In a case that could impact significantly on housing developers, both in terms of site acquisition and development viability, on 27 April 2018 the High Court upheld the London Borough of Islington’s (“LBI”) decision to refuse planning permission for developer Parkhurst Road Limited (“PRL”) to redevelop a former Territorial Army centre in the borough, on the basis of insufficient affordable housing provision.

LBI’s Core Strategy provides for a borough-wide 50% affordable housing target (rather than in relation to individual sites). LBI deemed that PRL’s application did not provide sufficient affordable housing in light of the borough-wide target.

Public Inquiry

Before the inquiry, PRL was offering no affordable housing and LBI was requiring 50%. By the end of the inquiry this gap had closed to 10% and 34% respectively.

At the heart of the public inquiry process was a dispute between PRL and LBI regarding the viability calculations for the development. In its calculations, PRL attempted to leverage the £13.25 million purchase price to show that policy compliant affordable housing provision was not financially viable.

PRL claimed the purchase price was in line with the market rate for similar land transactions but did not produce the viability assessment it prepared at the time of the purchase as evidence.

LBI contended that a more appropriate approach would have been a EUV Plus basis of calculation (i.e. the existing use value with an added financial incentive for the seller) and that the “purely market based approach” taken by PRL was excessive and did not take into account policy requirements to maximise affordable housing.

LBI’s argument was consistent with the Mayor’s Supplementary Planning Guidance on Affordable Housing and Viability and the draft London Plan which both provide that EUV Plus is usually the most appropriate approach for planning purposes. An alternative approach will only be considered in exceptional circumstances and will require “robust justification”.

The Inspector agreed that PRL’s purely market based approach to viability had failed to give adequate effect to LBI’s affordable housing requirements.

The Inspector also acknowledged a recurring issue - known as the “circularity” problem - that if viability appraisals are conducted using market prices which are inflated by bidders ignoring or diminishing requirements in development plan policies to provide affordable housing, this may undermine compliance with those policies.

The High Court Challenge

PRL’s main ground of challenge was that the Inspector had erred in law concluding that PRL had failed to give adequate effect to policy requirements in its viability approach.

The Court acknowledged that normally the judiciary is limited in its review of planning matters to considerations of legal technicalities only. However, the Court felt the circumstances of this case meant a detailed examination of some of the viability evidence before the public inquiry was required.

Ultimately, all grounds of PRL’s challenge were dismissed and LBI’s decision to refuse planning permission was upheld. The Court held that the Inspector had correctly understood the way LBI had used the EUV Plus method, referencing the Inspector’s decision that said that LBI’s approach allowed for the “value to have regard to the market as a consideration rather than a determining factor”.

PRL was aware of LBI’s policy relating to affordable housing and if PRL was proposing that 50% affordable housing was not financially viable, then it was PRL’s responsibility to present a robust justification to demonstrate this.

Unusually, the judge added a postscript to his judgment advocating that RICS should revisit their 2012 Guidance Note (which is the basis of many viability appraisials) in order to address the “circularity” problem described above.

It is not clear if PRL will seek to appeal the decision.

Comment

This decision could be significant for housebuilders. In the short term, it may embolden local planning authorities to refuse planning permission where a developer uses the purchase price of a site as justification for policy incompliant affordable housing provision if that developer fails to account for such policies at the time of acquisition.

In the medium to long term, the decision could impact the prices that developers are willing to pay for land for housing development, knowing that any excessive premium in the price may not be recoverable through the value of the development.

Case Ref

Parkhurst Road Limited v Secretary of State for Communities and Local Government and The Council of the London Borough of Islington [2018] EWHC 991 (Admin)