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Viability argument for 10% affordable housing fails

A developer has suffered another defeat in a long-running battle to secure planning permission for a residential regeneration scheme in Islington.

In deciding whether the Inspector's decision to dismiss the developer's appeal against the council's refusal to grant planning permission was lawful, the court had to look at the way the valuation process had been carried out. 

What is Islington's policy on affordable housing?

Islington's core strategy requires that 50% of new housing to be built should be affordable. This is a borough-wide rather than site specific requirement, and it is expected that some sites will not deliver this target. However, the viability testing provided by the applicant has to start with the policy target of 50%. Lower levels should only be considered where "an acceptable benchmark land value" could not be achieved.

Could the developer demonstrate that 50% was not viable?

A key issue that arose in the case was how the benchmark land value (BLV) should be calculated. The council claimed that the developer's inflated BLV for the site failed to reflect that the existing use value was negligible and that there was no alternative form of development that could generate a higher alternative use value. 

The developer argued that the correct way of establishing the BLV was to use market value or "market signals" while disregarding any transactions that were significantly out of kilter with the market norm. 

The council's method resulted in a BLV of £6.7 million, whereas the developer's led to a BLV of £11.9 million – a difference of more than £5 million. The council's method would mean that 34% affordable housing would be justified, whereas only 10% would be viable if the developer's way was adopted.

The Inspector had accepted the council's figure, his view being that the developer had failed to give adequate effect to policy requirements for affordable housing.

What did the court think?

Although the court found that there had been flaws in the approach taken by the council's valuer, and these were not addressed properly by the Inspector, it dismissed the challenge. The view of the court was that the Inspector would have come to the same conclusion , and would have rejected the proportion of affordable housing proposed by the developer.

Mr Justice Holgate confirmed that "where an applicant seeking planning permission for residential development in Islington proposes that the 'maximum reasonable amount of affordable housing' is lower than the borough-wide 50% target on viability grounds, it is his responsibility to demonstrate that this is so." The developer had not done this.

Mr Justice Holgate also took the opportunity to suggest that RICS consider revisiting its Guidance Note to avoid similar cases coming before the courts. 

He said, "one of the key objectives in our planning system is efficiency in decision-making, in order to avoid delay in bringing about unnecessary or beneficial development. In this context the present case strikingly illustrates the importance of seeking to overcome uncertainty on how viability assessment should properly be carried out. Similar schemes on the same site have been approached by two different Inspectors in very different ways. That is not in itself unlawful, but from a practical perspective it does make it more difficult for practitioners and participants in the planning process to predict the likely outcome and to plan accordingly."

The future

The message to developers is clear – where the level of affordable housing below the specified level is proposed, the developer must be able to demonstrate a watertight viability analysis. 

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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