Threats to affordable housing delivery from proposed planning changes

The proposed changes in two planning consultations published in August – the White Paper and “Changes to the Current Planning System” – which proposes interim measures – and the shared ownership changes in the Affordable Housing Programme for 2021/26 – could have profound effects on affordable delivery.

The White Paper – divided into three pillars containing 24 proposals – is a consultation and so we cannot be sure what legislative changes there will be. The most important proposals relating to affordable delivery relate to the planning process and changes to planning gain structures, but in addition a major theme is a further move towards home ownership. Housing Secretary Robert Jenrick refers to “recreating an ownership society”, but many would say that has been Government policy since the first days of the coalition in 2010.

The major proposals affecting affordable supply are:

1. the introduction of a new Infrastructure Levy (IL)
2. new categories of planning zones – Growth, Renewal and Protected Areas – speeding up planning with a provision for automatic Outline Permission for stated relevant development types
3. provisions to speed up local plan deadlines with a maximum period of 30 months.

However, s.106 Agreements will not be abolished, rather although the obligation for affordable housing provision will move to the IL, s.106 could still be used for tenure requirements and affordable user restrictions as well as mortgagee protection.

The two most relevant proposals in the changes to the existing system document are:

1. the First Homes Initiative which has been trailed for some time. There will be a requirement for 25% of all on-site affordable housing to be sold as First Homes (by the developer not the RP) at a minimum of 30% market value or at 40% or 50% at the LPA’s discretion
2. an enhanced total unit threshold of 40/50 units before any on-site affordable housing is required.

Will the planning changes reduce levels of affordable housing?

The White Paper firmly says no, claiming it will lead to as much, if not more, affordable housing, allowing LAs to drive up delivery. Many feared the removal of s.106 obligations would severely curtail delivery as s.106 provides at least 50% of current use. Whilst s.106 will not be abolished, Proposal 21 states that LAs “may” use IL funds for affordable provision – ring-fencing of those funds should be essential. The Paper states on-site delivery could be mandatory where LAs have “a requirement” – but surely all LAs have a continuing requirement for affordable housing with long waiting lists?

Proposal 21 states developers will receive a discount against their cash liability under IL to make up for discounted prices to RPs and discounted prices on First Homes sales. Overall, Proposal 21 will reduce choice for RPs and Local Authorities and thus would probably reduce delivery.

The major downside of the combined proposals is the reduction in unit threshold to 40/50-unit schemes. It is simply a question of maths – schemes below 40/50 units will provide no affordable housing so supply is reduced. This would have a disproportionate effect on smaller RPs specialising in smaller schemes. It will also likely lead to larger housebuilders reducing the size of schemes so that they fall below the threshold. Whilst provisions to avoid this are mentioned there will likely be gaps that housebuilders can use to circumvent this.

The various changes could produce a triple whammy for new build rented stock – the increase in the threshold, likely reduction in rural schemes and First Homes taking away 25% of other tenures.

Similarly, the changes are bad news for shared ownership. The 25% top slicing for First Homes will mean LAs are left with only 75% to play with for other tenures and it is suspected that shared ownership will come off worse but the proposed changes for the AHP 2021/26 are catastrophic for shared ownership. Not only will the minimum initial shares sold be reduced to 10%, staircasing will be permitted in 1% tranches – in future being based on a fixed index percentage plus increase rather than price the relevant proportion of a re-valuation of the property, meaning RPs will miss out in a rising market. Even worse is the requirement for Landlords to cover repair costs for the first 10 years and the provisions jointly will obviously have an adverse effect on RP’s appraisals. Why is the Government messing around with a well-established and popular product? The funders’ response will be key.

Three thoughts onthe effect on RPs’ land-led schemesfrom the changes:

1. speeding up the planning process obviously helps delivery
2. increase in the threshold could paradoxically help RPs by increasing the value of smaller sites and thus increasing cross-subsidy for affordable units
3. it has now been confirmed that the affordable elements of these schemes will get relief from IL contributions as they currently do with CIL – so a continuing benefit here.

Consultation on the White Paper has now closed, but some commentators say legislation may not happen until 2024 – an election year!

This article expands on topics covered in our recent social housing webinar. This can be watched in full on Birketts’ YouTube page.

If you would like to discuss any of the matters covered above in further detail, please contact a member of the Social Housing team.

Birketts’ upcoming webinars can be found on our Events pages.