A Tower Hamlets councillor has called for the introduction of a flat rate affordable housing contribution by area, similar to the Community Infrastructure Levy.
Andrew Wood, a Conservative councillor in Tower Hamlets who is also an accountant, floated the idea in a letter to industry magazine Property Week. The concept, he says, “makes sense because it will speed up the process, reduce costs, reduce opposition and may bring down the cost of land”.
One area of criticism has been the veil of secrecy that often surrounds the financial detail of viability claims, with councillors delivered only a consultant’s conclusion, rather than having full access to the calculations used. Wood has enjoyed greater access, he said: “As a councillor in Tower Hamlets, I get to see viability reports and, as a qualified accountant, I read them with interest. But it is an almost impossible task to predict a scheme’s profitability years before construction starts and what might be many years before completion.”
“I know of no other industry where something as important as the affordable percentage is set so far in advance.”
Wood’s call joins a growing clamour from councillors and planning officers, for greater clarity on the viability process. And it follows hard on the heels of an announcement from City Hall that a crack team of viability experts is being assembled, to help boroughs strengthen their approach to the assessment of viability arguments.
Excuses such as commercial confidentiality are no longer being tolerated, while there is also a war on blanked out, or redacted, text in viability documents. In February, the borough of Greenwich said it would force applicants to publish their viability assessments, if they reckoned they could not afford the council’s prescribed 35% affordable housing level on a project. And in Islington, where deputy mayor for housing James Murray was previously in post, applicants are required to make clear their expected profits on development.
Wood continues: “I think you should set a medium percentage from the beginning and if the scheme comes in more profitable than expected have a review mechanism close to completion that generates cash that the council can use to build offsite affordable homes.”
He also notes that the traffic is not all one way: “Having read the viability reports, I can see where some developers are trying to game the system, but I have also read reports (validated by independent appraisals) in which the developer is forecast to make a loss but hopes that sales prices will increase above the average for the area. Even on a flagship project, the developer could be willing to just break even.”
Wood says that the reports often highlight the inherent risk in development, and also the substantial range of estimates and outcomes: “In Canary Wharf, we have a lot of these types of schemes. Their sales prices and build costs will all be quite similar, yet we get quite different affordable percentage.”
LPA Perspective: It is helpful to have another councillor’s view from the front line, as a contribution the the affordability debate – particularly one with financial expertise.
However, the suggestion of a scheme similar to CIL will likely not go down very well, at a time when CIL is, itself, under pressure for a major makeover, with some even calling for it to be abolished entirely. An area by area fee structure could, once again, demand a major resource to create it, and then endanger homebuilding in those areas where the tariff was set too high. The law of unintended consequences could apply.
The next step for all involved will be digesting the upcoming SPG from James Murray, which he has promised will include fresh guidance on viability. It is to be hoped the guidance will add clarity, rather than simply complicate the debate. Then, City Hall’s new team needs to be seen in action, so that developers and scheme promoters get a better idea of how it will operate in practice.
Meantime, every borough needs to be taking account of those, such as Croydon, who insert overage clauses in their planning agreements. That is one clear way to ensure that future uplift is captured for the benefit of affordable housing, not simply to be added to developer profits.