Affordable housing viability: interpreting the Mayor of London’s SPG

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The final version of the Mayor’s Affordable Housing and Viability Supplementary Planning Guidance (SPG) was published this week. Its aim is to reduce protracted viability discussions for residential planning applications and increase the amount of affordable housing delivered as planning gain by introducing a new ‘threshold approach’ whereby all schemes that provide at least 35% affordable housing will be fast-tracked through the planning system.

So has there been much change since the idea was first mooted and since the draft SPG was published in November 2016?

Modern Residential Buildings

It is encouraging that the GLA has listened to the development industry and sought to make the threshold approach genuinely faster and easier if a scheme achieves the minimum 35% affordable housing provision. The fact they have abandoned the originally proposed ‘light touch’ approach and replaced it with the ‘Fast Track Route’ whereby no viability information is required at application stage should provide a greater incentive for developers to hit the 35% threshold. On the face of it, this will appeal to more applicants and should genuinely speed up the planning process, although this will be dependent upon boroughs signing up to the threshold approach. Whilst the GLA asserts that most of them have done so, clearly there are some boroughs that are likely to ignore it, particularly where their local plan policies may be in conflict and on schemes below 150 units that are not referable to the Mayor. Therefore, the SPG may not have the immediate impact that the Mayor is hoping for whilst we wait for the land market to adapt and any local plan policies that seek viability information in all cases to be revised to overcome conflict with the Mayor’s threshold approach.

Another positive outcome of the GLA’s consultation with the development industry is that the draft SPG previously made an explicit statement that a scheme would have to deliver at least 35% affordable housing and also meet all other policy requirements in order to follow the threshold approach. The wording in the adopted SPG is more pragmatic to reflect the fact that complex schemes in London rarely meet all policy requirements, and instead are a careful balance of planning issues to the satisfaction of all negotiating parties.

A key message in the SPG is that applicants should engage with Registered Providers as early as possible in the planning process and seek betterment through grants. Applicants are also encouraged to engage in early pre-application discussions with the GLA’s viability team.

When considering Opportunity Areas, Housing Zones and industrial land, the SPG gives local planning authorities discretion to apply a localised affordable housing threshold for the Fast Track Route in acknowledgement of the complex issues that often affect such locations and the significant investment in infrastructure that is usually required. Local planning authorities may also consider a local approach in terms of housing mix and tenure through the plan process.

The greatest area of concern, which the development industry will be watching with interest, is the increased use of review mechanisms in S106 legal agreements. It is clear that the Mayor is very keen on using this tool with the aim of augmenting affordable housing delivery in line with any uplift in developer profit. To incentivise delivery, the SPG states that both fast track and viability tested schemes should be subject to an early review if an agreed level of progress on implementing the permission has not been reached after two years of the permission being granted. In addition, viability tested schemes will be subject to a late review, generally when 75 per cent of homes are sold. On larger developments that will be built out over a number of phases the SPG encourages mid-term reviews which are triggered prior to the implementation of certain phases. Whilst the aspiration of maximising delivery is fully understood, this aspect of the SPG risks increasing the cost of finance on any projects which will be subject to review due to the longer term risks and uncertainty, so this could have negative effects on delivery as well as positives.

We will be waiting with interest for the publication of the Mayor’s draft new London Plan, expected in November, to see how this new direction of travel for affordable housing will be further embedded in policy and taken forward longer term.

18 August 2017