UK: Affordable Housing - Further Developments

Last Updated: 6 March 2009
Article by Murray Shaw

Affordable housing has been a topic of considerable significance in the planning sphere in Scotland over the last couple of years. The Scottish Government has published guidance in terms of PAN74 and more recently in SPP3 (Planning for Housing - An Evaluation of SPP3)

While it is fair to acknowledge that affordable housing has become a topic of growing significance, it would be wrong to assume that the need to provide affordable housing has only recently been identified. The Local Plan relating to the St Andrews area adopted in 1996 recognised the issue some 7 or so years before there was Scottish Government guidance.

In some areas the need for affordable housing is significantly greater than others. Many of the areas where there is greatest pressure are rural areas or areas where there is a high proportion of holiday homes. While there is a dispute about the extent of the problem there is no real issue that there is a significant problem. Over the last 3 or 4 years developers have been expected to contribute more in relation to affordable housing, both in terms of land and/or built houses and/or financial contributions. While the housing market was buoyant developers often took a pragmatic view in relation to the requirements of the local authority. Ultimately it was often more acceptable to meet what might be considered excessive demands than go off to appeal, particularly when there might be no certainty about the outcome of the appeal process. Times have now changed.

A number of developers have argued that affordable housing policies are illegal, either as a matter of principle or in relation to how they require the developer to contribute. No legal challenge has been brought in Scotland however, notwithstanding suggestions to the effect that a number of developers have obtained opinion from Counsel which confirms that policies may be illegal in whole or in part.

Just prior to Christmas the Scottish Government published a paper identifying the extent to which affordable housing has been constructed in Scotland over the period 2005 to 2008. This document is a purely factual record of the position and one which needs to be read with a degree of caution (as the document itself indicates). The information contained in the document (which relates to the period 2005 to 2008) is none the less interesting.

Over that 3 year period the vast bulk of affordable housing in Scotland has been constructed on the basis of public funding with no contribution from developers. Of the 18,763 units which the report identifies as being constructed for affordable housing over that period, some 14,319 have been built entirely on the basis of the public funding. The balance have been constructed on the basis of developer contributions either by way of land, units transferred by the developer, units sold at a discount or some other means of developer contribution. Of these 4 means of delivery the contribution of land or units is by far the most significant, each providing approximately 10% of the affordable housing units built in Scotland over that 3 year period.

Between 2005/2006 and 2006/2007 there was a significant increase in the number of affordable houses built in Scotland with the figures falling back for 2007/2008. It seems likely that this trend will continue in 2008/2009 given the current financial difficulties.

Of the affordable houses provided in Scotland by the public sector (the vast majority) most of these have been provided by registered social landlords for rent – indeed some 79% of the total 14,319 built by the public sector were for renting. There has been some criticism of the fact that this does not help get people onto the property ladder, a common aspiration. In the current economic climate given the lack of loan funds available to purchase properties (notwithstanding the drop in house prices) it seems likely that rented accommodation will continue to play a significant role particularly in this part of the property market.

The report provides information about the split of affordable houses constructed amongst local authorities in Scotland. Glasgow certainly constructed most in the public sector but apparently has none as a result of developer involvement. Edinburgh has been significantly more successive than Glasgow in bringing forward affordable housing as a result of developer involvement, as has Highland.

The report also provides information in relation to commuted payments made available by developers. In relation to the information provided it is interesting to note that while there has not been a significant increase in the provision of affordable housing or land for affordable housing from the private sector over the 3 years considered there has been fairly sizeable increase in the level of commuted payments agreed. In 2005/2007 the figure was slightly in excess of £5m while by 2007/2008 the figure was in excess of £7.5m. What is surprising, however, is that there has been little apparent success in spending that money. According to the report at the start of the period examined (2005/2006) local authorities between them had in hand just in excess of £1m paid by way of affordable housing contributions. At the end of the 2006/2007 period that figure had risen to in excess of £4.5m. By the end of the period 2007/2008 the figure had increased to slightly less than £10m. It appears therefore that while local authorities have been successful in collecting contributions, they have been less successful in spending it. Indeed according to the report in 2007/2008 only some £700,000 or so was spent. This may be because of high land prices (the report does not give any detailed explanation of the position). If so the current initiatives taken by the Scottish Government and the fall in land prices may go some way to helping with that problem – if indeed that is the problem.

In the context of affordable housing the Scottish Government have also produced a consultation paper entitled "Investing in Affordable Housing:- a Consultation" which really looks at the way in which the public sector procures affordable housing.

In the forward from the Deputy First Minister reference is made to a discussion paper which appeared some time ago entitled "Firm Foundations". That document highlighted the role of registered social landlords in providing affordable or social housing. While the forward acknowledges the current difficulties resulting from the "credit crunch", it is clear that the Government still has an aspiration to significantly increase the supply of new housing including affordable housing.

The discussion paper looks at how this might be done in the affordable part of the market and introduces the principle of a more strategic approach to allocation by the identification of lead developers who would operate in geographical areas. It is to these lead developers (which at least in the early stages would be registered social landlords) that the investment programme would be channelled.

The discussion paper raises how the lead developers might be identified and how consortia might be established and who would be entitled to join them. A question is posed as to whether or to what extent private sector bodies might be heads of consortia. It appears that this is certainly not a preferred option for the Government at this stage.

This discussion paper is of significance given that the importance that the affordable housing or social housing market has to play in the housing market overall. Even before the credit crunch developers were concerned about how affordable housing might be procured and in particular the restrictions on their ability to build units and thereafter transfer them as opposed to making land and/or funds available.

Affordable housing may be a key element of maintaining the house building and construction industry in Scotland. In this context finding a way to release the funds that apparently have been built up would go some way to maintaining the industry.

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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