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You are here: Home / Planning Issues / Viability / Assuming the worst – How surveyors helped to drop affordable housing the Heygate

Assuming the worst – How surveyors helped to drop affordable housing the Heygate

September 28, 2016 By George Turner 4 Comments

New buildings going up on the site of the former Heygate Estate in Elephant and Castle

In last week’s article we looked at how leaseholders facing estate regeneration are getting a raw deal when their homes are subject to compulsory purchase orders.

Obviously the less money developers can offer to leaseholders to get them off the land they want to build on, the more profit for the developer.

And if developers make good profits, surely they will have enough money to provide affordable housing to replace the homes they are demolishing?

Sadly not. Yet more evidence has emerged as to how developers are gaming the system to reduce their affordable housing obligations. This time, by inflating the costs of compulsory purchase in their financial viability assessments.

The real values of surveyors

As has been discussed many times on this website, if a developer can demonstrate that their project is financially unviable, then they are able to reduce their obligation to build affordable housing.

Financial viability assessments (FVAs), the documents that underpin these claims, use estimates to work out how much profit a developer will make, and therefore how much affordable housing they will be able to build.

These estimates, like every estimate, could of course differ from the real amount of money actually paid or received; there will be a margin of error. However, the evidence uncovered by this website shows that the estimates frequently underestimate profit in order to make the case that affordable housing is not viable.

Occasionally, some of the real costs or values in a development proposal will be known before a scheme gains planning permission. You may think that if the real inputs into a financial viability appraisal are known before a planning application is made, then there will be less opportunity for the developers to game the FVA. With real values a more accurate picture of financial viability can be built.

Think again! Why should an FVA use those real values, when an assumed value, or “estimate”, may produced a more favourable outcome for the developer?

Heygate Viability

Heygate construction
Construction vehicles on the site site of the Heygate Estate

The Heygate was a Southwark Council owned estate in the Elephant and Castle. In 2010 the council signed a development agreement with Australian developer Lendlease to demolish all 1,200 homes on the site and rebuild the estate to a higher density and with more homes.

Over 1,000 council tenants were moved off the Heygate, but Lendlease claimed that it would only be viable to replace 83 homes at social rents. A viability assessment was produced by the developer to support their claim. Savills were the consultant employed by Lendlease to provide many the valuations for the FVA.

That viability appraisal was later obtained by Adrian Glasspool, one of the former Heygate Residents, after a two-year battle where he ended up taking Southwark to court to compel them to release the document. You can read about that story on the 35% campaign’s excellent website.

Compulsory purchase

The construction site at Elephant Park, the new name for the site of the Heygate Estate
The construction site at Elephant Park, the new name for the site of the Heygate Estate

In order move forward with the scheme, the council needed to buy out some residents from their leases. In all there were around 200 leaseholders on the Heygate.

As it was part of a large regeneration project, the leaseholders became the subject of a compulsory purchase order.

Clearly the cost of buying the properties from existing residents was a cost of the development project that the scheme would have to bare. An allowance for the amount spent on buying leaseholders out of their leases was therefore part of the FVA.

In this case, the developers knew what this cost would be before the planning application was made. The council had been planning the regeneration of the estate for a long time and had started buying property on the estate in 2004.

However, when the developer submitted their FVA, they did not base their allowance for the cost of buying the leaseholders’ flats on the real amounts that had been paid, or even the real amounts plus an allowance for inflation, but instead used an ‘assumed’ valuation which was substantially higher.

According to freedom of information of requests the average amount paid to leaseholders at the Heygate was as follows:

  • 1 Bed flat – £95,480
  • 2 Bed flat – £107,230
  • 3 Bed Maisonette – £156,833
  • 4 Bed Maisonette – £177,421

However, Savills assumed values in the FVA stated the following amounts:
'Assumed' values

As is clear, the values assumed by Savills were in most cases around £100,000 per unit higher than the real amounts paid. This has the effect of artificially suppressing the viability of the scheme, as the costs in the viability appraisal would be larger than the actual costs of the development.

Developers often make the argument that values in a financial viability assessment can sometimes differ from real values, because viability assessments are a snapshot at a certain point in time. But the huge cost inflation in this case can’t simply be explained away  by a timing difference. Although Southwark council started buying homes on the estate in 2004, in 2011 the Council was still paying £115,000 for a two-bedroom flat on the estate. The planning application for the Heygate was submitted to Southwark Council in 2012.

In any event, compulsory purchase is a real cost which requires the payment of real money. If the real amount that has been paid is known, why not use that figure?

What is particularly galling about this case is that the council insisted that prices being offered were in line with market rates, and fought leaseholders who thought they should have been offered more during the compulsory purchase process.

However, when it came to determining the viability of the scheme the developer made the argument that the market rates of properties on the estate were much higher, and that prevented them from building more affordable housing.

Whichever valuation was the correct one, someone was getting screwed, and it wasn’t Lendlease.

Filed Under: Viability Tagged With: Compulsory Purchase, Elephant and Castle, Heygate, Lendlease, Savills, Southwark, Viability

Comments

  1. Jess McDiarmid says

    September 28, 2016 at 7:36 am

    Dirty Developers // Savills Scum.

    I’m so grateful someone able is on reporting this. Thankyou.

