold at which housing schemes are required to make affordable housing contributions. According to a consultation document outlining a series of short-term changes, Changes to the current planning system, ministers want to see the threshold raised from ten to 40 or 50 homes in a bid to support small and medium-sized (SME) builders affected by the coronavirus pandemic. 

The policy would be introduced for an initial period of 18 months before being reviewed by ministers to ensure it supports the country’s economic recovery after the pandemic but "does not inflate land prices in the longer term". If, following the consultation, the government decides to go ahead with the measure, "this could be through the introduction of a written ministerial statement in the autumn", the document states.

However, by the government’s own estimates expressed in the document, raising the threshold to 50 units would reduce the delivery of affordable units via developer contributions by between ten and 20 per cent.

Andrew Somerville, associate director of consultancy Nexus Planning, said he believed the “really positive” step would encourage more houses to be built by SME builders who might otherwise be tempted to wait out the recession without taking any investment risks. “Any reduction in affordable housing is outweighed by the housing delivery and economic benefits that will come from the initiative,” he said. “The policy must be seen in the context of national recovery, and the government’s aim to incentivise developers to move quickly during a time of uncertainty."

Brian Berry, chief executive of lobby group the Federation of Master Builders (FMB), which represents SME builders, said the threshold increase would remove financial “constraints” for smaller builders, making it easier for them to purchase land and construct more homes. He cited a 2019 FMB survey which found that almost a third of SME builders cited the cost of section 106 obligations as a constraint on their output. Meanwhile, half said they had identified sites they were interested in but which they believed would be unviable due to likely developer contributions.

However, some local authority bodies are less positive about the move. “For a significant number of authorities, an awful lot of housing developments are on smaller sites,” said Mike Kiely, chair of the board of the Planning Officers Society. “Those authorities that don’t have large sites or urban extensions will be hit disproportionality hard.”

For Kiely, the benefits of the policy change potentially bringing forward some housing schemes are “fairly minor” when set against the loss of affordable housing. “For me, the greater issue is getting delivering affordable housing optimised. This won’t do that,” he said.

Trevor Ivory, UK head of planning at law firm DLA Piper UK, agreed the revised policy would be a bigger challenge for councils that rely on small sites for most of their housing provision. He suggested such councils may be incentivised to allocate larger sites to maximise the amount of affordable housing they can secure from new developments

For developers, Ivory highlighted two potential problems. The first is that they may be disincentivised from bringing forward schemes that are slightly larger than the threshold, because it would be more profitable, as well as cheaper and quicker, to deliver slightly smaller schemes.

The second is that the policy may become a windfall for the landowner rather than an incentive for the developer. “When you reduce affordable housing, you increase the value of the land. What the policy may do is drive up land value, making it more expensive to acquire the sites in the first place,” he said.

Ivory is also not convinced that the policy will be temporary. He said the document's reference to its introduction for an “initial period of 18 months” suggests that the government may consider making the change permanent.

Have you advised on, or secured, a recent major permission? We want to know about big housing, retail and leisure, and commercial and industrial schemes approved between 1 June - 31 August 2020 for our next Biggest Permissions report. To qualify, schemes should be above the following thresholds: 500 homes; 5,000 square metres of retail or leisure space; or 20,000 square metres of commercial or industrial space. To get involved, or for more details, please email by 10 September.

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