Pressure is growing for viability assessments to be opened up, in cases where they are used to argue for a reduction in planning obligations.
While the chancellor promised efforts to standardise viability assessments, London boroughs are already pushing towards new open book policies. And a recent hearing in front of the GLA’s planning committee heard experts from across the planning sector argue for much greater openness.
Pressure is increasing on the use of viability assessments, as they appear to be brought into play much more often, as developers seek to minimise negotiable contributions. The knock-on effect has been a reduction in affordable housing delivered.
GLA planning committee chair Nicky Gavron noted: “What we’ve been seeing, from 2007 to now, is a significant drop in the amount of affordable housing delivered through section 106, it’s gone from 12% to 3% – why is that? Is it because there’s been a shift in policy, is it just because these sites become less viable?”
Dr Sue Brownlow of Oxford Brookes University said the shift was a combination of policy changes, including a change in the definition of affordable housing. “Cameron’s statement about starter homes now being part of affordable housing is carrying on that trend.”
She said the numbers were not in practice so bleak. “The figures you have given are the ones that are delivered without grant. But quite often section 106 is supplemented by other sources of funding, which means the numbers that 106 is contributed to is actually much higher, over the last ten years 57% of affordable housing has had some form of section 106 contribution.”
Dr Bob Colenutt, senior lecturer from the University of Northampton added: “The NPPF was a game changer. The property industry was never very happy with section 106 and planning obligations, and the NPPF provided the opportunity for them to begin to undermine planning obligation policies in local plans.”
“We’ve had a property boom, very very low interest rates, and a significant drop in the number of affordable housing units negotiated through section 106…. I don’t think there’s any doubt about it, the NPPF has changed the planning system from a system based on the merits of land use, to a system based on viability.”
Tony Mulhall, associate director at the RICS, said that the cumulative impact of the various CILs, both of which are non-negotiable, which means it is just the affordable housing element that becomes negotiable, and that’s probably the bit that flexes.” “We don’t have any categorical evidence, but it’s certainly a place to look.”
But John Wacher, viability and section 106 manager at Islington, was less convinced. “From our perspective, CIL is just a small charge, and that’s not the real issue at the heart of this debate.”
Professor Pat McAllister, professor of real estate at Henley Business School said that the sands have shifted so that more and more the landowner has been allowed to capture the land value. “The way the viability process has evolved is that the preservation of land values has been at the expense, mainly, of affordable housing.”
Wacher said the shift was clear in the boroughs: “What we are seeing is a process that predetermines the outcome of viability and the planning system based upon a decision that’s been made some time previously between a landowner and a developer about the value of that land.”
The committee also debated what is a reasonable profit for developers to make. Robert Fourt, a partner at Gerald Eve, said the RICS does not put forward a target figure, while Islington’s Wacher argued that risk has decreased as values have increased. He said a 20% profit on values is no longer reasonable: “We should see a reduction in profit as a result of that.” His borough has suggested a reasonable amount as around 15-20% on cost, not on value.
Often, local authorities are caught out by rising values, and stand watching as developers make a substantial profit, having successfully argued down planning obligations on a viability basis. Brownlow said there were options open to local authorities, and noted Croydon’s proactive move when it granted permission for the Saffron Square residential development. Brownlow said a carefully worded section 106 agreement allowed the borough to return to developer Berkeley Homes and claw back additional profits, when the stalled scheme went ahead after market prices improved.
But it was the opening up of viability assessments that was the core consideration. “There has to be more openness, and open book accounting could be one way of doing things,” asserted Brownlow.
And Colenutt added: “This is now a very big issue, with the Information Commissioner’s office actually being quite engaged with this. Because, clearly, information that affects major planning decisions is being hidden from the public. And what we found in Greenwich and at the Heygate, was that once we got the unredacted documentts, we were able to uncover quite a lot of the misleading propositions that had been put forward. By hiding this information, the public can’t interrogate it.”
But the crunch matter is about commercial confidentiality, he said. While developers frequently claim this will undermine their ability to negotiate, “quite a lot of schemes are already worked up on an open book basis.”
Some London boroughs are already taking their own steps. Wacher said Islington is planning to say that all information should be made public: “And the overriding test will be the public interest.”
But moving ahead of Islington is Southwark, which recently put a draft development viability supplementary planning document out for consultation. The borough is proposing that developers will have to either sign up to a 35% affordable housing commitment, or else make a viability assessment with their argument publicly available.
“We know the public has had concerns about the way developments are negotiated, and we promised that we would find a way to put all this information in the public domain,” said cabinet manager for regeneration, Mark Williams. “We know developers don’t want to share this information for commercial reasons, but we want our residents to see the workings and understand that we do all we can to get the best deal for Southwark. If developers don’t want to face this public scrutiny then they will have to commit to 35 per cent affordable housing from the outset.”
LPA Perspective: Viability assessments have become a great tool for developers to argue down their planning obligations. Committee members were told how the development market now effectively calculates site values based not on each borough’s affordable housing tariff, but on the level that recent projects have managed to chip it down to.
Having bid top money to win the opportunity, they then send consultants into battle to argue about how little they can afford to pay for affordable homes. And, the committee was told, the worst protagonists threaten borough planners with legal challenges if they dare to question the figures; and pay their consultants a bonus for negotiating down the affordable contribution.
We are now at a point where the market is strong, and plenty of development is taking place. Boroughs should feel they have the strength to follow Southwark, and insist on more openness. They also need to nip down to Croydon, and learn how to include a claw back provision in every agreement they make.
Of course, the other big issue around affordable housing contributions is the government’s move to bring other types of home under the definition. More transparency about who pays for what, and which homebuyers subsidise the delivery of other homes, could prove very informative to all.