The Government’s ‘Planning for the Future’ White Paper proposes some fundamental changes to the delivery of affordable housing which could have ramifications for registered providers and developers alike.
The proposed changes are principally part of a separate consultation entitled ‘Changes to the current planning system’ which considers short-term changes to the current planning system and which the Government hopes will increase the effectiveness of the present system and assist with economic growth. However, some or all these measures could be taken forward into the proposed overhaul of the planning system set out by the White Paper.
The current system sees developers and local planning authorities negotiate levels and tenures of affordable housing up-front based on policy (backed up via viability discussions if sub-policy levels are proposed). Typically, a mix of rent and shared ownership units would be provided and sold to a registered provider based on a payment profile which would help cashflow the development.
The proposals state that the Government’s preferred affordable homeownership product will be ‘first homes’, and they expect a minimum of 25% of all affordable housing units secured through Section 106 agreements to be delivered as first homes. A minimum 30% discount to market sale prices is proposed (and potentially up to 50% discount) with the homes being sold to first time buyers directly by the developer. However, such steep discounts may reduce the value of the affordable housing units below the level a registered provider would have paid for an equivalent shared ownership unit, thereby reducing a scheme’s viability. Furthermore, by bypassing the registered provider altogether for this part of the scheme, there is no cashflow benefit to the developer and there is reduced cross-subsidy for the registered provider to help deliver the less viable rented element. The cumulative impact could be a less viable scheme altogether.
The Government’s White Paper talks of increasing the quantum of affordable housing above current levels and at the same time raising more money from developer contributions compared to the existing Community Infrastructure Levy. These are considerable goals, but as ever the devil will be in the detail. There’s only so much planning gain to be divided up amongst the various ‘pots’. The proposals seek to inextricably link the on-site affordable housing provision with levy receipts so that they could flex up and down with market changes. This begs the question; how will a registered provider purchaser build a development programme with the potential for so many moving parts?
The consultation considers a proposed temporary increase (initially for 18 months) in the site threshold for affordable housing from 10 units to 40 or 50 units in order assist the economy in climbing away from the economic impacts of the COVID-19 pandemic. However, this could well be a further blow to the registered provider sector. Many registered provider’s rely on affordable housing secured on small sites, especially those who operate in more rural parts of the country where large schemes are uncommon but affordable housing need is great. Small settlements do not yield many development opportunities so forgoing affordable housing now will mean a longer wait for those seeking affordable accommodation close to their communities. Equally however, there will be many small and medium sized developers (and some landowners) for whom a proposed increase in threshold will come as welcome news.
The current planning regime is far from perfect; let us hope what replaces it is the step-change we all want, and that the baby does not get thrown out with the bathwater.
We will be closely monitoring the progress of the forthcoming changes and proposed reforms. For further information on the changes, or to speak to one of our Planning & Development professionals, please click here.