The Levelling-up and Regeneration Bill resumed its progress through Report stage in the House of Lords this week, with sessions on 4 and 6 September. This post seeks to identify the main amendments made in those sessions.
I know what you’re all asking – what about the Government’s late proposed amendment to address the nutrient neutrality issue (see my 29 August 2023 blog post The Government’s Big Move On Nutrient Neutrality – Now We Have Seen The Government’s LURB Amendment)? That will be debated at a further session next week, on 13 September 2023. The proposed amendment was in the meantime the subject of an urgent question tabled in the House of Commons by the Green Party’s Caroline Lucas on 5 September 2023. The debate is interesting as a hint of what awaits both in the Lords on 13 September but then once the Bill returns to the Commons for its final stages:
The Speaker agreed that the urgent question was appropriate notwithstanding the Secretary’s written ministerial statement the previous day: “I expect Ministers to come to the House, as I did not think a written ministerial statement was the way to inform the House.”
On being challenged that the amendment amounted to a regression from current standards of environmental protection, the minister, Rachel Mclean responded: “It is important to consider what we are talking about here, which is unblocking 100,000 homes that add very little in terms of pollution. To be clear, our approach means that there will be no overall loss in environmental outcomes. Not only do the measures that we are taking address the very small amount of nutrient run-off from new housing, but at the same time, we are investing in the improvement of environmental outcomes. We do not agree that this is regression on environmental standards. We are taking direct action to continue to protect the environment and ensure that housing can be brought forward in areas where people need it.”
A nuanced question from shadow minister Matthew Pennycook:
“As a result of the Government’s failure over many years to make decisive progress in tackling the main sources of problem nutrients, namely farming and waste water treatment works, the requirements for nutrient neutrality in sensitive river catchments present a challenge to securing planning permission for new housing development. It is therefore right in Labour’s view that the operation of the rules around nutrient neutrality is reviewed with a view to addressing problematic delays and increasing the pace at which homes can be delivered in these areas.
However, we have serious concerns about the approach that the Government have decided on. Not only does it involve disapplying the Conservation of Habitats and Species Regulations 2017, but it does not legally secure the additional funding pledges to deliver nutrient management programmes and does not provide for a legal mechanism to ensure that housing developers contribute towards mitigation.
I put the following questions to the Minister: what advice did the Government receive from Natural England about potential reform of the laws around nutrient neutrality? Did it offer a view on the Government’s proposed approach? Given the amount of mitigation currently available in the pipeline, which is estimated at allowing for approximately 72,000 homes, did the Government consider an approach based on the habitat regulations assessment derogation and a revised credit mitigation system to front-load permissions and provide for future compensatory schemes? If so, why did they dismiss that option? What assessment have the Government made of the impact of their proposed approach on the nascent market in mitigation credits, and investor confidence in nature markets more generally? Why on earth do Ministers believe developers will voluntarily contribute to mitigation under the proposed approach?
Finally, the Government claim their approach will see 100,000 planning permissions expedited between now and 2030. Given that house building activity is falling sharply and the pipeline for future development is being squeezed—not least as a result of housing and planning policy decisions made by this Conservative Government—what assessment has the Department made of the number of permissions that its disruptive approach will unlock within the first 12 months of its operation?”
A rather pithy summation of the position, from the chair of the Levelling Up, Housing and Communities Committee, Clive Betts:
“This is hardly a new problem, is it? The Court decision was in 2018, yet last year we had the levelling-up Bill, which was really a planning Bill with a bit of levelling up added on—no mention of the issue there. In December we had major consultations on changes to the national planning policy framework—no mention of the issue there. The Committee wrote to the Minister and asked how many more consultations on planning issues there would be this year. We were given nine of them—no mention of the issue there. If it is such a serious issue, why has it taken the Government so long to act? It looks like the Government are making it up as they go along. This is a panicked response from the Government to the collapsing numbers of housing starts which the Minister simply wants to do something—anything—about.“
Turning now to the Report sessions on 4 and 6 September 2023 , I set out below the main amendments agreed upon (subject to them surviving the return of the Bill to the Commons). The full list of amendments is much longer and for the detail you can click on the following:
[Many thanks to my Town Legal colleague Amy Penrose for detailed work on all this].
Amendment 184A
This amendment clarifies that inserted subsection (5B) in section 38 of the Planning and Compulsory Purchase Act 2004 requires a determination under the planning Acts to be made in accordance with the development plan and any national development management policies, taken together.
So the replacement to section 38 (6) would now read: “the determination must be made in accordance with the development plan and any national development management policies taken together, unless material considerations strongly indicate otherwise”. What does “taken together“ add? Perhaps to avoid an interpretation that the determination needed to be both in accordance with the development plan and in accordance with any national development management policies – instead look at it all together in applying planning judgment as to whether the determination is in accordance? It’s great being a lawyer.
Amendment 190 (tabled by Baroness Thornhill) – voted through against the Government 186 – 180
The amendment requires the Secretary of State to carry out a sustainability appraisal before designating a national development management policy; it must comply with public consultation requirements and a process of parliamentary scrutiny based on processes set out in the Planning Act 2008 (as amended) for designating National Policy Statements, and it must contain explanations of the reasons for the policy, including an explanation of how the policy set out takes account of Government policy relating to the mitigation of, and adaptation to, climate change.
Amendment 191 (tabled by Lord Ravensdale) – voted through against the Government 182 – 172
The amendment places a duty on the Secretary of State and relevant planning authorities respectively to have special regard to the mitigation of, and adaptation to, climate change with respect to national policy, local plan-making and planning decisions.
Amendment 191A (tabled by Lord Crisp) – voted through against the Government 158 – 149
The amendment specifically places a duty on the Secretary of State to promote healthy homes and neighbourhoods – a huge success for the Town and Country Planning Association’s Campaign for Healthy Homes.
(see also a detailed Schedule to be inserted into the Bill setting out for instance what is meant by healthy homes principles – amendment 191B).
Amendment 193A (tabled by Lord Best) – voted through against the Government 173 – 156
The amendment requires local plans to “identify the local nature and scale of housing need in the local planning authority’s area and must make provision for sufficient social rent housing, to eliminate homelessness within a reasonable period as stipulated in the updated local plan, and to provide housing for persons registered on the local housing authority’s allocation scheme within the meaning of section 166A of the Housing Act 1996.” It would apply both “in relation to social housing provided both by the local housing authority where it retains its own housing stock and by private registered providers of social housing”. The information would need to be updated at least annually.
These are all significant interventions. Let’s see the approach that the Government takes back in the Commons. A motion will also be needed to carry over the Bill to the next Parliamentary session, without which we will see (wait for the LURB pun, wait for it, wait) .. LURB’s labours lost.
The GLA has released consultation drafts of its new London Plan Guidance (LPG) on Affordable Housing and on Development Viability (4 May 2023). The consultation closes on 24th July 2023.
There is a huge amount of detail to take in.
I am very grateful indeed to my Town Legal colleague Susie Herbert for what follows:
Summary
The updated LPG documents will replace the GLA’s 2017 SPG on Affordable Housing and Viability. The new LPG comprises two documents with one covering Affordable Housing and the other covering Development Viability. The Affordable Housing document covers the threshold approach, tenure, grant funding and build to rent while the Development Viability document covers the viability assessment process, principles for undertaking viability assessments, viability assessment information, inputs and sense checking, the review mechanisms and the formulas.
While much of the draft is similar the 2017 SPG with updates to reflect the 2021 London Plan and and to incorporate other guidance that has been released in the interim (such as the 2018 Practice Note on Public Land), some of the proposed changes are of more substance.
These include much more detailed guidance on the process for and the inputs to viability reviews covering a wider range of inputs which suggests a more prescriptive and standardised approach, including more emphasis on optimising the viability of the development including exploring different testing alternative uses; a suggestion that financing costs should be treated differently for different types of developer, and an exclusion of risk items of development costs such as Rights of Light costs or asbestos removal. It is also made clear throughout the guidance that any public subsidy should be included in the development value but that the target return should not be applied to any public subsidy.
There is also more prescriptive guidance on section 106 agreements and to monitoring requirements for both applicants and LPAs with information to be reported to the Planning London Datahub.
There is a more prescriptive approach to mid-term reviews which are now expected for schemes over 500 dwellings as well as those expected to have a build programme of more than 5 years or for estate regeneration schemes. Any surplus return identified in a mid-stage review is expected to be used to deliver affordable housing.
In respect of early stage reviews, the draft guidance effectively rules out force majeure clauses so that the early stage review will apply whatever the reason for delay.
Turning to eligibility criteria, there is a greater emphasis on provision for key workers and the consultation also states that the GLA is considering raising the £60,000 threshold to £67,000 and comments are invited on this.
While the threshold approach remains in place, there is a change in respect of scheme changes which will allow schemes which were originally subject to viability review to follow the fast track route in respect of additional dwellings if there additional dwellings include enough affordable provision to meet the relevant threshold.
While co-living will generally be subject to viability review, there is the potential for it to be assessed under the fast track route if it provides affordable housing meeting the internal space standards and the requirements of policies H5 and H6.
The consultation questions generally ask for comments on and suggestions for improvement for the various sections although there are some specific questions in particular in respect of income caps for intermediate housing.
Affordable Housing Document
Threshold approach
The “threshold approach” first set out in the 2017 SPG remains. This means that the Fast Track Route (FTR) is available for schemes with the minimum of 35% or 50% for public-sector land and industrial sites where there would be a net loss of industrial capacity although the 35% no longer states that it has to be achieved without public subsidy.
