UK: Credit Check: Muddles In The Mire

Last Updated: 19 February 2015
Article by Roy Pinnock

The introduction of new policy on section 106 tariffs and affordable housing has generated significant interest and concern. The policy simply states that:

"A financial credit, equivalent to the existing gross floorspace of any vacant buildings brought back into any lawful use or demolished for re-development, should be deducted from the calculation of any affordable housing contributions sought from relevant development schemes."

The statement is clearly policy, albeit the weight to attach to it is a matter of debate.  Where local plans have been adopted in accordance with the NPPF, taking account of viability and vacant floor space, should the new policy override that?  The additional supporting paragraphs in the NPPG are not policy, but there is a risk that they will be treated as if they are, given the poor and skeletal nature of the policy itself.

This shock and awe approach to policy making has led to mixed reactions.  It is estimated that it will cost Westminster City Council alone £1bn in lost funding.  Westminster, Southwark and the City of London are looking for ways to reshape their policies to cope.  Reading and other boroughs have brought a legal challenge. The Westminster Property Association has said it rejects the windfalls the changes would bring.  There have to be question marks about how long it will last.  However, for as long as the policy survives in its current form, the opportunities are offset by some uncertainties.

Opportunity cost

Although there is an argument that the policy only applies to financial contributions it is likely that the  offset applies to both financial contributions and on-site provision. The policy therefore opens up the scope for greater profits.  It also creates a perverse incentive for further running down the stock of commercial floorspace and replacing it with residential uses in some areas.

The policy is not binding on local planning authorities – who may see good planning reasons for not giving it overriding weight.  The likelihood of it being given overriding weight on appeal means that many authorities will feel unable to continue their previous approach though.

The furore highlights how so much reliance has come to be placed on financial contributions and raises a question of whether local Plans that relied on affordable housing provision from vacant buildings remain sound.  Unless there is alternative provision (or finance) or an increase in greenfield site allocations, it is hard to see how they can be – the local plan will not meet the objectively assessed need for affordable housing.  For plans to be sound, they will need to be amended to identify how they will fund affordable provision in urban areas without developer contributions (or how significantly increased site allocations outside urban areas will enable the slack to be taken up, albeit that it will be in less sustainable locations).

Credit check

The policy itself is limited to the 28 November 2014 Ministerial Statement.  The guidance on how to apply the credit is sparse. Several practical difficulties are already apparent:

  • How much credit? The basis of calculation is open to debate. Correspondence with CLG suggests that obligations should be reduced to the same proportion as the net increase bears to the total residential floorspace.  Developers should not assume that the space will be offset on this 'straight line' basis – authorities such as Norwich are considering a more nuanced approach where average unit sizes are factored in, with potentially significant effects. Some authorities will apply a GEA basis, not GIA.
  • Vacancy: The href= target=_blank>NPPG refers to 'relevant' vacant buildings providing a credit.  That will mean different things to different people.  Does it mean all of a building or part?  Does it mean at the date of application, of permission or later?  Developers will need to be careful to avoid a definition or period of vacancy that could cut across existing floorspace offsets for CIL. Will authorities seek to back-date rates claims where vacancy is relied on but was not obvious before?
  • Abandonment: The credit will not apply where buildings have been abandoned. This is a high threshold, but also a strange test to choose, being an area of law ill-suited to planning permissions and requiring a mixed objective and subjective test. Unless buildings have become so dilapidated that they are effectively beyond any resumption of a previously authorised use, it will rarely apply.

Local Plan changes

There is a nudge, perhaps unintended, to review Local Plans.  CLG have suggested that the measure is intended to be impact based. If authorities review the impacts and adopt policies that reflect it, the development plan should trump the credit policy.  Authorities in urban areas – particularly London – are now fast tracking this kind of review.  In some areas, a Neighbourhood Plan might be a quicker and easier vehicle in which to do this, given that such plans only need to be prepared 'having regard to' national policy.  According to recent Secretary of State appeal decisions, they can be adopted inconsistently with the NPPF, become immediately out of date (or sit in draft) and still be given determinative weight on appeal.

There is also a nudge to CIL. The new policy can, and should, be reflected in CIL viability modelling for all types of sites.  It may increase the charging rates significantly for strategic sites with material levels of vacant building.  As local authorities look for alternative sources of funding the changes may also lead to more scrutiny of whether the Government's changes to the CIL regime under the Localism Act 2011 did, really, kill off the ability to spend CIL on affordable housing.

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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