The Mayor of London, Sadiq Khan, has published supplementary planning guidance on Affordable Housing and Viability. The document establishes a clear approach to make planning “clearer, quicker, and more consistent”.
Khan believes that the SPG will assist in delivering his manifesto promise to radically increase the speed and amount of affordable homes being delivered.
The document is split into three distinct areas, including:
- The threshold approach to viability (Part 2);
- Guidance on viability assessments (Part 3); and
- Build-to-Rent (Part 4).
At the heart of the document is the fast track route to securing planning permission. Where development proposals meet or exceed the 35% threshold of onsite affordable housing provision, without the need for public subsidy, the applicant will not need to present viability information. However, the proposal must also meet “other planning requirements and obligations to the satisfaction of the LPA and the Mayor where relevant”. This is termed the ‘fast track approach’.
The SPG makes clear that when a locally adopted threshold seeks a higher percentage of affordable housing without subsidy, this continues to be applied. Where a fast track scheme is not delivered within a timely manner (to an agreed level within two years of planning permission being granted), an early viability review may be triggered.
When the threshold (35% or local requirement) is not met, an automatic requirement for in-depth viability testing is triggered. This process is designed to secure the "maximum public benefit...over the period of a development and can encourage the build out of schemes". This is termed the ‘viability tested route’.
The SPG states that where the LPA or Mayor determines that a greater level of affordable housing could viably be supported under the viability tested route, a higher level of affordable housing will be required which may exceed the 35 per cent threshold.
It is clear that the SPG is designed to present a strong incentive to deliver the default 35% position.
Further, the need to follow the viability tested route is automatically triggered for any development which proposes affordable housing off-site or through cash in lieu; which demolish existing affordable housing (for example, regeneration schemes); and where the vacant building credit (VBC) is still applied (the Mayor suggests that the VBC is not applicable in London).
The viability tested route
When the viability tested route is triggered, the following review mechanisms are required:
- An early stage viability review, where an agreed level of implementation progress is not made within two years of the permission being granted (or within ‘a time frame agreed by the LPA and set out within the S106 agreement’);
- A late stage review, near the end of development, once 75% of units have been sold (or at a point agreed with the LPA);
- For larger schemes, a mid-term review prior to the implementation of later stages; and
- Where a scheme is not delivered within 12-months of the early stage review, an updated early stage review may be necessary for stalled schemes.
If there is a surplus profit at the late stage review, this is required to be split 60:40 with the borough and the developer. Any additional profit to the borough must then be spent on affordable housing delivery.
Guidance on the viability assessment
The Mayor requires a much greater level of transparency when it comes to assessing the viability of planning applications. To this end, there is clear guidance on the methodologies and inputs which must be provided. The viability information will also be made available for public scrutiny.
There is detail on the consideration of abnormal costs, build cost inflation, professional and financial costs, and developers’ profit.
In this regard, the level of competitive return should be justified on the basis of evidence provided by applicants taking account of the individual characteristics of the scheme, the risks related to the scheme, and comparable development.
There is a clear preference for the 'Existing Use Value Plus’ (EUV+) approach, which requires the benchmark land value to be "based on the current use value of a site plus an appropriate site premium". This premium should be evidenced as justification.
Extensive guidance is also provided on the "very limited circumstances" where an alternative approach is appropriate.
Build to Rent
The Mayor’s support for Build to Rent (BtR) continues.
To assist in the progression of the emerging tenure, the Mayor seeks to set out a BtR ‘pathway’ which includes details on the definition, affordable tenure, design criteria, viability approach and management standards.
Other key points
- Tenure: The preferred tenure split is as follows: 30% low-cost rent (social or affordable rent i.e. London Living Rent). 30% intermediate products. 40% to be determined locally by the borough.
- Vacant Building Credit (VBC): The Mayor does not believe that the VBC will be applicable in London. Where an applicant does pursue the VBC, the Mayor makes clear that Community Infrastructure Levy relief cannot be claimed through the Regulation 40 vacancy test.
- Amending planning applications: Where schemes are amended they are still required to address the threshold approach. For schemes approved under the Fast Track Route, any applications to vary the consent will not be required to submit viability information, provided that the development continues to meet the threshold and tenure split, and does not otherwise result in a reduction in affordable housing or housing affordability. Where the original did not meet the threshold or required tenure split, or where the amendment would cause it to no longer meet these criteria, viability information will be required. This is significant where optimisation is carried out to increase build value or lower construction cost.
- Minor residential development: The SPG makes clear that the Mayor supports LPAs that wish to apply requirements for affordable housing contributions on sites providing fewer than 10 homes. It is considered that the Fast Track Route may be suitable for developments providing fewer than 10 homes where borough affordable housing requirements for small sites are met in full.
- Increasing affordable housing to 50%: The manifesto aim of achieving 50% of all new homes to be affordable is still present. The Mayor makes clear that he will use his funding powers to increase affordable housing, and expect higher proportions of affordable housing on schemes developed by Registered Providers or those on publicly-owned land. To this end, there is extensive guidance on additional grant funding that is being made available.
Our view and analysis
- The publication of the SPG has clarified the Mayor’s position on the delivery of affordable housing in London. There is going to be the clear expectation that the 35% onsite provision is factored into site appraisals when sites are being purchased. However, the draconian approach to affordable housing viability may introduce uncertainty to the development process over the life of complex construction projects. The reviews introduced at the application stage and early, late and mid-term reviews, as well as when seeking revisions to developments have the potential to slow or stall delivery further.
- Wording of “other planning requirements and obligations to the satisfaction of the LPA and the Mayor where relevant” is open ended and may encourage some authorities to go beyond the vision and purpose of the guidance eg would a development that is not in accordance with a parking policy, mean that the fast track approach cannot be applied.
- Existing Use Value is not favoured by many developers. This has been recognised by the Mayor, through the inclusion of alternative methodologies for use in exceptional circumstances. We look forward to seeing how frequently the exception circumstances may be triggered.
- Impact on smaller schemes is significant!
- The attempt to stifle the Vacant Building Credit takes a horse and cart through the spirit of the Planning Practice Guidance. It is our view that the VBC does still apply in London, in accordance with national policy. We await Central Government reaction.
- The guidance gives a clear indication of the future direction of the London Plan (expected in 2019, drafts to be published within the next 6-12 months). It is also likely to influence the emerging NPPF which is expected this year.