Last week the consultation on the Mayor of London’s new Affordable Housing and Viability Supplementary Planning Guidance closed.
You can see and download my full response to the consultation at the end of this post, but the main issues are summarised below.
Viability and affordable housing
The issue of affordable housing and viability has been around for a long time, and a lot has been written about it on this site.
Basically developers are able to get out of obligations to build affordable housing if they can demonstrate that doing so would make a development unprofitable, or financially unviable. All sounds reasonable enough, except that if something is unprofitable, maybe it shouldn’t be built in the first place.
Until now there has been very little guidance on how policies on financial viability should be implemented. What guidance does exist is written by the Royal Institute of Chartered Surveyors, a group of people who have a deep vested interest in ensuring the their clients (developers) can cream the maximum amount of profit at the public expense.
This policy gap has led to some extremely bad practice becoming commonplace in the development industry. The most pernicious has been developers’ insistence (which has been widely accepted by councils) that their economic data is subject to confidentiality.
What this means is that developers turn up to planning committees requesting that they be excused from building affordable housing, and no one, not even the councillors making the decision are able to see the evidence backing their claim.
The scope for abuse is obvious, and has not been lost on developers and the surveyors they hire to help them avoid affordable housing obligations.
Despite record profits for house builders, only 13% of new housing in London is classed as affordable, against a target in most boroughs of between 40-50%.
The Mayor’s new deal
A new policy on affordable housing and viability was therefore desperately needed. But after having got away with so much for so long, any tightening of the system was likely to be deeply unpopular with developers.
So what we have is a kind of proposed deal from the Mayor. Developers will have to be more transparent in their dealings with councils over economic viability, and in return the Mayor is imposing a cut in affordable housing obligations on the boroughs and allowing land owners to make bigger profits.
Although most boroughs have a policy which says 40-50% of new housing should be affordable, the Mayor is saying that only 35% will be required. That could also be further lowered in ‘opportunity areas’ which cover vast areas of London.
Whereas under previous planning practice, land owners should receive a minimum of the value of their land in its existing use +10%, now the Mayor is proposing to lift that to existing use +20% or 30%.
A bad policy
So will the deal work? I am deeply sceptical. The transparency provisions are very welcome, but I don’t think transparency alone will provide enough of an incentive for the development community to improve its behaviour. After all, you can’t shame the shameless.
There is a sharp financial incentive available for every affordable home developers can convert to a market property. In this context, will a developer settle for 35%, when they can try to get away with 20%, 10% or even zero? And make millions doing so.
An unlawful deal
There is a big question over whether the deal being attempted by the Mayor is even lawful. Planning is supposed to be about meeting objectively assessed need. You can’t negotiate how much affordable housing is demanded by a community, a community has a certain level of income and the demand is what it is.
The National Planning Policy Guidance is very clear that local planning policies must be arrived at through an independent assessment of local need.
The Mayor’s new affordable housing policy expressly does not do that. Instead, the 35% threshold was developed by looking at what had been achieved in previous development applications. It is the policy based on what developers have got away with in the past.
A better approach
A much better way of doing the whole process would be to flip the process on its head. Instead of a developer proving that their development proposal would be unprofitable with affordable housing included, they should be obliged to prove that any development proposal would be unprofitable with affordable housing included.
Affordable housing is essentially a profit cap for the developer. When a developer proposes an extremely expensive luxury development. A tower, designed by a starchitect, with high cost materials, then it is little wonder that affordable housing renders the project unaffordable.
However, that does not mean that an alternative, lower cost project would not be able to provide a more policy compliant development. But under the current system that is never considered. Instead, developers should be required to prove that their is no alternative development that would deliver more affordable housing, and councils should be able to challenge them on that point. I call this a site based viability assessment, rather than a scheme based assessment.
Conversations I have had with people at City Hall have revealed that the Mayor’s office are aware of this potential solution, but so far have been unwilling to consider it. They should think again.