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Viability and affordable housing in London post NPPF2


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Summary: The draft London Plan and the new NPPF address the viability debate in different ways. The objective of the new policies in both documents is to secure a larger proportion of affordable housing in residential schemes. However, employing the right tactical and strategic approaches can still allow developers to achieve profitable developments that also create the affordable housing to which Mayoral policies aspire.

Navigating policy

A new National Planning Policy Framework was issued by Government in August last year. The Examination in Public for the draft new London Plan opens on 15 January and the final Plan is proposed to be published this Autumn. The Boroughs’ Local Plans will need to catch up with both. All will be leveraging potentially overlapping planning policies to address the Capital’s worsening affordable housing crisis as best they can. This blog offers a high level guide and some practical considerations for developers navigating the applicable policy matrix.

Viability and the draft London Plan

The draft new London Plan enshrines into a proposed policy (Policy H6) the Mayor’s threshold approach to viability first introduced in his Affordable Housing and Viability SPG in August 20171.

The draft policy requires developers and landowners to build the cost of delivering the Mayor’s 35% affordable housing target into purchase prices for sites. This is to avoid what has been termed the ‘circularity’, whereby some developers have based land values in their viability assessments on prices recently paid by others for comparable sites which had not taken account of policy requirements on affordable housing, leading to a downward spiral in the percentages of affordable housing offered by successive schemes over the years.

Technically, decision makers can only attach limited weight to draft Policy H6 at the moment. But as soon as the panel appointed to conduct the Examination in Public publishes its report, mooted to be this summer, if it is supportive of the threshold approach, then the weight which may be given to this draft policy in planning decisions will increase. This means that up until around the middle of this year, there is scope for Boroughs and the Mayor to apply the threshold approach flexibly to particular decisions. However, if Policy H6 is adopted as part of the London Plan, being the development plan for the Capital, there will be a statutory presumption in its favour.

In practice, of course, decision makers in London are already giving substantial weight to the Mayor’s threshold approach to viability, even though it is not currently adopted policy in any development plan (the London Plan or Borough plan), because it is already contained in the Mayor’s 2017 SPG.

Viability and the new NPPF

The new NPPF takes a different slant to viability. It frontloads the assessment of viability across a Borough to the plan-making stage and assumes further localised debate on a development-by-development basis will be exceptional, leaving it to applicants to ‘demonstrate whether particular circumstances justify the need for a viability assessment at the application stage’. The weight to be given to a viability assessment submitted with an application for a planning permission is, accordingly, a ‘matter for the decision maker’.

But the draft London Plan is being examined against the old NPPF and not the new one, and review of the London Plan to reflect the new NPPF is only to occur sometime in 2020, after the London Plan has been published. So it remains to be determined conclusively what this fundamental difference in assumptions about the place for viability assessment as a whole will mean for the Mayor’s approach, aimed as it is at the application rather than plan-making stage. For now, it remains a ‘matter for the decision maker’.

Options for developers

This means that developers can pursue the ‘Viability Tested Route’ where they do not think that their schemes can achieve 35% affordable housing, though the increasing political imperative underpinning the drive behind this requirement in many Boroughs may lead to refusal.

So many developers are starting to offer a Borough 35% even if they would not have considered historically that such a scheme could support such levels. There may be advantages for the application following the fast-track route rather than the more onerous viability-tested route, which makes 35% worthwhile in the bigger picture.

For example, some Boroughs have already proven more relaxed on heights, densities, uses and even place-making to help more local people into affordable housing where 35% is offered. If a Borough is resisting a locally controversial scheme, offering 35% affordable housing also makes it more likely that it could be called in by the Mayor, who may well be more amenable to it as a result.

As more appeals of refused or non-determined planning applications are being heard where affordable housing is an issue, it is also becoming clear that developers before the Planning Inspectorate are not necessarily bound by positions adopted during consideration by the Borough or Mayor. There is scope for making a higher affordable housing offer on appeal where this may clinch permission. Equally, depending on how the case was couched originally, there is also scope for developers resiling from an original 35% offer.

Facts not feelings

Policy aside, there is also a drive to make viability debates themselves more fact-based. The RICS Professional Statement on viability was published in draft for consultation in October and November 2018.

Recognising that there is a lack of public confidence in the viability process, but also that viability disputes between developers and local authorities can become distant from substantiated evidence on both sides, it proposes 14 mandatory requirements to be applied by surveyors when preparing viability assessments for specific and area wide schemes.

There is a new and stronger emphasis on parties to justify viability during negotiations and a requirement that viability reports are prepared objectively, impartially and reasonably. Any disagreements or differences of opinion between a local authority and a developer must be justified with evidence.

The revised Planning Practice Guidance on Viability (updated in July 2018 in line with the new NPPF) standardises the inputs into viability assessments in the approach to the assessment of gross development value, costs, returns and premiums etc. This will not stop debate around site values. But it does mean that if there are differences during the viability process on site value, a line can be drawn so overall negotiations on viability can move forward.

Taking a step back

Developers capable of operating at scale across a Borough may find it helpful to move away from opportunity-led developments where they can over the next few years. If they take a strategic approach across multiple sites and front-load thinking on planning applications before submission, there is real scope to maximise development profit whilst meeting policy requirements. All the more so if they have the luxury of time and can become involved at a Borough’s plan-making stage.

For example, submitting residential applications on more than one site might allow developers to allocate, in agreement with the local authority, where the affordable and community elements are situated, allowing higher value uses to be maximised within a site and avoiding the politics and late review mechanisms associated with applications subject to a controversial viability debate.

1 - Depending on the percentage of affordable housing offered at the planning application stage, planning applications may either be processed along the ‘Fast Track Route’ or the ‘Viability Tested Route’. 

This blog includes views expressed during a breakfast seminar held at BCLP on 1 November 2018 on housing delivery in London post NPPF2. Panellists included Rupert Warren QC (Landmark Chambers); Robert Fourt (Gerald Eve); Sarah Bevan (London First); and Janany Kathirgamanathan and Sheridan Treger (BCLP).

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