There is a change compared to the 2017 SPG in respect of scheme changes for developments that did not qualify for the FTR. Previously any changes would also be subject to viability review but the draft LPG now suggests that if the proposed change is to increase the number of dwellings and that increase would include enough affordable housing meet the relevant threshold, then the FTR is available for the application to make the change to the scheme (paragraph 2.8.3).
The list of applications for which the FTR is specifically expressed not to be available and which must be subject to the Viability Tested Route (VTR) has also been expanded compared to the 2017 version to include co-living (large-scale, purpose-built, shared-living accommodation (LSPBSL) (in accordance with Policy H16) and also applications “where other relevant policy requirements are not met to the satisfaction of the LPA or the Mayor” which reflects Policy H5 C 3). There is further guidance on this at Appendix 2 of the draft LPG which does allow for the possibility of the FTR for co-living if it provides sufficient affordable housing.
Tenure
The draft LPG states that the Mayor’s preferred affordable housing tenure for low-cost rented homes is Social Rent and not London Affordable Rent as only Social Rent homes are eligible for grant funding under the London Affordable Homes Programme (AHP) 2921-26. This is slightly different from the London Plan 2021 which lists both Social Rent and London Affordable Rent as preferred affordable housing tenures (para 4.6.3).
Eligibility for intermediate housing
In terms of eligibility for intermediate housing which is currently subject to a maximum income cap of £60,000, the consultation survey states that the GLA is considering raising the income cap to £67,000 in line with changes to median incomes in London since 2017. Consultees are asked whether they agree with this and to provide comments.
The London Plan requires that intermediate housing is provided for a range of household incomes below the maximum caps for the first three months of marketing. The survey states that the GLA is considering setting out income levels below the maximum level which would apply where the relevant local planning authority has not published local income levels and the survey asks for views on whether this would be a helpful addition to the guidance.
LLR
The section on London Living Rent (LLR) states that rents should not be increased above the rate of the CPI including housing costs within tenancies and that on re-let the rent should revert to the LLR (or lower). It also states that if no tenant has purchased their current home within 10 years, the RP may sell the home to another eligible purchaser on a shared ownership basis.
Key workers
The draft LPG also “strongly encourages” local authorities and housing providers to prioritise key workers when setting eligibility and prioritisation criteria.
Affordability
The guidance covers the new model for shared ownership (SO) homes introduced by the Government in 2021 (which allows for the initial share to be a minimum of 10% rather than 25%) and confirms that only the new SO model homes will be funded by the AHP 2021-26 so the Mayor will expect SO homes to be provided on that basis.
Service Charges
The draft LPG contains a section on service charges which states that Applicants, LPAs and affordable housing providers should ensure that service charges are affordable for residents, and that they do not exceed the cost of the services provided. It also states that applicants should consult with affordable housing providers at an early stage to minimise service charges as part of design and management strategies.
The LPG also states that residents of affordable housing should be given the same rights of access to amenities and facilities within the scheme as occupiers of market housing at no additional charge other than service charges. If an LPA agrees that access to a facility would make service charges unaffordable for residents of affordable housing, this should be excluded from standard service charges and they should be given full optional rights of access at a fair and reasonable charge.
Key features document
A key features document should be provided to potential tenants and purchasers at the start of the marketing period. This should include detailed information on the tenure of a property and the length of any lease, as well as the full range of potential costs, including any expected service charges, permission fees and any other charges (including those relating to resales).
Grant
The draft LPG describes how the Mayor’s grant funding powers work alongside the threshold approach and describes the AHP 2016-23 and 2021-26. In terms of maximising delivery, the FTR is available where an applicant commits unconditionally to provide at least 40 per cent affordable housing with grant (or 50% on public or industrial land). However, if the s106 will allow for a lower level of affordable housing than the relevant threshold if grant is not available, the scheme must follow the VTR.
If grant is not available at the application stage but grant funding subsequently becomes available, the S106 should require that the level of affordable housing proposed in the grant application is provided.
Build to Rent
The BtR section has been updated and reflects the London Plan 2021 Policy H11.
Securing delivery
There is a new section on securing delivery which sets out what a section 106 agreement should include such as restrictions on occupation and ensuring that affordable housing is not concentrated in final phases. It states that the affordable housing should be sold to an RP on a freehold or long (990 years) leasehold basis. The section 106 agreement should secure obligation in line with the LPG and the Mayor’s standard section 106 clauses such as eligibility, affordability and review mechanisms. The section 106 should also provide for the recycling of subsidy in the event that a home is no longer provided as affordable housing.
Monitoring and implementation
There is also a section setting out the applicant’s and the LPA’s responsibilities in respect of monitoring and implementation. The applicant should submit information on the affordable housing to be provided and the outcome of any viability review in a standardised format specified by the GLA.
The section also expands on the requirement under London Plan Policy H7 for boroughs to have clear monitoring processes with annual publication of monitoring information. It is strongly recommended that this monitoring is undertaken by specialist officers or teams wherever possible and the costs of this should be met by applicants.
Development viability
Principles for undertaking viability assessments
The guidance in Section 3 on the principles for undertaking viability assessments is significantly more detailed than the equivalent sections in the 2017 SPG.
There are also additional sections on:
(a) how viability assessments should be objective and realistic with requirements for assessors;
(b) modelling sensitivity testing of assumptions and inputs and value growth and cost inflation;
(c) optimising the viability of development with detail of how applicants should demonstrate that the proposed scheme optimises site capacity through a design-led approach which may include testing different residential typologies such as BtR and build for sale; and
(d) sense-checking.
The consultation survey asks whether the approaches set out in these sections are practical and will help to ensure that viability assessments are robust.
Viability assessment information, inputs and sense-checking
Again there is further additional detail on the inputs for the viability review compared with the 2017 SPG including on affordable housing values. This section also includes new detailed guidance on sales values, investment values, commercial property, grant and public subsidy, development programme, finance costs and other development costs. There is also a further section on sense checking.
Review mechanisms
Early Stage Reviews
In respect of Early Stage Reviews, there is a new paragraph on substantial implementation which makes it clear that provisions that seek to delay the trigger date for an Early Stage Review should not be included in the section 106 agreement. The reasoning is that the review is intended to secure additional affordable housing where viability allows, regardless of the reason development may have been delayed. This means that force majeure clauses which had sometimes been agreed to in light of the disruption caused by the pandemic will no longer be accepted.
There may be more flexibility on the definition of substantial implementation as the paragraph now makes clear that the description of works is an example of substantial implementation rather than a definition of it.
Where a payment in lieu of on-site affordable housing is made following an ESR, the guidance states that this can be included as a cost in subsequent reviews.
Mid-Term Reviews
The 2017 SPG stated that LPAs should consider mid-term reviews for larger developments that will be built out over a number of phases. This is expanded in the draft LPG. The draft guidance states that Mid-Term Reviews should be provided for larger phased schemes including those that propose 500 or more residential units (or for mixed-use schemes, the equivalent amount of development in floorspace) and that there may be other circumstances where Mid-Term Reviews are required for example where the construction programme is five years or longer or for estate regeneration schemes.
The timing for Mid-Term Reviews is to be agreed with the LPA or the Mayor as applicable. For outline or hybrid schemes it may be appropriate for reviews to take place as part of reserved matters applications to enable affordable housing to be included within the design of the relevant phase or future phases.
Mid-Term Reviews should assess the scheme as a whole, taking into account actual values and costs for earlier phases, and estimated figures for subsequent phases. They will not be conditional on reaching a specific level of progress by a trigger date.
Terms of viability review mechanisms
This section sets out more detail on the terms of VRMs to be included in s106 agreements. This includes that any public subsidy is included in the development value figures but that the target return should not be applied to any public subsidy.
For Mid-Term Reviews, the guidance states that it is most appropriate that they follow Early Stage Reviews in that any surplus return should be applied to the delivery of affordable housing. For Late Stage Reviews it may be acceptable for an element of surplus return to be retained by the applicant but not exceeding 40%.
There is also an additional requirement to ensure reporting of information to the Planning London Datahub on the number and tenure of affordable housing by unit and habitable room secured in the application and the outcome of reviews including additional affordable housing, changes in tenure and any financial contributions.
The Formulas
Formula 1a – this is unchanged except for a note which states that the review GDV and build-costs figures should include the commercial component where relevant.
Formula 1b – the note now clarifies that the application and review stage GDV figures should include any public subsidy that is available at the time of the assessment but this should be excluded when calculating developer return.
Formula 3 on late stage reviews contains additional guidance on how the assessment should be adjusted for BtR if they were originally assessed as build for sale.
There is a new Formula 5 for Mid-Term Reviews based on Formula 2 but using actual values and costs for completed parts of the development at the time of the review and estimated figures for the rest of the scheme.
There is also a new Formula 6 for converting affordable housing to a more affordable tenure.
The specific BtR formulas from the 2017 SPG (Formulas 5 and 6) are not included.
In terms of viability deficits, the draft guidance states that deficits should not normally be accounted for in review mechanisms and should only be allowed exceptionally where agreed by the LPA (and the GLA). Deficits should not be included in reviews for schemes that have followed the FTR. The extent of any deficit should be determined by the LPA and the Mayor. A breakeven appraisal can be undertaken at application stage to assess the level of GDV and build costs at which the RLV equates to the BLV. The breakeven GDV and Build Costs should replace the application-stage GDV and build cost figures in the formulas.
Thank goodness we have a long weekend to take all this in! I’ll be testing you on Tuesday.
