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London developers - how much affordable housing is viable?

Sadiq Khan has declared that his long-term aim is for 50% of new homes in London to be affordable. To this end, he has released draft Supplementary Planning Guidance (SPG), which is open for consultation until 28 February 2017.

This sets a 35% threshold for affordable housing per scheme.  Given that only 13% of homes given planning permission in 2014/15 were affordable, a 35% threshold seems a little over-optimistic. However, the SPG emphasises that all schemes will not have to provide 35%  affordable housing; this is the threshold which determines what approach will be taken to viability information.

It is the Mayor's view that the introduction of this 'threshold approach' provides certainty and consistency to developers, as well as a clear incentive to increase levels of affordable housing.

Developers of schemes that do not meet the 35% threshold (or would require public subsidy to do so) and propose off-site affordable housing provision or a cash in lieu payment, will be required to submit detailed viability information.  This will be scrutinised by the local planning authority and, in some cases, the Mayor himself.

What does this mean for developers?

Local planning authorities are strongly encouraged to apply the threshold to applications for sites which are capable of delivering ten or more units. Therefore, very small schemes will not have to meet the threshold.

If a scheme relies on vacant building credit (VBC) it will be subject to a viability review. VBC is contained in national planning guidance and reduces the requirement for affordable housing contributions where a vacant building is brought back into use or is demolished to make way for a new building. The credit is based on the amount of vacant floor space being brought back into use or redeveloped. The SPG provides guidance on the application of the policy in London, with the Mayor's view being that in most circumstances it will not be appropriate to apply VBC in London.

Part 4 of the consultation relates to Build to Rent (BTR), and sets out the Mayor's commitment to increasing the provision of more high quality Private Rented Homes. Where a scheme is BTR, it will not be required to meet the 35% threshold for affordable housing, but will be assessed on its own viability.

Given that there is no distinct planning use class for BTR, the SPG sets out a definition, which requires:

  • a development, or block/phase within a development, of at least 50 units;
  • the homes to be held as BTR under a covenant for at least 15 years;
  • all units to be self-contained and let separately;
  • unified ownership and unified management of the development;
  • professional and on-site management;
  • longer tenancies offered (ideally three years or more) with defined in-tenancy rent reviews; and
  • the property manager  to be part of an accredited Ombudsman Scheme and a member of a recognised professional body.

The consultation seeks views on the two options proposed to deal with clawback where units are sold out of the BTR sector during the lifetime of the 15 year covenant.

The consultation closes on 28 February 2017. Once it is finalised, it will only constitute guidance, and cannot override the existing London Plan policy. Draft changes to the London Plan are expected next year.

It is likely that local planning authorities will apply the SPG differently, resulting in inconsistency across London boroughs.  Given the complexities, and likely variations in application, you should seek advice from a planning professional in relation to your proposed scheme.

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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