London’s affordable housing delivery volume has tumbled, as developers learned to game the viability assessment game.
That was the revelation from a recent London Assembly session, which revealed low figures for both home completions, and for affordable housing within those developments. The hearing also revealed the labyrinthine funding methods being used to support Housing Zones.
Ahead of the hearing, the GLA revealed that so far this year, just 422 affordable homes have been completed, down from 4,881 in 2015-16 and 17,875 in 2014-15.
Budget monitoring sub-committee chair Gareth Bacon said there was a consistently missed aspiration of building 50,000 homes a year in London. “If we’re going to get anywhere near to where candidates of all parties in the election suggested they wanted to be, and realistically we all want to be as a city, there’s going to have to be an absolute step change in what’s going on or what has gone on before. Do you see that coming? And what would stimulate it?”
Jamie Ratcliff, assistant director at tha GLA, said it would involve all stakeholders, and was a marathon not a sprint. “There isn’t a magic wand that we can wave, but there’s a lot of effort going on.”
“That’s a message we’ve heard before,” replied Bacon. “But eventually something is going to have to change, because constantly targets are profiled to the back end, and they’re not hit. If we’re going to make any kind of dent in the shortage of affordable housing numbers in London, something is going to have to change quite radically. What is going to be the gamechanger?”
“There’s no one single thing we can do,” replied Ratcliff, noting the improvement would be down to a range of actors.
The hearing also revealed quite how adept developers have become at using viability arguments to chip down local borough targets for affordable housing. Ratcliff noted: “One of the numbers that surprised me when we looked in to it was the level of affordable housing permissions in 2014-15 was just 12.8%. So previously we tended to look at the level of completions through planning, which were holding up reasonably well in the low 30s, high 20s. But 12.8% is incredibly low – we haven’t published the figure for 2015-16 yet, but it is marginally better. “That level of low permissions will act as a drag on delivery for some years to come.”
Bacon asked: “Is it a question of local authorities turning things down, or developers simply not putting what we might consider as the right number of affordable applications in?”
“Most permisssions will have an element of affordable housing in them,” replied Ratcliff. “I would be fairly confident in asserting that in almost all cases, the amount that a developer put in as the initial proportion that they were proposed to put in, overall that would be higher.”
Bacon replied: “On a site by site basis, it all comes down to viability, inevitably.”
“We have a chart over time of the percentage of affordable housing over time,” said Ratcliff. “Since 2009, market conditions have definitely been improving but that percentage is dropping really rapidly. So to claim that it’s because market conditions have become more challenging just cannot be the case. And so, because the overall numbers are pretty high, it’s about 50,000 permissions being generated overall, it shows there is capacity to deliver a certain amount, it’s unlikely to be skewed by some individual applications that are very difficult and therefore need lower levels of affordable housing.”
The “self reinforcement” that enabled higher prices to be paid for land, and viability to be used to argue down affordable housing numbers, is diminishing under the new regime, argued Ratcliff.
The hearing also heard about the GLA’s successes, and failures, in funding housing schemes around the capital. “We’ve designated 31 Housing Zones – overall, we’re expecting those 31 zones will deliver over 75,000 homes through to 2026.” The GLA is loaning cash to fund development in the zones, with an average two and a half years length of loan. Over £100m has already been already lent out.
Less successful has been the London housing bank, which committee member Tom Copley noted “has not been able to distribute any of the £200m which were meant to be given out in loans for 3,000 affordable homes – what’s held it back?”
Ratcliff said he was very disappointed that this had not been possible. “We thought it would appeal to build to rent providers, and also potentially on estate regeneration schemes. There was definitely something about it not being well understood.” Legislation required involvement of a housing association partner, which some private companies were not prepared to do.
His colleague David Gallie added: “We are in a world of absolute interest rates being so low. So even though the housing bank is exceptionally low, we’re dealing with big housing associations, essentially here, and actually for them, they don’t have a problem attracting cheap money. It’s not about money here, it’s about capacity.”
Speaking after the meeting, Copley told LPA that “developers have already priced in the new mayor”, having seen him renegotiate affordable housing quotas on several sites around the capital. And, with a team of viability experts being actively recruited to a City Hall team, he expected far fewer situations in future where developers will use viability to reduce their affordable housing contributions.
LPA Perspective: Shocking figures lay bear the way developers, under the previous regime, were able to game the viability system to reduce their affordable housing commitments.
Those low affordable home percentages may now be set to rise, as Copley confidently expects. But Bacon’s request for a step change in housing output went unanswered. Instead, officials seem to be relying on the principle of kaizen, or lots of regular incremental improvements, to help move the needle significantly, in the end.
The GLA is managing eyewatering sums of cash for funding housing schemes, and if only it could ride up the risk curve a little and lend that to smaller developers and builders, that would help. Officials described a due diligence and monitoring infrastructure that is already in place; however, they also implicitly acknowledged their lack of ability to read the target market, in the case of the housing bank.
And the assertion that developers are now fully understanding the new regime is not yet watertight. Writing on his blog, Philip Barnes, the group land and planning director at housebuilder Barratt, recently spoke of continuing “optimism bias” in the land market, adding: “Last week we bid for a huge site, where we will be trading right through the future downturn. Our bid was sensible and realistic but we were accused by the land promoter of having submitted an “insult” rather than a bid.” The winning bidder probably still expects to extract his profit by beating down the planners over affordable home provision….