Simon Ricketts (with thanks again to honorary guest blogger Susie Herbert), 6 May 2023
Brave timing, with local elections this week, but it is helpful finally to see some detail today as to Labour’s proposed approach to planning reform in today’s Times piece, Starmer’s growth plan is built on houses (The Times, 1 May 2023 – behind paywall):
“Labour will pledge to restore housebuilding targets and hand more power to local authorities; promise 70 per cent home ownership and hundreds of thousands of new council homes. Given the resistance of so many local authorities to development, that may sound like a contradiction in terms. But I’m told a Starmer government would wield both carrot and stick: councils would be made to work together to come up with plans for development at a regional level, spreading a burden few want to shoulder individually, with cash and infrastructure as the prize for new housing. (Bafflingly, they are under no obligation to work together now.) If proposed developments meet the standards set out in those local plans, they will be approved. So no longer would each town hall have to agree to what one senior Labour source calls “shitty speculative developments” to meet targets arbitrarily imposed upon them. But nor will they be allowed to opt out of building either.
Starmer’s government would also look anew at the green belt, swathes of which — including a petrol station in Tottenham Hale, north London — are neither green nor pleasant. Those sites would be liberated. Not all politics is local, however. We can also expect to hear more about national projects, driven from the centre too: intensive development on the 50-mile Oxford-Cambridge Arc and a generation of new towns are all under discussion as Starmer’s aides work up plans to be announced at Labour conference in September.”
Obviously, more detail is needed and some policy nuances are lost in this summary – for instance:
We still do have targets, it’s just that they will become even more of an advisory starting point than at present.
We still have the duty to cooperate, indeed it seems from a Planning Resource story this week it seems that there may even be a re-think as to its replacement, in relation to housing numbers as opposed to infrastructure and nature strategies, by some vague alignment approach.
But, really, contrast even this thumbnail sketch of Labour thinking with new housing and planning minister’s Rachel Mcclean’s rather defensive and dare I say it unimpressive appearance before Select Committee this week. Much unsubstantiated assertion, much “we’ll come back to you on that”. NB Advice to any politician, never question Lichfields’ research – you won’t win!
Turn away if you feel uncomfortable about use of the B word, but…
I was as unconvinced by her explaining away the current wave of local planning authorities which have paused local plan production as I was later in the week during her appearance on BBC’s Question Time when she became animated in response to someone who asserted that Brexit was one of the causes for this country’s current poor economic performance.
Recognise the issues, own them!
On reflection, perhaps Labour’s unveiling of its approach to housing and planning has come at precisely the right time (although I won’t let that party off the hook on Brexit either…)
8.1 Part 4 of the Bill introduces a charge to be known as the “Infrastructure Levy” in England. In addition the Secretary of State is given the power to designate the HCA a charging authority for the purposes of the Infrastructure Levy.
8.2 The Community Infrastructure Levy (CIL) is abolished in England, other than Mayoral CIL which continues to exist in Greater London.
8.3 CIL continues to apply in Wales.
8.4 Schedule 11 of the Bill inserts new sections 204A to section 204Z1 into the Planning Act 2008 (“PA 2008”) giving the Secretary of State the power to make regulations (IL regulations) providing for the imposition in England of the Infrastructure levy. The regulation-making power creates the framework for an IL regime that looks is strikingly similar to CIL in some respects, but with some significant differences. Key features:
(a) Like CIL, LPA to be IL charging authority and IL regulations can so designate other councils and bodies as well;
(b) Like CIL, a person will be able to assume IL liability before development commences, and becomes liable when development commences;
(c) Like CIL, the IL regulations must make provision for liability when no-one has assumed liability;
(d) Like CIL, the IL regulations may make provision about matters such as partial liability, apportionment of liability, transfer of liability and exceptions from and reductions in liability;
(e) Like CIL, IL to be calculated when development “first permits development”, and IL becomes due on commencement [but Regulations may provide for it to be paid on account or in instalments];
(f) Like CIL, “development” is a defined term and IL regulations must define planning permission, define the time at which the planning permission is regarded as first permitting development;
(g) Like CIL, IR regulations must make a charitable exemption where the building is wholly or mainly used for charitable purposes, and may provide for charitable exemption in other circumstances;
(h) A charging authority must issue a charging schedule and in setting rates must have regard to the level of affordable housing funding from developers over a given period, the economic viability of development, the potential economic effects of including land value increase of certain matters, the amount of IL received from developments over a given period and the charging authority’s infrastructure delivery strategy;
(i) Unlike CIL, the IL regulations may allow for a much wider variety of approaches to rate-setting: differential rates for different uses or zones areas; nil or reduced rates; rates calculated not just by floorspace but by numbers of units, buildings, or by allocation of space within units or buildings, or in any other way;
(j) Unlike CIL, IL is to be charged as a proportion of property value (this has not yet been fully fleshed out);
(k) Like CIL, charging schedules must be subject to public examination procedures;
(l) IL to be applied in the same way as CIL, to fund the provision (etc) of infrastructure to support the development of the charging authority’s area. “Infrastructure” includes affordable housing (as the PA 2008 did before that reference was removed by the CIL Regulations), and the regulation-making power still includes power to amend the definition of infrastructure for IL purposes;
(m) Unlike CIL, there is an interesting “relationship with other powers” paragraph (para 204Z1), under which the IL regulations may include provision about how the following powers are to be used or are not to be used:
(i) Part 11 of the PA 2008 on CIL;
(ii) section 70 TCPA 1990 (planning permission);
(iii) section 106 TCPA 1990 (planning obligations); and
(iv) section 278 Highways Act 1980 (execution of works).
8.5 The Policy Paper explains further that it is the Government’s intention indeed to reduce the scale of s106 planning obligations so that s106 agreements will be used:
(1) on the largest sites in place of IL (provided that the value of the infrastructure being provided in that way is not less than that which would be achieved under IL); and
(2) on other sites where “narrowly focused” s106s will be used to provide onsite infrastructure.
8.6 The Policy paper also makes reference to removing the role of negotiations in delivering affordable housing, suggesting that the Government’s intention is that AH will be delivered through the IL.”
As set out in the policy paper, when providing for the detailed regime by way of Regulations, the Government will:
• Introduce a new ‘right to require’ to remove the role of negotiation in determining levels of onsite affordable housing. This rebalances the inequality between developers and local authorities by allowing local authorities to determine the portion of the levy they receive in-kind as onsite affordable homes.
• Consider how the Levy should be applied to registered provider-led schemes.
• Require developers to deliver infrastructure integral to the operation and physical design of a site – such as an internal play area or flood risk mitigation. Planning conditions and narrowly targeted section 106 agreements will be used to make sure this type of infrastructure is delivered.
• Detail the retained role for section 106 agreements to support delivery of the largest sites. In these instances, infrastructure will be able to be provided in-kind and negotiated, but with the guarantee that the value of what is agreed will be no less than will be paid through the Levy.
• Retain the neighbourhood share and administrative portion as currently occurs under the Community Infrastructure Levy.
• Introduce the Levy through a ‘test and learn’ approach. This means it will be rolled out nationally over several years, allowing for careful monitoring and evaluation, in order to design the most effective system possible.
By way of IL the Government is attempting to extend the Community Infrastructure Levy, massively, in three directions:
(a) to make local planning authorities responsible for the delivery of affordable housing, using funds raised by the levy – meaning that the monies raised from development will be at many multiples of current CIL rates.
(b) to charge the levy on the basis of gross development value rather than floorspace.
(c) to make introduction of the levy compulsory.
I have now read the relevant parts of the Bill (sections 113 to 115 and Schedule 11), explanatory notes and policy paper many times and I must confess that there is much that I still don’t understand or which is still a blur pending further detailed work.
“The process for negotiating developer contributions to affordable housing and infrastructure is complex, protracted and unclear: as a result, the outcomes can be uncertain, which further diminishes trust in the system and reduces the ability of local planning authorities to plan for and deliver necessary infrastructure.”
“Securing necessary infrastructure and affordable housing alongside new development is central to our vision for the planning system. We want to bring forward reforms to make sure that developer contributions are:
• responsive to local needs, to ensure a fairer contribution from developers for local communities so that the right infrastructure and affordable housing is delivered;
• transparent, so it is clear to existing and new residents what new infrastructure will accompany development;
• consistent and simplified, to remove unnecessary delay and support competition in the housebuilding industry;
• buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.” (paragraph 4.5)
Now that we see what is emerging, I do not believe that anyone is suggesting that IL will be simpler than CIL. Undeniably it will be more complex (and indeed in London we will need to grapple both with CIL and IL – the work is doubled).
But I am concerned that it will be less predictable as well. Why does predictability matter? The main inflexion points in a typical development are as follows:
1. the contract to acquire the property, pricing-in likely development costs, including CIL/IL
2. scheme formulation so as to arrive at a proposed quantum and mix of development which is likely to be financially viable whilst working within likely planning constraints
3. negotiation of section 106 agreement and conditions such that permission can be issued
4. securing development funding and potential pre-lets and land parcel sales
5. letting the construction contract
6. sale of completed development, whether individual plot/flat sales or investment disposal.
If a reliable estimate of IL liability is not available for stages 1 to 3 and a concluded figure, which can relied upon as a final outcome, is not available for stages 4 to 6, development becomes much more difficult. How do you price, allocate risk and enable each party to the development to decide whether they are prepared to press the button?
The current proposals seem very blurred so far as to how and when gross development value, and therefore the amount of IL payable having regard to any relevant local thresholds, will be determined.
