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Sadiq Khan’s affordable housing strategy could provide a blueprint for planning reform

Daniel Bentley, 30 November 2016

This feels like a bit of a moment for London housing. Last week the chancellor, Philip Hammond, announced a bumper settlement for affordable homes in the capital – £3.15bn to support the construction of 90,000 new units between now and 2021. That’s getting on for 20,000 a year (albeit starts rather than completions), which is a big number given that total net supply in London was only just over 30,000 in 2015/16.

Yesterday, as well as setting out how this money would be spent, Sadiq Khan published new planning rules designed to incentivise developers to raise the affordable component of their private schemes (without any public subsidy) to above 35 per cent. Again, compare that with last year’s London-wide figure for affordable homes – 13 per cent – and you get a sense of the step-change that is intended. I say ‘intended’ because this is not going to be a simple business: there are immense pressures in the housing market, or more specifically the land market, that have driven that affordable percentage down to 13 per cent.

But the supplementary planning guidance issued by the Mayor of London sets out how he means to overcome those pressures and it is a fascinating document. Well okay, it’s a planning document, so it’s a bit dry. But scratch beneath the planning jargon and techno-babble and there emerges a very stark message to the landowners and developers who have been squeezing out their affordable obligations in the pursuit of profit: the party’s over. It is in the how and the why that the real interest lies, however, because City Hall has set out a different way of handling planning that could provide a blueprint for elsewhere.

Applications for new developments are effectively going to be dealt with in two quite different ways. Schemes that meet the 35 per cent affordable threshold are going to be offered a ‘quicker route through the planning process’ without all of the protracted haggling over infrastructure and social housing requirements that holds up so many schemes now. But the real carrot for developers here will be to avoid the stick that will be coming their way if they don’t hit 35 per cent. The financial underpinnings of these schemes (the ‘viability information’) will be subject to detailed interrogation by the planning authority, and even the Mayor. This might even be conducted in public (the information will be ‘treated transparently’).

These schemes might still be approved – but only if the lower level of affordable housing is ‘fully justified’ by the specific circumstances surrounding each particular site. This will include consideration of what profit is being made and by whom. Developers will have to provide evidence, with regard to the level of risk and comparable schemes, supporting the rates of profit they expect to make. The guidance notes, ominously: ‘They would currently be expected to be lower than levels that were typical following the financial downturn of 2008/9.’

Then there is the profit to be extracted by the landowner. This has been the real pinch point when it has come to affordable housing provision in the past: it is a frequent complaint by planners, and for that matter developers, that bidding for developable sites is so fierce (egged on very often by land promoters seeking to take a cut themselves) that prices are paid that then render high numbers of affordable units uneconomical. Developers, having purchased the site at these prices, then enter negotiations with the local authority to negotiate down their obligations based on the ‘market price’ of the land.

In a really quite bold move, the Mayor’s guidance indicates that he will not accept a ‘fixed land value’ based on the price that was paid for the land or ‘a purely aspirational sum sought by a landowner’. Instead – turning the present system on its head – land will be judged according to its profitability in its existing use, with no regard to what it will be worth with planning permission, or even any ‘hope’ value. Added to this will be a premium which is just enough to incentivise landowners to part with their site. This could be 20-30 percent, but ‘must reflect site specific circumstances and may be considerably lower’ (my italics).

This is going to be quite an experiment, which effectively puts landowners on notice that they can no longer expect to pocket the uplift in value conferred on their site by planning permission. Of course they will not face this interference if the site is 35 per cent affordable, but then they will be funding that affordable component anyway: heads I win, tails you lose. Developers meanwhile are being warned that they must not pay so much for the land that the affordable housing threshold cannot be met. The none-too-subtle threat is that they will simply be denied permission, condemning the site to its existing use value – at a considerable loss to the developer.

The goal is to ‘embed affordable housing requirements into land values across London’, which would be a big prize. The danger perhaps is that fewer landowners end up bringing land forward for development. The 35 per cent threshold, however, is supposed to reflect a level that is both ‘ambitious and practical’. If it proves to be so, and this new carrot-and-stick regime delivers results, it could provide the basis of a framework to be applied beyond London to redress the balance of power between landowners and developers on the one hand, and planning authorities on the other.

Daniel Bentley is editorial director at Civitas and author of ‘The Housing Question: Overcoming the shortage of homes’. He tweets @danielbentley

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