    My parents live on Maiden Lane in Camden, where the luxury flats have been erected; allegedly to fund repairs on the council properties as PFI and ALMO had been rejected by the TA (many of which are unnecessary and are being arbitrarily enforced even when tenants say they are not needed – for an example they took my folks perfectly good old kitchen sink and bathtub, and replaced them with cheap, crappy, new ones. My mum was devastated, such a waste of money…). I wonder if the company employed to undertake the repairs is an offshoot of the company undertaking the development. My parents, particularly my father, are worried for their home of over 30 years; one of the new buildings is merely inches from theirs…5 inches or so. They worry that in time their block will be demolished too, they are literally being encroached upon and made to feel that their home is threatened.
    My dad has mental health issues, is old, and in quite poor health. I’m sure the incessant noise from the diggers and other incredibly loud machinery has increased his stress levels and he’s deteriorated so much in the last few years since all this began. He had a huge relapse after the initial consultations several years ago, before they had earmarked which buildings were going to be demolished and i’d be lying if i said that fear for the future of his home did not contribute to it. Luckily Maiden Lane has an active and capable TA who fought tooth and nail to protect perfectly good homes from being knocked down. Now we hear there’s no scope for the affordable housing as was promised; just 1/4 council and the rest prime luxury flats for sale. The development at nearby KingsX is great in many ways, but fails to serve any of the previously existing communities needs… Perhaps once the school opens and the other shops and restaurants are finished this will change. I can’t help but doubt it.
    One thing that makes me especially sad is that when we were children in the late 80’s and early 90’s there was so much support on our estate for families, there were trips, and active community centre which held events and street parties/fetes, we had a whole summer of schemes set up by the Met Police to keep us out of trouble when I was a young teen. I don’t see anything like that now. Just developers. And luxury. And a new urban pond that costs £6pp to get in.

    Its very sad. But thankyou for your efforts! People need to hear about this! I wonder what the social costs of this will be in 5, 10, 15 years from now….

    Reply
    • George TurnerGeorge Turner says

      September 28, 2016 at 5:21 pm

      Hi Jess, Thanks so much for sharing your story. I grew up down the street from the Maiden Lane estate, and had noticed the changes when I was in the area recently. Camden claim that they are doing things differently from the disasters we have in South London.

      I would be really interested to hear more. You can contact me directly by email if you wish. My address is on the contact page.

      Reply
  2. Meg Howarth (@howarthm) says

    September 29, 2016 at 8:38 am

    Smaller scale but also a wee victory in Islington a couple of weeks ago: full text of letter to local Islington Gazette:

    ‘The use by the council of the Archway Premier Inn to house the homeless was raised at last week’s planning committee (MBE left homeless for 6 months, 8 September). A proxy application had been submitted on behalf of Whitbread plc, owner of the budget-chain – and Costa Coffee – to build yet another hotel development on the former NCP car-park in Farringdon Road. Recommended for approval by planning officers, the scheme was unanimously rejected by councillors as a breach of the local Finsbury Plan (FLP).

    It contained no housing, despite falling within the FLP area identified as needing 700 new homes. Whitbread had submitted a get-out report – aka a Financial Viability Assessment (FVA) – which claimed that a whopping minimum-17.5% profit-on-cost mark-up was needed to develop the Clerkenwell site, making the provision of affordable housing impossible. The irony – or cynicism – of being unwilling to provide permanent homes while readily taking taxpayers’ money to house the statutorily homeless, as at Archway, completely bypassed the company’s spokesman.

    National planning law (NPPF), on which local authority plans must be based, stresses the need for ”positive growth for this and future generations that effectively balances economic, environmental and social progress’. With no housing included, the developer called out job-creation and its apprenticeship scheme to support his firm’s plan. How employment in the notoriously low-paid ‘hospitality industry’ constitutes social advance is difficult to fathom.

    How much of Whitbread’s revenue-stream – over £2.9 billion in 2015/16 – comes from renting rooms to cash-strapped local authorities, as in Westminster and Islington, is unknown. What is clear is that its profiteering NCP application sought to exploit the proximity of the Farringdon Road-site to publicly funded CrossRail at Farringdon Station, both of which lie within the so-called Central Activities Zone (CAZ). As developers argue for exclusively business and employment projects which the zone promotes, the CAZ is leading to the hollowing out of the area for new homes. Nearby 119 Farringdon Road, site of the first council housing in England, is now an offshore-owned office-letting development under construction. The council must resist a central London for the better-off only, particularly when it’s directly at the taxpayers’ expense.

    Though outside the remit of planning officers and councillors, a worrying aspect of the NCP application was the lack of transparency of the proxy applicant’s company structure. A form increasingly common amongst developers, a special purpose vehicle (SPV) had been set up by the proxy’s parent which, along with the parent and three other SPVs, are registered in Liverpool at what is a letter-box-drop address shared with over 80 other firms. The parent’s webpage all the while boasts a Saville Row address. This smells of tax-minimisation aka tax-avoidance – legal, of course – but such structures are of legitimate public interest when, as in this case, the developer was hoping to exploit taxpayer-funded infrastructure. As the proxy stated openly on its website: ‘This vibrant and Improving area [Clerkenwell] will benefit further from the opening of CrossRail in 2018’.

    Footnote: Islington Council is to be congratulated on leading the way in opening FVAs to public scrutiny, previously hidden from view by the widespread use of the nefarious ‘commercial confidentiality’ clause. Other councils are watching. Meantime the small Suffolk village of Lavenham might become the poster-area for the NPPF’s ‘social’ measure of new developments. The parish council’s official neighbourhood plan to build genuinely affordable/social housing has won the backing of a developer and landowner. Both are prepared to accept lower profits in order to build the homes local people need. Why? Because, as they stated recently on BBC Radio 4, it’s their area and they want to do what’s best for it. A lesson for Whitbread – perhaps?’ [end]

    Link to edited published version (2nd letter here)>
    http://www.islingtongazette.co.uk/letters/gazette_letters_outdoor_gym_planning_committee_constituency_boundaries_and_bi_visibility_day_1_4706377?

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