In terms of “how”, will it be for each developer to submit its valuer’s estimate of GDV for the completed development (or relevant completed phase), presumably prior to commencement of development? Or will there be some independent assessment? Or will there be any standardised values (for instance for development below a defined scale or value)? It is difficult enough with CIL where the moving parts are floorspace levels for each use plus the application of reliefs and exemptions. To these moving parts will now be added the inherent subjectivity that comes with valuation (accentuated where you have a type of development without readily available comparables, or subject to unusual restrictions or constraints?) and then the application of so far undefined thresholds – building costs for the area have been mentioned, but what about, for instance, existing pre-development land values (and will these be sufficiently site-specific)? The number at stake will also be much larger than is currently the case with CIL. Each process is going to be strongly argued over as the outcome will directly impact the financial bottom line of the developer and, ultimately, project viability.
In terms of “when”, will we be able to go “nap” on a figure at commencement of development or is the figure to be revisited on development completion or sale? Will any procedures for review or appeal carry on after development has commenced or will commencement of development be the cut-off?
If the authority subsequently requires affordable housing to be provided in the scheme by way of the “right to require”, how does this get taken into account in the calculation of GDV?
At what stage will a developer have certainty that a scheme is regarded as sufficiently large or strategic for IL not to apply? Can he opt in or out? Will there be local thresholds (which would inevitably influence scheme size, depending whether IL was regarded as a more or less advantageous mechanism than simply relying on section 106)?
It seems that “in kind” section 106 or other types of agreements will be required but the actual quantum of IL attributable to the development will not be known for certain at the stage the section 106 agreement is completed.
Will an authority’s targeted quantum of affordable housing, both borough/district wide and for particular areas or sites, be set out in its local plan, or infrastructure delivery statement? And will developers in future be bringing forward development proposals without reference to any anticipated affordable housing element? The local messaging is going to be complicated.
How rigorously will IL charging schedules be examined? The underlying valuation work and the thresholds to be applied will be critical.
How can we make sure that IL proceeds are used in the right way and that more affordable housing is indeed delivered, as well as the infrastructure needed to enable particular development proposals to come forward without delay?
Will the system be robust and workable in appeal situations where the developer and authority may not necessarily see eye to eye?
It is going to be fascinating to work through these sorts of issues as the proposals take shape. At this stage, what protections do we want to see in the Bill itself to safeguard against the detailed regime subsequently not living up to the Government’s promises? The Government’s commitment to a “test and learn” approach to the introduction of IL is welcome but of course risks adding to complexity by creating a patchwork of different processes dependent on geography and/or when schemes come forward – and accepts that there are inevitably going to be mistakes and unanticipated outcomes along the way.
I wasn’t particularly planning to run a clubhouse session this Tuesday but if anyone would like to join a discussion on these sorts of issues, let’s re-think that. Let me know!
Finally, another plug for the Town Legal/Landmark Chambers webinar at 5 pm on Monday 6 June back on the theme of housing: “Will the Bill deliver more or less housing? Yes or no?” Simon Gallagher (Department of Levelling Up, Housing and Communities) will join Zack Simons (Landmark Chambers), Kathryn Ventham (Barton Willmore now Stantec) and myself in a session chaired by Town Legal’s Meeta Kaur. Join us here.
Simon Ricketts, 28 May 2022
Personal views, et cetera
Details from image by Megan Bucknall courtesy of Unsplash
First Homes have been stuck onto the “affordable housing policy” collage, not as net additional affordable housing but as a replacement, mandated by policy, for other forms of affordable housing which would have been secured by local planning authorities in any event.
I summarised the 24 May 2021 government announcement and how the first homes mechanism is meant to operate in my 28 May 2021 blog post Moving Into First Homes: 3 Key Deadlines (TL;DR: at least 25% of all affordable housing secured on a development should be first homes; must be for first time buyers; must carry at least 30% discount in perpetuity; household income cap of £80,000, or £90,000 in London).
The House of Commons Library first homes information page (3 November 2021) is also useful for its links to the relevant announcements and documents.
As I summarised in the blog post, there were three key dates to implementation of the new regime:
“28 June 2021
From the guidance: “ Local plans and neighbourhood plans submitted for examination before 28 June 2021, or that have reached publication stage by 28 June 2021 and subsequently submitted for examination by 28 December 2021, will not be required to reflect the First Homes policy requirement”
(However: “Planning Inspectors should consider through the examination whether a requirement for an early update of the local plan might be appropriate.”)
28 December 2021
From the guidance: “The new First Homes policy requirement does not apply for the following:
• sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021”
28 March 2022
It also does not apply to “applications for full or outline planning permission where there has been significant pre-application engagement which are determined before 28 March 2022”.
So if you wish to avoid the new requirement and you are not in an area where a plan has been adopted under the transitional arrangements, you need to have submitted your application so that it will be determined (or so that that the statutory right to appeal on the basis of non-determination has arisen) by 28 December 2021 and if there is any doubt as to whether you will meet that deadline it would be prudent to have engaged in “significant pre-application engagement” such that the deadline for achieving permission is 28 March 2022.”
The first two dates have now passed. I have not yet seen examples of first homes being secured as part of a section 106 agreement. What experience is there out there?
As originally promised in the May 2021 announcement, on 23 December 2021 DLUHC published model section 106 clauses for first homes. At the same time it updated its planning practice guidance. It is really good to see the model clauses, which will be a useful starting point.
Stuart Tym from Shoosmiths wins the “working over Christmas” prize with his excellent 5 January 2022 Local Government Lawyer article First Homes: model Section 106 agreement (although I’m going to deduct a point for his conclusion that “the devil remains in the detail” – when is the devil not in the detail?!).
The first clubhouse Planning Law Unplanned session for 2022 is at 6pm on Tuesday 11 January and will be another really key event, particularly if you have any interest in the survival of theatre and live arts in the face of this pandemic: “MAKING DRAMA OUT OF A CRISIS: theatre vs covid”, featuring Broadway theatre producer (and ex US environmental lawyer) David Siesko; chair of Shakespeare’s Globe (and former planning lawyer) Margaret Casely-Hayford CBE, and theatre manager/Theatres Trust cultural policy manager Tom Stickland. Link to app here.
Simon Ricketts, 7 January 2022
Personal views, et cetera
Just What Is It That Makes Today’s Homes So Different, So Appealing? by Richard Hamilton (1956)
We all had a good, evidence-based, moan about CIL on clubhouse last week.
Stonewater (2) Limited v Wealden District Council (Thornton J, 15 October 2021) is of course only the latest example of the complexities and uncertainties that arise – in particular on the question of application of reliefs and exemptions (the importance and number of which has been driven by the fact that CIL liability is in most cases so significant) but also on the question of how to mesh the operation of the CIL regime with the operation of the planning system without jamming the whole thing up.
Land with planning permission for 169 houses was acquired by Stonewater, a registered provider of affordable housing. The section 106 agreement provided for 59 dwellings within the development to be affordable housing, with a specified tenure mix. The number of affordable housing units was to “comprise 35% of the Dwellings within the Phase (which shall be rounded up to the nearest whole unit”.
Stonewater’s model was more enlightened than that of the developer which had secured the permission. Stonewater “regularly acquires sites which are subject to a section 106 agreement which secure a low or policy compliant level (35%) of affordable housing, with a view to increasing affordable housing delivery to 100%. The Court was told that this is not unusual, and the Claimant is not alone in doing so. Grants from Homes England are based on the principle that registered social housing providers provide additional affordable housing over and above the levels secured in planning obligations.”
Relief from CIL is available for affordable housing via social housing relief. There are criteria set out in regulation 49 of the CIL Regulations which do not include any requirement that the affordable housing is secured by way of section 106 agreement or condition. After all, if there is a clawback period of seven years within which CIL has to be paid with interest if the occupation no longer meets the criteria for relief.
Unsurprisingly, Stonewater sought social housing relief for the whole development, given that it proposed to deliver it all as affordable housing meeting the criteria in regulation 49. The council refused relief on the basis that a varied section 106 agreement would first be required, committing in the agreement for all the dwellings to be delivered as affordable housing. The council later additionally argued that the existing section 106 agreement was to be interpreted as rendering it unlawful for more than 35% of the dwellings to be delivered as affordable housing.
It might be asked why Stonewater didn’t simply enter into the section 106 agreement required – but of course that would have been likely to destroy its entitlement to Homes England funding given that on the face of it there would then be no additionality, and why should it enter into a further agreement if that was not required by the Regulations? Stonewater challenged the council’s decision by way of judicial review. The first issue melted away once the Secretary of State was joined as an interested party and the council conceded that a section 106 agreement obligation that a dwelling be delivered as affordable housing is not a prerequisite to a claim for social housing relief (although it can be useful evidence that the dwellings will be used in a way that meets the criteria for relief) – as did any notion that the relief is discretionary on the part of the authority rather than mandatory. So the only question was whether delivery of more than 35% of the homes would be in breach of the section 106 agreement.
The judge saw the 35% requirement as fixed, not a minimum:
“In my assessment, the language of the document points to an interpretation that the agreement controls the amount of affordable housing that can come forward, by fixing a specific requirement of 59 dwellings or 35% affordable housing. Paragraph 2(iii) of Schedule 1 says that precisely 35% of the units in any phase must be affordable. Accordingly, if the development proceeds in multiple phases, there must be 35% in each phase and thus, inevitably, as a matter of maths, 35% in aggregate. This specific requirement permeates the definitions, which draw a clear distinction between the ‘Affordable Housing Units’ which are “the 59 Dwellings … which shall be for use as affordable housing” and ‘the Private Dwelling Units’ which means everything other than the 59 Dwellings. Paragraph 3 of Schedule 1 provides the mechanism whereby the Council can exercise control in all cases (not just multiple phases) over the provision of affordable housing. The, broadly defined, Affordable Housing Scheme must be submitted for approval and development may not commence until the Council has approved it.
