UK: Affordable Housing Planning Reform – Where Will It All End Up?

Last Updated: 16 December 2013
Article by Rob Bruce

Summary and implications

In this briefing, we consider recent changes in planning legislation relating to affordable housing, particularly:

  • applying to change affordable housing requirements;
  • permitted development rights for changing offices to residential; and
  • Community Infrastructure Levy proposals.

We find it possible to conclude that despite all of the supportive words from the Government, the legislative changes are indicative of the apparent low priority the Government is giving to affordable housing during economic hard times.

1. The Growth & Infrastructure Act

The Growth & Infrastructure Act 2013 came into force in April 2013, aiming to speed up development and encourage economic growth.

One of the key measures, introduced temporarily until 30 April 2016, is for interest holders in land to be able to apply to the local planning authority (LPA) either to modify or to remove an affordable housing planning obligation, enforced under section 106 of the Town and Country Planning Act 1990, if it results in the development not being economically viable. The LPA is obliged to deal with the application so that the development becomes economically viable.

The statutory obligation on the LPA is an onerous one that many authorities may disagree with and it is backed up by a significant sanction.

The applicant has a right of appeal on the merits if the LPA does not determine the application in accordance with its obligation, or if it fails to issue a decision within the required period.

What is the test for viability?

The Secretary of State for Communities and Local Government (the Secretary of State) provided guidance in April stating that:

"The test for viability is that the evidence indicates that the current cost of building out the entire site (at today's prices) is at a level that would enable the developer to sell all the market units on the site (in today's market) at a rate of build out evidenced by the developer, and make a competitive return to a willing developer and a willing landowner."

If modification of the affordable housing requirement is justified on that basis, then the guideline states that a viable affordable housing provision should be proposed, delivering the maximum level of affordable housing consistent with viability and the optimum mix of provision.

This gives the LPA an element of discretion about how to modify the affordable housing requirements and any application made by a developer must be backed up by robust viability evidence.

The application process is intended to be a quick one – with the LPA required to give notice of its decision within 28 days of receiving an application (subject to certain exceptions).

Commentary

The new procedure is in addition to existing ones for modifying or removing section 106 obligations. Previously, if a council would not agree, an application to modify or remove the obligation could only be made after five years. That does not apply to the new procedure.

Given the clear intent of the legislation to make development economically viable and unlock stalled developments, it can be expected that decisions will fall in the developers' favour, where a development is unviable.

The LPA may be opening Pandora's box at an appeal if it does not take the opportunity to voluntarily renegotiate section 106 obligations where a development is unviable, or unreasonably refuses to modify affordable housing requirements on a formal application.

It is anticipated that the right to apply and, if necessary, to appeal to modify or remove the affordable housing requirements will strengthen the developers' negotiating hand.

2. Development rights for changing offices to residential

On 30 May 2013 permitted development rights were introduced in England to authorise a change of use from an office use (Class B1(a)) to a residential use (Class C3), without having to lodge a planning application. This right will expire on 30 May 2016, when the Government will consider whether to extend the period.

Although no planning application is now needed, a developer will have to apply to the LPA to determine if the LPA's prior approval is needed as to:

a) transport and highways impact on the development;

b) contamination risks on site; and

c) flooding risk on site.

Planning permission will also be required for any associated works that materially affect the external appearance of a building.

The LPA may seek to rely on the impact of transport and highways in built up areas to restrict the use of the permitted development rights. However, it will have to act reasonably or face having its decisions overturned by the Secretary of State or Planning Inspectorate and will not be able to use the prior approval process to object, except in the three circumstances above.

Commentary

The consequences of the new permitted development rights could be severe. The LPA planning policies for residential development require a certain proportion of units to be allocated as affordable housing, but only if planning permission is required, which will not apply in the case of new rights.

If the Government extends these rights in the next three years, it could incrementally create a greater affordable housing burden to residential schemes that require planning permission. This may either result in an enhancement of profits on such developments or allow the residential units to be sold at a lower price, providing a market advantage over other residential developments of a comparable size that are subject to LPA planning policies requiring affordable housing.

Developers may now view residential developments requiring planning permission as too risky in locations with surrounding office buildings, leading to such schemes being mothballed. Such concerns are already arising amongst developers, with many residential developers now seeking out suitable office buildings.

3. Community Infrastructure Levy (CIL)

Although the CIL regulations were introduced in 2010, the introduction of the levy in a particular area is dependent upon the relevant planning authority adopting a CIL charging schedule.

The schedule sets out rates of charges to be levied as a development tax upon developments in a particular area.

How does CIL affect social housing?

The Government has recently published its response on the consultation on further regulatory reforms for CIL, which closed on 28 May 2013:

a) social housing relief the Government is now proposing to ensure that developments of affordable-rent properties will qualify for mandatory social housing relief and to provide for relief to be granted for communal areas in proportion to the social housing in the development; and

b) discounted houses – the Government is also proposing to enable local authorities to give discretionary social housing relief for discounted housing market homes.

The Government has dropped perhaps the biggest and most useful proposed change for social housing, which was to amend the definition of "infrastructure" in the CIL legislation to include social housing. Had this been included, CIL funds could have been spent on the provision of social housing.

Commentary

Whilst the Government's response to social housing is a positive sign, the decision not to allow CIL funds to be spent on social housing is indicative of the apparent low priority the Government is giving to affordable housing during economic hard times, despite all of the supportive and encouraging words.

It is a decision that apparently promotes other developments before seeking to boost the supply of affordable housing.

Without more encouragement, it is difficult to see how housing costs for many will become affordable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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