Building towards his aim for half of all new homes to be affordable, the Mayor of London, Sadiq Khan, has issued draft supplementary planning guidance (SPG) on affordable housing and viability. Current London Plan policies aim to deliver at least 17,000 affordable homes per year, yet average annual housing delivery across 2012/2013, 2013/2014 and 2014/2015 reached around only around 7,000 units per year. There is much to be done.

Schemes delivering 35% affordable

The Mayor wishes to incentivise developers to bring forward a flat rate of 35% affordable housing, such that over time, land values will reflect this requirement. He proposes that schemes offering 35% affordable housing on-site without subsidy need not go through what can be a lengthy and time consuming viability assessment. However, those schemes must also deliver the required affordable tenure split and meet other policy requirements.

Under the London Plan, Boroughs must secure the maximum reasonable amount of affordable housing. The SPG encourages them to accept 35% as meeting this requirement. However, support is given to Boroughs that can prove they deliver a higher average percentage to continue with their local approach.

Schemes that do not meet the threshold

Schemes that do not hit the 35% threshold, that propose off-site affordable provision or a contribution in lieu or that prioritise other infrastructure over affordable housing are proposed to be subject to viability review.

In addition, schemes relying on the Government’s vacant building credit (VBC) are also to be subject to viability review. The VBC is contained in national planning guidance and allows credit for the floorspace of vacant buildings put back into use or demolished for redevelopment in calculating the affordable housing requirement – the aim being to incentivise brownfield development. The Mayor considers that the credit should only apply in very limited circumstances, for example to incentivise development of buildings that have been vacant for at least 5 years and that would not otherwise come forward.

Review mechanisms

All schemes, including those offering 35%, will be subject to review mechanisms. For compliant and non-compliant schemes, if applicants fail to make ‘sufficient’ progress toward delivery within two years, viability will be reassessed. What is ‘sufficient’ will be negotiated on a case by case basis and applicants will need to consider the risk of triggering a review when following this route. Surplus profit will be split 60/40 between the Borough and developer and any additional affordable housing will generally be expected to be provided on-site.

Non-compliant schemes will also be subject to a further review at 75% sales (or 3 months before practical completion if units are not to be sold), typically resulting in a financial contribution. The total contribution toward affordable housing in all circumstances will be capped at 50%.

Viability appraisals

The SPG pushes for transparency in viability appraisals – developers will need to justify any request for particular figures or models to be treated as commercially sensitive. This follows a number of decisions from the Information Commissioner’s Office requiring the publication of much information contained in a number of viability assessments as in the public interest.

Further detailed requirements on viability are set out in the guidance. The SPG recognises the need for developers to make profit reflecting the risk and expects landowners as a general rule to receive existing use value plus a premium. With a dedicated viability team at City Hall, the outcome of early negotiations on viability and what profit and premium are deemed acceptable will be interesting to see.

Tenure

The Mayor encourages flexibility on tenure to meet Borough need and seeks feedback from the Boroughs on appropriate rental levels and preferred tenure mix. However, the SPG seeks at least 30% ‘genuinely affordable’ low cost rents and at least 30% intermediate (London Living Rent or shared ownership).

Build to rent

Express support is given to build to rent housing models – which are to be given a clear definition in policy and specific guidance, including on the approach to viability. The Mayor’s preference is for affordable provision as part of build to rent schemes to be managed by the provider as discounted market rent (preferably at London Living Rents). A build to rent covenant, ideally through a section 106 agreement, must be offered for at least 15 years and certain other criteria will apply. If the units are sold within the 15 year period, alternative ‘claw back’ arrangements are proposed by way of a contribution to affordable housing that could have been secured had a market scheme been delivered in the first instance.

Relationship with the GLA

There are likely to be clear areas of tension between Boroughs applying the London Plan and their own local policies and the GLA. The SPG notes that the Mayor will consider using his power to call in schemes for his own determination or to direct refusal where the approach taken to viability is unsatisfactory, lacks scrutiny, a higher level of affordable housing could be provided or other matters are being prioritised. The extent to which the Mayor is willing to use his controversial powers to deliver on his manifesto pledges remains to be seen.

The GLA is also making available funding to private sector led schemes to increase the delivery of affordable homes and developers and Boroughs are encouraged to explore the use of funding to increase the proportion of affordable housing on schemes. Public sector landowners are being encouraged to forego land value to increase affordable housing delivery – and to explore the potential to increase densities.

Next steps

Consultation on the draft SPG closes at the end of February 2017. Even once finalised, the SPG will constitute guidance only – it cannot override existing London Plan policy. Whilst Boroughs are encouraged to follow the SPG, it remains to be seen how they will react and there will be differences in application of the SPG across London. Meanwhile, draft changes to the London Plan are expected next year but will take time to work through the system.
Missing from the SPG is confirmation of the Mayor’s approach to starter homes. This is on hold pending the release of the Government’s Housing White Paper – now delayed until 2017.