Accordingly, a scheme which provides less, or more units, of affordable housing would not comply with the section 106 requirement to provide 59 units and hence would be contrary to its terms and to that extent unlawful, albeit the Council would have a discretion to vary the Section 106 agreement or enter into a new agreement.”
I must say I find this a strained interpretation. As the claimant pointed out, there would be no reason in policy to restrict the amount of affordable housing in the scheme – why should the developer not be free to dispose of any of the dwellings at less than market value? Indeed, although not I think mentioned in the judgment, how would such a restriction meet the test in regulation 122? Would an authority really succeed in arguing that a developer was in breach of its section 106 agreement if it disposed of market units at less than market value? Of course not.
The judge asserted that “whilst affordable housing is generally desirable in policy terms, it does not follow that more affordable housing is always desirable without limit. There may be proper planning reasons to prefer a mixed scheme. For example, in this case, the Court’s attention was drawn to extracts from the Planning Officer’s report which suggest the expected CIL receipts from a scheme with 35% affordable housing were relevant to the decision making. The highways authority had expressed concern about the potentially severe impact from the development on the local highway network and considered mitigation was required. It was common ground that the necessary mitigation was to be funded by the CIL receipts from the development. However, it is neither necessary nor appropriate for this court to evaluate any preference for a mixed scheme on the facts of this case. It is sufficient to say that it is in accord with the statutory planning context, and / or “common sense”, to have a section 106 agreement which retains control over the provision of affordable housing. This does not defeat the achievement of more affordable housing since the Council, in the exercise of its planning judgment, may vary the Section 106 to permit this, if persuaded of its desirability.” However, how does this sit with the council’s position that it would grant the relief simply if Stonewater entered into a section 106 agreement varying the previous arrangements and requiring all the dwellings to be affordable?
Surely, instead, this was an overly prescriptive reading of the Regulations on the part of the authority and a strained interpretation of the section 106 agreement on the part of the judge? It is truly depressing to think about how long commencement of development is held up on schemes until disputes such as this are resolved – and how so much money has been wasted on all sides.
Simon Ricketts, 13 November 2021
Personal views et cetera
This week’s Planning Law Unplanned delicacies on clubhouse, at 6pm on Tuesday 16 November, will be Sage and Tulip. We’ll be hearing from Kate Olley, who appeared for Mr Sage in the recent High Court case on the important and topical question as to when planning permission is needed to run a business from home, and we’ll be discussing the Secretary of State’s refusal of planning permission for the Tulip in the City of London. Aside from Kate, our guests include arch-planorak, barrister Zack Simons. Thoughts on the decisions? Then join us, to listen or participate. Link to app here.
…really don’t want other people to have houses, do they?
FT, 19 June 2021Times, 19 June 2021Telegraph, 19 June 2021
The prime minister can hardly be surprised when the affluent home-owning constituents of Chesham and Amersham register a protest vote against his plans for change, thinking that in some way he is coming for their beautiful part of the country, even though it bristles with statutory protections from development. First there has been the insensitivity with which HS2 has been forced through the Chilterns AONB with the case for longer tunnelling rejected (see my 30 July 2016 blog post HS2: The Very Select Committee) and secondly, as hitherto loyal Conservatives, they will have taken the prime minister at his word when with typical hyperbole he said in his foreword to last August’s white paper:
“Thanks to our planning system, we have nowhere near enough homes in the right places. People cannot afford to move to where their talents can be matched with opportunity. Businesses cannot afford to grow and create jobs. The whole thing is beginning to crumble and the time has come to do what too many have for too long lacked the courage to do – tear it down and start again.
That is what this paper proposes.
Radical reform unlike anything we have seen since the Second World War.
Not more fiddling around the edges, not simply painting over the damp patches, but levelling the foundations and building, from the ground up, a whole new planning system for England.”
“And, above all, that gives the people of this country the homes we need in the places we want to live at prices we can afford, so that all of us are free to live where we can connect our talents with opportunity.
Getting homes built is always a controversial business. Any planning application, however modest, almost inevitably attracts objections and I am sure there will be those who say this paper represents too much change too fast, too much of a break from what has gone before.
But what we have now simply does not work.
So let’s do better. Let’s make the system work for all of us. And let’s take big, bold steps so that we in this country can finally build the homes we all need and the future we all want to see.”
How easy it must be for other parties and for campaign groups to scaremonger when such coarse analogies are used – war, tearing things down, levelling foundations, building from the ground up.
The paper itself was not nearly as radical as the foreword would suggest and we have seen no further detail since. And so he is now on the defensive:
The Independent, 18 June 2021
“What we want is sensible plans to allow development on brownfield sites. We’re not going to build on greenbelt sites, we’re not going to build all over the countryside.”
[What does this even mean? Of course there will continue to be green field development, and of course some green belt development – as there is under the current system].
This is such an unnecessarily controversial issue, carelessly caused, cynically amplified. The planning system doesn’t need to be torn up and was never going to be torn up. But where have the ministers been to explain, to persuade, to engage? Instead, a resounding, almost embarrassed, silence since that August 2020 white paper. The news vacuum as to the form that changes are likely to take has of course been filled with media speculation and campaigners’ characterisations which have now served to make the whole question more political than it ever needed to be.
We all know that what is needed is for the current planning system to work better, largely through clearer carrot and stick policies, through specific process improvements and simplifications – and with better resourcing. So as to deliver, yes, more homes, yes economic growth, yes in a planned way, yes meeting environmental and social, not just economic, goals. But none of that’s going to happen now is it? Because politics is all about retaining power, and planning is dependent on politics. So if you are relying on the planning system to enable you to move out of your parents’ house or out of an HMO; to start a family, or to grow a business, you know what? Your needs don’t matter. Not against the needs of a politician who doesn’t want to be the next Peter Fleet.
All this of course means that the current system needs to continue to work as best it can. The good news is that at least this week we had that Colney Heath appeal decision letter to demonstrate that the entire system is in fact not in total meltdown. If an area is without an up to date plan, with a severe unmet housing need, with need for affordable housing and for sites for self build homes, planning permission may be granted even if the land is, horror of horrors, politicians look away, green belt. My firm Town (well, my colleague Paul Arnett) was pleased to play at least a small role in the appeal as planning solicitors for the appellant, negotiating a section 106 agreement with the St Albans and Welwyn Hatfield councils that secured a commitment that 45% of the 100 homes proposed would be affordable housing and 10% would be self-build, delivering a strategy first formulated by Chris Young QC and developed and implemented at the inquiry itself by Zack Simons (who kindly brought us onto the team). Russell Gray at Woods Hardwick was the lead planning witness and coordinated the team.
Inspector Christa Masters determined that the following were “very special circumstances” that justified inappropriate development in the green belt:
⁃ provision of market housing
“I am aware of the Written Ministerial Statement of December 2015 which indicates that unmet need is unlikely to clearly outweigh harm to Green Belt and any other harm so as to establish very special circumstances. However, in common with the appeal decision referred to, I note that this provision has not been incorporated within the Framework which has subsequently been updated and similar guidance within the Planning Practice Guidance has been removed. I can therefore see no reason to give this anything other than little weight as a material consideration.
It is common ground that neither SADC or WHBC can demonstrate a five year supply of deliverable homes. Whilst there is disagreement between the parties regarding the extent of this shortfall, the parties also agreed that this is not a matter upon which the appeals would turn. I agree with this position. Even taking the Councils supply positions of WHBC 2.58 years and SADC at 2.4 years, the position is a bleak one and the shortfall in both local authorities is considerable and significant.
There is therefore no dispute that given the existing position in both local authority areas, the delivery of housing represents a benefit. Even if the site is not developed within the timeframe envisaged by the appellant, and I can see no compelling reason this would not be achieved, it would nevertheless, when delivered, positively boost the supply within both local authority areas. From the evidence presented in relation to the emerging planning policy position for both authorities, this is not a position on which I would envisage there would be any marked improvement on in the short to medium term. I afford very substantial weight to the provision of market housing which would make a positive contribution to the supply of market housing in both local authority areas.”
⁃ provision of self-build
“In common with both market housing and affordable housing, the situation in the context of provision of sites and past completions is a particularly poor one. To conclude, I am of the view that the provision of 10 self build service plots at the appeal site will make a positive contribution to the supply of self build plots in both local planning authority areas. I am attaching substantial weight to this element of housing supply.”
⁃ provision of affordable housing
“The uncontested evidence presented by the appellant on affordable housing for both local authorities illustrates some serious shortcomings in terms of past delivery trends. In relation to WHBC, the affordable housing delivery which has taken place since 2015/16 is equivalent to a rate of 23 homes per annum. The appellant calculates that the shortfall stands in the region of 4000 net affordable homes since the 2017 SHMA Update, a 97% shortfall in affordable housing delivery. If the shortfall is to be addressed within the next 5 years, it would required the delivery of 1397 affordable homes per annum. In SADC, the position is equally as serious. Since the period 2012/13, a total of 244 net affordable homes have been delivered at an average of 35 net dwellings per annum. Again, this equates to a shortfall also in the region of 4000 dwellings (94%) which, if to be addressed in the next 5 years, would require the delivery of 1185 affordable dwellings per annum.
The persistent under delivery of affordable housing in both local authority areas presents a critical situation. Taking into account the extremely acute affordable housing position in both SADC and WHBC, I attach very substantial weight to the delivery of up to 45 affordable homes in this location in favour of the proposals.”
More decisions such as Colney Heath are inevitable where authorities, admittedly struggling at times with a sclerotic local plans system, fail to deliver, which of course makes this scaremongering about a new planning system so nonsensical.
