Sections 106BA and 106BC of the Growth and Infrastructure Act
2013 introduce an opportunity for developers to apply for viability
reviews in relation to section 106 affordable housing
obligations.
Owners may now apply, at any time, for modification of such
obligations. Changes must be granted where proved necessary to
ensure that the scheme is viable in current market conditions.
The first appeal decision under this measure, involving plans for 151 homes at the former Holsworthy Showground in Devon, has now been issued (DCS Number 200-001-292). Redrow Homes sought to reduce the 40 per cent affordable housing proportion, set out in a 2010 planning obligation, to 20.5 per cent. It argued that the shared ownership model envisaged was no longer suitable and sales values could not support its required 20 per cent profit margin.
Torridge District Council accepted that 40 per cent affordable housing was no longer viable, but disputed the revised level and mix, as well as the developer's land value and profit assumptions. The council failed to determine the section 106BA application within the 28 days allowed, so Redrow appealed under section 106BC. The appeal inspector accepted a reduction to 23.8 per cent affordable provision.
The decision is instructive, for several reasons. Firstly, it confirms that affordable provision relied on as a benefit can be removed without reference to planning merits. Secondly, the system is fast; it took four months from the section 106BA application to the variation of the planning obligation resulting from the inspector's decision.
Thirdly, the inspector accepted the actual price paid for the land as the basis for establishing viability, discounting an overbid against its market value. While the new regime will insulate developers from risk by reducing affordable delivery to cater for increased build costs or lower sales values, it will not do so where they overpay for sites. Fourthly, it is important for local authorities to deal with applications proactively, to secure some control as market conditions change.
It is worth asking whether the decision does what the statutory regime requires. Section 106BC(11) requires inspectors to ensure modifications to a section 106 package through this mechanism revert back to the original if the development has not been completed within three years of an appeal decision. Strictly speaking, the Holsworthy decision does not achieve this.
Inspectors must also consider whether other changes are "necessary or expedient to ensure the effectiveness" of obligations at the end of the three years. The section 106BA and BC process provides a snapshot of viability in current market conditions. Sales values and build costs had moved against Redrow since 2010, but they could and should improve by 2016. The decision letter does not explain why a deferred contribution mechanism could not be imposed.
This article appeared in Planning Magazine, 17 January 2014.
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