80% of affordable homes lost due to legal loophole exploited by developers
Posted 01 Nov 2017
Developers are using a legal loophole to get out of building thousands of affordable homes across the country every year, according to new research using Freedom of Information laws.
Housing charity Shelter examined how ‘viability assessments’ reduced the number of affordable homes being built in 11 local authorities across nine cities in England.
The research shows that when the loophole was used in the last year, some 2,500 affordable homes (79%) were lost from the number required by council policies.
Viability assessments allow developers to reduce the number of affordable houses they build on their site, if they can show building them risks reducing their profits to below 20%. It means many developers face no penalty for over-paying for land because they can recover the costs by reducing their commitments to building new affordable homes.
The worst affected areas were Manchester, Birmingham and parts of London where viability was used to reduce the affordable housing to a miniscule less than 1% of homes being built.
The research sampled: Birmingham, Brent, Bristol, Cambridge, Leeds, Leicester, Manchester, Newcastle, Oxford, Kensington and Chelsea, and Southwark. But the assessments are being used right across the country so the annual figure of lost houses is likely far higher.
Shelter chief executive, Polly Neate, said: “What this research reveals is the scale at which developers are able to use legal loopholes to protect their profits and dramatically reduce the numbers of affordable homes available for people.
“Through freedom of information powers, Shelter has been able to reveal the extent to which affordable homes are required in local plans, only to be dropped by developers.
“The government needs to fix our broken housing system – and it must start by closing this loophole to get the country building homes that are genuinely affordable for people on middle and low incomes to rent or buy.”
The research reveals that viability is used most frequently on larger developments, which are generally managed by the country’s biggest developers.
Shelter is calling on the government to change national planning laws so developers can no longer use this loophole to get out of delivering affordable homes.
Closing the loophole would provide developers with certainty about the number of affordable homes to build. This would be part of the cost of doing business for all developers meaning they would not need to overpay for land to stay competitive in the first place. Developers playing by these new rules would still be able to make good returns, while providing their share of affordable homes.
Notes to editors:
How viability assessments work
Local Authorities (Councils) prepare Local Plans, which set policies on the percentage of affordable homes that they expect developers to provide in new developments.
Developers apply to Local Authorities (Councils) for planning permission to build homes, and are supposed to follow the policies in the Local Plan – including the percentage of affordable homes.
But according to current national planning rules these policies can be overridden, because developers have a right to “competitive returns” of around 20% on a development. (National Planning Policy Framework, p.41)
Developers can submit viability assessments with their planning applications, showing that the amount of affordable housing required in the Local Plan would reduce their profit margin – and use this to argue that they should be allowed to reduce the amount of affordable housing they build.
Viability assessments are usually treated as commercially confidential, and the details kept secret, meaning that local people cannot challenge them.
Local Authorities have little choice but to approve the planning application, despite the lack of affordable homes. If they refuse permission, the developer can appeal and will probably win, thanks to the national planning rule.
This also acts as a safety net for developers: if their scheme starts to look less profitable than they originally thought they can go back to the council and demand that the affordable housing is reduced, using a new viability assessment. This encourages them to take risks, knowing that if it goes wrong the affordable housing will take the hit.
The result is that fewer affordable homes are delivered, while high levels of developer profit are effectively guaranteed.
Developers factor this loophole in when they’re calculating how much to pay for land. If one developer doesn’t plan on using the loophole, there’ll be another one who does – and that developer will be able to offer the landowner a higher price knowing affordable housing will take the hit. As a result, land prices rise – making it harder to provide affordable homes on future sites.
Findings
Viability leads to a significant loss in affordable housing
Where viability was used in an application, only 7% affordable housing was achieved from our sample. This is less than a quarter of the average council affordable housing policy requirement of 31% across all the sites in this sample. Where viability was not used, 24% affordable housing was achieved.
The use of viability is common
Viability assessments were used in around half (44%) of the sites analysed.
In our sample, 2,525 affordable housing units were lost, compared to what would have been achieved if the local authority affordable housing policies had been followed.
99% of these lost homes (2,500) were lost from sites that used viability assessments.
Viability is more common on larger sites
The average size of the sites whose applications used viability was 130 units. This is compared with an average of 73 units for those sites where viability was not used.
So while viability was used on only 79 out of 179 sites (44%), these sites accounted for 58% of the homes in our sample.
Viability is a significant issue across most of the country, but is particularly significant in some regions.
*All “Non-viability” units counted are above the threshold where Affordable Housing is required. This is normally on sites of 10 units or more.
Research methodology
The research, conducted with EGi, looked at 179 planning permissions, collected from 11 local authorities (LAs) (Birmingham, Brent, Bristol, Cambridge, Leeds, Leicester, Manchester, Newcastle, Oxford, Kensington and Chelsea and Southwark) across nine cities in England (including inner and outer London). The records relate to planning applications granted in 2015/16 (financial year).
For further data and methodology, please contact the Shelter press office on 020 7505 2162 or email press_office@shelter.org.uk