Topically, at 6pm this Tuesday 22 June our Clubhouse Planning Law, Unplanned theme is “How can we build enough, affordable, housing?”. Our special guests are Chris Young QC, Nick Walkley (ex Homes England chief executive), Claire Dickinson (director, Quod) and Ric Frankland (founder, wudl.). Please join us. A free link to the app and event is here.
The Government’s First Homes announcements this week mean that we all need to understand the practicalities as to how this new form of discounted market sale housing will work and to plan around three key implementation dates.
On 24 May 2021 we had the formal ministerial statement together with the publication of MHCLG guidance providing “further detail on First Homes and their implementation”. For prospective purchasers there is also the Government’s Own Your Own Home website.
The three key dates are as follows:
28 June 2021
From the guidance: “ Local plans and neighbourhood plans submitted for examination before 28 June 2021, or that have reached publication stage by 28 June 2021 and subsequently submitted for examination by 28 December 2021, will not be required to reflect the First Homes policy requirement”
(However: “Planning Inspectors should consider through the examination whether a requirement for an early update of the local plan might be appropriate.”)
28 December 2021
From the guidance: “The new First Homes policy requirement does not apply for the following:
• sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021”
28 March 2022
It also does not apply to “applications for full or outline planning permission where there has been significant pre-application engagement which are determined before 28 March 2022”.
So if you wish to avoid the new requirement and you are not in an area where a plan has been adopted under the transitional arrangements, you need to have submitted your application so that it will be determined (or so that that the statutory right to appeal on the basis of non-determination has arisen) by 28 December 2021 and if there is any doubt as to whether you will meet that deadline it would be prudent to have engaged in “significant pre-application engagement” such that the deadline for achieving permission is 28 March 2022.
“If an applicant wishes to amend a planning application to include First Homes which is already submitted and likely to be granted before these dates, the local planning authority should be flexible in accepting First Homes as an alternative type of tenure.
Local authorities should have flexibility to accept alternative tenure mixes for planning applications that are determined within the timescales identified above, although they should consider whether First Homes could be easily substituted for another tenure, either at 25% or a lower proportion.”
From the guidance:
“What is a First Home?
First Homes are a specific kind of discounted market sale housing and should be considered to meet the definition of ‘affordable housing’ for planning purposes. Specifically, First Homes are discounted market sale units which:
a) must be discounted by a minimum of 30% against the market value;
b) are sold to a person or persons meeting the First Homes eligibility criteria […];
c) on their first sale, will have a restriction registered on the title at HM Land Registry to ensure this discount (as a percentage of current market value) and certain other restrictions are passed on at each subsequent title transfer; and,
d) after the discount has been applied, the first sale must be at a price no higher than £250,000 (or £420,000 in Greater London).
First Homes are the government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered by developers through planning obligations.”
….
“Who is eligible to purchase a First Home?
A purchaser (or, if a joint purchase, all the purchasers) of a First Home should be a first-time buyer as defined in paragraph 6 of schedule 6ZA of the Finance Act 2003 for the purposes of Stamp Duty Relief for first-time buyers.
Purchasers of First Homes, whether individuals, couples or group purchasers, should have a combined annual household income not exceeding £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.
A purchaser of a First Home should have a mortgage or home purchase plan (if required to comply with Islamic law) to fund a minimum of 50% of the discounted purchase price.
These national standard criteria should also apply at all future sales of a First Home.”
…..
“How should the remaining 75% of affordable housing be secured through developer contributions?
Once a minimum of 25% of First Homes has been accounted for, social rent should be delivered in the same percentage as set out in the local plan. The remainder of the affordable housing tenures should be delivered in line with the proportions set out in the local plan policy.
For example, if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a planning application compliant with national policy would deliver an affordable housing tenure mix of 25% First Homes and 40% social rent. The remainder (35%) would be split in line with the ratio set out in the local plan policy, which is 40% affordable rent to 20% shared ownership, or 2:1. 35% split in this way results in 12% shared ownership; and 23% affordable rent.
In another example, if a local plan policy requires 80% of units to be shared ownership and 20% to be social rent, a policy compliant application would deliver 25% First Homes units, 20% social rent and 55% shared ownership.
If a local authority has an up-to-date policy on cash contributions in lieu of onsite contributions, then a planning application compliant with national policy will align with this approach.”
The requirement will be secured by our trusty friend, the section 106 agreement (or unilateral undertaking). The guidance states: “The government will publish template planning obligations for this purpose, which the local planning authority can use as a basis for agreements prepared locally.” A workable template (stress the word “workable”) would be very useful indeed.
How will this policy mechanism work across very different housing market areas across the country and what might be the unintended consequences? I recommend an excellent Lichfields blog post, First Homes: dicing with the discount (Rachel Clements and Bethan Haynes, 27 May 2021).
They ask where can First Homes potentially have the biggest impact?
“First Homes have the potential to have the greatest impact in areas where first-time buyers are currently priced out of the open market (at the entry-level) but where First Homes would be within reach, when the minimum 30% discount is applied. We estimate this represents around one in five authorities in England – around 63 in total.”
Will it avoid the problems that caused the previous Starter Homes concept to fail (e.g see my 29 February 2020 blog post Starter Homes Were A Non Starter – What Future For First Homes?)? What do we make of this continuing political decision to intervene in the market in the interests of encouraging home ownership at the expense (where viability is impacted) of affordable housing for rent, for those on a lower rung of the housing ladder?
There is plenty more to say on the subject, for instance the new opportunity arising to bring forward First Homes exception sites on allocated land outside the green belt or designated rural areas. But for now, I suspect that developers and local planning authorities alike will be wanting to do some basic number-crunching and to bear those three deadlines in mind.
Simon Ricketts, 28 May 2021
Personal views, et cetera
This Tuesday evening’s Planning Law, Unplanned Clubhouse session (6pm, 1 June) takes on a more general subject: “Has work taken over your life? Life hacks, work hacks”. Do come along and share your views, or just listen to the chat. An invitation to the app is here.
“• changes to the standard method for assessing local housing need, which as well as being a proposal to change guidance in the short term has relevance to proposals for land supply reforms set out in Planning for the Future;
• securing of First Homes, sold at a discount to market price for first time buyers, including key workers, through developer contributions in the short term until the transition to a new system;
• temporarily lifting the small sites threshold below which developers do not need to contribute to affordable housing, to up to 40 or 50 units to support SME builders as the economy recovers from the impact of Covid-19;
• extending the current Permission in Principle to major development so landowners and developers now have a fast route to secure the principle of development for housing on sites without having to work up detailed plans first.”
Kings Chambers’ Constanze Bell hosted a good discussion on the proposals in a 28 August podcast with a panel comprising (Diana Richardson, Gladman), Paul Bedwell (Pegasus), Martin Carter (Kings Chambers) and Jonathan Easton (Kings Chambers).
Changes to the standard method
The Government “proposes a revised standard method for calculating local housing need which will be used as the basis for plans created prior to any changes outlined in Planning for the Future being introduced.”
There will be two steps:
Step 1 – the “baseline for the standard method should be whichever is the higher of 0.5% of existing housing stock in each local authority OR the latest projected average annual household growth over a 10-year period”
“The household projections element of the baseline will use the latest ONS national household growth projections for the local authority area (Principal projection, table 406). The projected average annual household growth over a 10-year period (10 consecutive years, with the current year being used as the starting point from which to calculate growth over that period) will be used.”
Step 2 – “We propose the standard method will include two adjustments to the baseline using the workplace-based median house price to median earnings ratio. Initially it is proposed that the ratio for the most recent year for which data is available in order to address current affordability of homes would be used. Then how affordability has changed over the last 10 years of published data would be incorporated, using that same statistic.”
Precise formula:
The Government proposes the following transitional arrangements: “from the publication date of the revised guidance, authorities which are already at the second stage of the strategic plan consultation process (Regulation 19) are given 6 months to submit their plan to the Planning Inspectorate for examination. Authorities close to publishing their second stage consultation (Regulation 19), should be given 3 months from the publication date of the revised guidance to publish their Regulation 19 plan and a further 6 months to submit their plan to the Planning Inspectorate.”
In theory, the new formula could be with us very quickly: “Following the outcome of this consultation, the Government will update the planning practice guidance with the revised standard method for assessing local housing need.”
Or could it? There can of course be no “correct” methodology – it’s all political choices as to which factors are considered to be most relevant, standardised into a formula that may or may not work as intended – and there has already a strong backlash from various quarters, for instance Conservative MP for Harborough, Neil O’Brien, The next algorithm disaster – coming to a Conservative constituency near you. This time, it’s housing growth. (ConservativeHome, 24 August 2020), from Chris Young QC and othersA Standard Method That Works For The North (LinkedIn post 22 August 2020), and Planning algorithm may destroy suburbia, Tory MPs warn Boris Johnson (Times, 29 August 2020). Press speculation that the Government is already re-thinking is hopefully wide of the mark given that the consultation process hasn’t yet closed and therefore minds must in law remain open, but are we going to see yet another fudged outcome?
Basically they are intended to be a “for sale” product for first time buyers and other qualifying groups, sold at a 30% discount to market value, which must be maintained on re-sale. At that point the Government was consulting on the detail.
This is what it has concluded, subject to this further consultation:
⁃ “a minimum of 25 per cent of all affordable housing units secured through developer contributions should be First Homes. This will be a national threshold, set out in planning policy.”
⁃ “The Government proposes that, under the new system, a policy compliant planning application should seek to capture the same amount of value as would be captured under the local authority’s up-to-date published policy. For instance, a local policy may require 20% affordable housing on site, half of which is shared ownership, and half of which is social rent. The plan viability assessment will set out assumptions on the amount of value captured – for example, a social rent home may be discounted by 50% from market price, and a shared ownership home may be discounted by 20%. This allows the total value captured under the policy to be calculated. This value can then be reallocated to a different affordable housing mix under the new policy.”
⁃ “For the remaining 75% of affordable housing secured through developer contributions, there are two broad options:
• “Option 1: Where a local authority has a policy on affordable housing tenure mix, that policy should be followed, but with First Homes delivering a minimum of 25% of the affordable housing products…”
• “Option 2: A local authority and developer can negotiate the tenure mix for the remaining 75% of units.”
It will be open to authorities to require in their local plans that the discount be 40% or 50% rather than 30% but they will not be able to water down the requirement that 25% of the affordable homes to be provided on site must be First Homes.
Again, the proposal could be with us quickly, initially in the the form of “planning policy changes” (Planning Practice Guidance? NPPF changes? Written ministerial statement?):
“We intend to begin by making planning policy changes, to ensure that clear expectations are set. However, to ensure that First Homes are delivered, nationwide, on a consistent basis, we are keeping under consideration the option to strengthen the policy through primary legislation at a future date. We also intend to introduce an exemption from the Community Infrastructure Levy for First Homes, to enable delivery prior to wider developer contribution reform. This would require changes to regulations. Lastly, we are also considering significant reforms to the system of developer contributions. We will ensure that First Homes will continue to be delivered under a reformed approach”
However, it seems from the transactional arrangements set out below that the requirement will not immediately take full effect:
56. We recognise that local authorities may need to review the tenure mix for the remainder of the affordable housing that they are seeking to secure. Where local authorities choose to update their tenure mix to reflect this policy, they can do this through a local plan review, although we believe that prioritising the replacement of home-ownership tenures by First Homes will reduce the need for this.
57. We also recognise that there will be a number of local plans and neighbourhood plans that have been prepared based on the existing National Planning Policy Framework and that have reached more advanced stages of the plan-making process. Therefore, local plans and neighbourhood plans that are submitted for Examination within 6 months of this new policy being enacted will not need to reflect the First Homes policy requirements.
58. We also recognise that many developers will have been preparing planning applications under different assumptions. Where significant work has already been undertaken to progress a planning application, including where there has been significant pre-engagement with a local authority on the basis of a different tenure mix of affordable housing, the local authority should have flexibility to accept alternative tenure mixes, although they should consider whether First Homes could be easily substituted for another tenure, either at 25% or a lower proportion.”
Lifting the small sites threshold for SME builders
This could have a significant effect on development. In London, for instance, it will have big repercussions.
“We are proposing to raise the small sites threshold to up to either 40 or 50 new homes through changes to national planning policy and are seeking views on the most appropriate level. These thresholds balance the aim of supporting SMEs with the need to deliver new affordable homes. This will be for an initial period of 18 months in which we will monitor the impact of the raised threshold on the sector before reviewing the approach.”
“ In designated rural areas, we … propose to maintain the current threshold.”
The current threshold is 10 new homes, or site area of 0.5 hectares. The site area threshold will be increased “at the same proportion”, so presumably to 2 or 2.5 hectares (although should in fact the site area increase be less, to reflect likely density of development?).
Again the proposal could be in effect quickly:
“Following the consultation, a decision will be taken on whether to proceed with this approach. If it is taken forward, this could be through the introduction of a Written Ministerial Statement in the Autumn.”
If you are an SME developer with a scheme which may qualify, might it be worth your while seeing how this pans out? Of course it will not be straightforward – we are likely to see some local planning authorities seeking understandably to continue to rely on adopted local plan requirements for affordable housing, choosing to apply less weight to the written ministerial statement, and therefore the potential need to appeal.
Presumably the Government is hoping to see significant take-up, meaning inevitably less affordable housing. That would seem to be a politically-charged trade-off but may in reality simply leapfrog what would otherwise have been a viability process outcome in many instances.
Local planning authorities are currently required to maintain brownfield land registers, in two parts.
– Part 1: previously developed land with an area of at least 0.25 hectares that is suitable and available for residential development and where residential development is achievable (all defined terms).
– Part 2: land in Part 1 where the local planning authority has exercised its discretion to enter the land in Part 2 and has decided to allocate the land for residential development having followed defined publicity, notification and consultation procedures.
If your land is on Part 1 of the register you can currently apply for permission in principle for minor development (basically less than ten dwellings). If your land is on Part 2 of the register you already have permission in principle for the development set out in the register (which must not be large enough to require environmental impact assessment.
There is a further procedure in the Housing and Planning Act 2016, but not yet brought into effect, for automatic permission in principle to stem from allocation in defined categories of statutory development plans rather than just from designation on a brownfield land register.
The Government now proposes “to remove the restriction in the current Permission in Principle regulations on major development”. Although the paper is not specific, this must surely simply mean that permission in principle would now be able to be applied for in relation to major development (although still not development such as to require environmental impact assessment so, unless a negative screening opinion has been obtained, capped at 150 dwellings/5 hectares), as long as the site is on Part 1 of a local planning authority’s brownfield land register.
The paper proposes that there be no cap on the amount of commercial development proposed, although the scheme will need to be “residential-led”. The procedure is quicker than the outline planning application procedure (five weeks determination period, 14 days deadline for responses from statutory consultees).
There is not proposed to be any increase in the information requirements that currently apply to PiP applications for minor development. “However, we would be interested in whether, given the larger scale of development, there should be an additional maximum height threshold parameter, in terms of number of storeys, as part of the Permission in Principle. This would provide greater clarity to the applicant and local planning authority about the scale of housing development that is acceptable for the site, particularly in high density urban areas. Conversely, the inclusion of a maximum height parameter would add further complexity to the determination of Permission in Principle as it starts to bring in design considerations, and may in practice lead to greater confusion – for instance, a high height threshold may only be acceptable for part of the site given the impact on neighbouring dwellings.”
The Government is proposing to adjust the application fee regime to increase the cost saving in comparison with a traditional application for outline planning permission.
This all certainly gives additional focus to brownfield land registers (which I last looked at in my 5 January 2018 blog post Brownfield Land Registers: A Bit Of Progress). If you have land that is on Part 1 of a brownfield land register, it will certainly be a procedural route to consider.
Again, we could see the proposal come into effect relatively quickly. “Following this consultation, if we introduce Permission in Principle by application for major development, we aim to introduce amending regulations this Autumn, with the regulations expected to come into force by the end of the calendar year. Changes to the fee structure would require separate changes to the Planning Fees Regulations.”
Of course, this will also be a useful test as to how well permission in principle can be made to work in practice, ahead of the Government’s more ambitious proposals the subject of ChangesOne (and my 7 August 2020 blog post For The Future).
When I saw a limelon for the first time yesterday (some recently marketed lime/melon hybrid since you ask, and tangy and refreshing it is indeed), I naturally thought of the proposed combined infrastructure levy: what on earth is it?
Planning For The Future is of course work in progress and it may be churlish for us to expect it to have all the answers. After all, it is up to us to provide cogent responses to the current consultation process.
But the sections in the document on infrastructure contributions are very light indeed, given the central role that section 106 and the community infrastructure levy play in the current system and the obvious complexity of arriving at a system for a combined infrastructure levy that on the one hand does not choke off various forms of development in some areas by making it unviable and that on the other hand both (1) raises sufficient monies to secure the delivery of necessary social (e.g. affordable housing) and physical infrastructure and also (2) ensures for the benefit of both communities and developers that the infrastructure will actually be provided in the right place, at the right time.
•Update the evidence on the current value and incidence of planning obligations
• Investigate the relationship between CIL and S106
• Understand negotiation processes and delays to the planning process
• Explore the monitoring and transparency of developer contributions
• Understand the early effects and expectations for the changes to developer contributions brought in by the revisions to the NPPF
Chapter 3 (The value of Planning Obligations and the Community Infrastructure Levy) sets out some interesting findings:
“• The estimated value of planning obligations agreed and CIL levied in 2018/19 was £7.0 billion. This valuation is premised upon the assumptions identified in the appendix, corresponding to survey validity, respondent representation and the distribution of values.
• When adjusted to reflect inflation the total value of developer contributions in real terms is £500 million higher than in 2016/17, £300 million higher than in 2007/08.
• 67% of the value of agreed developer contributions was for the provision of affordable housing, at £4.7 billion; this is the same proportion as in 2016/17 and is the joint-highest to date.
• 44,000 affordable housing dwellings were agreed in planning obligations in 2018/19. This is a reduction since 2016/17, but the value of this housing has increased over the same period due to an increase in house prices in many areas with higher developer contributions.
• The value of CIL levied by LPAs was £830 million in 2018/19, with a further £200 million levied by the Mayor of London.
• The geographic distribution of planning obligations and CIL is weighted heavily towards the south of England. The South East, South West and London regions account for 61% of the total value. However, the value of developer contributions exacted in London has fallen since 2016/17 – down from 38% to 28% of the total aggregate value.”
There is nothing in the white paper that explicitly draws from the findings of that report in order to arrive at the wholly new mechanism that is proposed.
Some people seem to have picked up the message that the white paper means the end of the community infrastructure levy – a cause for celebration in some parts. But the white paper’s proposal for a combined infrastructure levy to my mind is CIL writ large, potentially just as complex, with a whole new set of rate setting, liability, payment and spending mechanisms and with the express objective of raising more monies than the current system. It warrants its own focus at this point, away from the noise of the other proposals in the white paper.
How to begin to unpick what is proposed in relation to CIL and section 106 planning obligations (and what the proposals in relation to section 106 mean for the delivery of affordable housing in particular)? I wrote down for myself five basic questions:
1. How will planning obligations work under the new system?
2. What will happen to CIL?
3. How will the new Combined Infrastructure Levy be set?
4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?
5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?
In order to try to answer them (in a way which would have to work in relation to all of the proposed consenting routes: DCO, outline planning permission in plan, PiP (if different from outline permission in plan, not sure!), traditional planning permission, PD), then I cut and pasted the relevant passages from the white paper in their entirety (only leaving out the detail of some of the “alternative options” floated and leaving out the questions raised in the consultation). It is easy to read summaries and think “well there must be more detail in the document itself”. It is worth reading these passages to see the totality of the proposals.
After these passages I then see how far we can get in answering my questions.
“The process for negotiating developer contributions to affordable housing and infrastructure is complex, protracted and unclear: as a result, the outcomes can be uncertain, which further diminishes trust in the system and reduces the ability of local planning authorities to plan for and deliver necessary infrastructure. Over 80 per cent of planning authorities agree that planning obligations cause delay. It also further increases planning risk for developers and landowners, thus discouraging development and new entrants.”
“1.19. Fourth, we will improve infrastructure delivery in all parts of the country and ensure developers play their part, through reform of developer contributions. We propose:
• The Community Infrastructure Levy and the current system of planning obligations will be reformed as a nationally-set value-based flat rate charge (‘the Infrastructure Levy’). A single rate or varied rates could be set. We will aim for the new Levy to raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing as at present. This reform will enable us to sweep away months of negotiation of Section 106 agreements and the need to consider site viability. We will deliver more of the infrastructure existing and new communities require by capturing a greater share of the ulpift [sic] in land value that comes with development.
• We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision.
• We will give local authorities greater powers to determine how developer contributions are used, including by expanding the scope of the Levy to cover affordable housing provision to allow local planning authorities to drive up the provision of affordable homes. We will ensure that affordable housing provision supported through developer contributions is kept at least at current levels, and that it is still delivered on-site to ensure that new development continues to support mixed communities. Local authorities will have the flexibility to use this funding to support both existing communities as well as new communities.
• We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights, so that additional homes delivered through this route bring with them support for new infrastructure.
“4.5. Securing necessary infrastructure and affordable housing alongside new development is central to our vision for the planning system. We want to bring forward reforms to make sure that developer contributions are:
• responsive to local needs, to ensure a fairer contribution from developers for local communities so that the right infrastructure and affordable housing is delivered;
• transparent, so it is clear to existing and new residents what new infrastructure will accompany development;
• consistent and simplified, to remove unnecessary delay and support competition in the housebuilding industry;
• buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.
4.6. The Government could also seek to use developer contributions to capture a greater proportion of the land value uplift that occurs through the grant of planning permission, and use this to enhance infrastructure delivery. There are a range of estimates for the amount of land value uplift currently captured, from 25 to 50 per cent. The value captured will depend on a range of factors including the development value, the existing use value of the land, and the relevant tax structure – for instance, whether capital gains tax applies to the land sale. Increasing value capture could be an important source of infrastructure funding but would need to be balanced against risks to development viability.”
“4.7. We propose that the existing parallel regimes for securing developer contributions are replaced with a new, consolidated ‘Infrastructure Levy’.
Proposal 19: The Community Infrastructure Levy should be reformed to be charged as a fixed proportion of the development value above a threshold, with a mandatory nationally-set rate or rates and the current system of planning obligations abolished.”
“4.8. We believe that the current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.
4.9. This would be based upon a flat-rate, valued-based charge, set nationally, at either a single rate, or at area-specific rates. This would address issues in the current system as it would:
be charged on the final value of a development (or to an assessment of the sales value where the development is not sold, e.g. for homes built for the rental market), based on the applicable rate at the point planning permission is granted;
• be levied at point of occupation, with prevention of occupation being a potential sanction for non-payment;
• include a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold ; and
• provide greater certainty for communities and developers about what the level of developer contributions are expected alongside new development.
4.10. The single rate, or area-specific rates, would be set nationally. It would aim to increase revenue levels nationally when compared to the current system. Revenues would continue to be collected and spent locally.
4.11. As a value-based charge across all use classes, we believe it would be both more effective at capturing increases in value and would be more sensitive to economic downturns. It would reduce risk for developers, and would reduce cashflow difficulties, particularly for SME developers.
4.12. In areas where land value uplift is insufficient to support significant levels of land value capture, some or all of the value generated by the development would be below the threshold, and so not subject to the levy. In higher value areas, a much greater proportion of the development value would be above the exempt amount, and subject to the levy.
4.13. To better support the timely delivery of infrastructure, we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster. As with all volatile borrowing streams, local authorities should assure themselves that this borrowing is affordable and suitable.
4.14. Under this approach the London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure.
4.15. In bringing forward the reformed Infrastructure Levy, we will need to consider its scope. We will also consider the impact of this change on areas with lower land values.”
Alternative options proposed: “The Infrastructure Levy could remain optional and would be set by individual local authorities”. “Alternatively, the national rate approach could be taken, but with the aim of capturing more land value than currently, to better support the delivery of infrastructure”
“Proposal 21: The reformed Infrastructure Levy should deliver affordable housing provision
4.20. Developer contributions currently deliver around half of all affordable housing, most of which is delivered on-site. It is important that the reformed approach will continue to deliver on-site affordable housing at least at present levels.
4.21. Affordable housing provision is currently secured by local authorities via Section 106, but the Community Infrastructure Levy cannot be spent on it. With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing.
4.22. This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. [Footnote: As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106. ] First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.
4.23. Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way.
4.24. We would also need to ensure the developer was incentivised to deliver high build and design quality for their in-kind affordable homes. Currently, if Section 106 homes are not of sufficient quality, developers may be unable to sell it to a provider, or have to reduce the price. To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality. It is important that any approach taken maintains the quality of affordable housing provision as well as overarching volumes, and incentivises early engagement between providers of affordable housing and developers. Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site. Through borrowing against further Infrastructure Levy receipts, other sources of funding, or in partnership with affordable housing providers, they could then build affordable homes, enabling delivery at pace.
4.25. Alternative option: We could seek to introduce further requirements around the delivery of affordable housing. To do this we would create a ‘first refusal’ right for local authorities or any affordable housing provider acting on their behalf to buy up to a set proportion of on-site units (on a square metre basis) at a discounted price, broadly equivalent to build costs. The proportion would be set nationally, and the developer would have discretion over which units were sold in this way. A threshold would be set for smaller sites, below which on-site delivery was not required, and cash payment could be made in lieu. Where on-site units were purchased, these could be used for affordable housing, or sold on (or back to the developer) to raise money to purchase affordable housing elsewhere. The local authority could use Infrastructure Levy funds, or other funds, in order to purchase units.”
“Proposal 22: More freedom could be given to local authorities over how they spend the Infrastructure Levy
4.26. It is important that there is a strong link between where development occurs and where funding is spent. Currently, the Neighbourhood Share of the Community Infrastructure Levy ensures that up to 25 per cent of the levy is spent on priorities in the area that development occurred, with funding transferred to parish councils in parished areas. There are fewer restrictions on how this funding is spent, and we believe it provides an important incentive to local communities to allow development in their area. We therefore propose that under this approach the Neighbourhood Share would be kept, and we would be interested in ways to enhance community engagement around how these funds are used, with scope for digital innovation to promote engagement.
4.27. There is scope for even more flexibility around spending. We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax. The balance of affordable housing and infrastructure may vary depending on a local authority’s circumstances, but under this approach it may be necessary to consider ring-fencing a certain amount of Levy funding for affordable housing to ensure that affordable housing continues to be delivered on-site at current levels (or higher). There would also be opportunities to enhance digital engagement with communities as part of decision making around spending priorities. Alternatively, the permitted uses of the Levy could remain focused on infrastructure and affordable housing, as they are broadly are at present. Local authorities would continue to identify the right balance between these to meet local needs, as they do at present.”
“ 5.19. If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”
Back to my questions:
1. How will planning obligations work under the new system?
It is said in the paper that the “current system of planning obligations under Section 106 should be consolidated under a reformed, extended ‘Infrastructure Levy’.” There will no longer be “months of negotiation of Section 106 agreements”. “Section 106 planning obligations [will be] removed”.
The proposals seem to assume that section 106 is simply a mechanism for securing provision of affordable housing and other “developer contributions”. Whilst that is its main role at present, it is a mechanism for a wide range of commitments – see this table from the accompanying study:
The joy of section 106 is its flexibility to circumstances and policy, enabling the applicant commit to commit, in a way that binds successors in title, to all necessary mitigation measures that cannot be secured by way of planning condition and which are necessary to overcome what would otherwise be reasons not to allow the proposed development to proceed. On more complex developments it is the only tried and tested way in which appropriate mechanisms can be arrived at to make sure that, for instance, necessary infrastructure comes forward at the right time and by way of a sensible process, bespoke to the circumstances of the development, agreed between the parties. There is no proposal in the paper (although it has previously been floated by some) that the role of planning conditions could be expanded.
Where financial contributions are paid to a local planning authority under a section 106 agreement they can only be used for the specified purposes, whereas the proposals in relation to the consolidated infrastructure levy appear to be more loose: “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met.”What is meant by “core infrastructure obligations”? The core infrastructure obligations necessary to make a particular development acceptable? If so, then a document will need to be drawn up which surely will be as complex as a section 106 agreement – when will the school come forward, using the developer’s infrastructure levy contribution, how, where and when? Local employment and training measures, provision and maintenance of open space and play areas, carbon reduction commitments, commitments to specified transport improvements and the formulation and implementation of transport plans – are all these to be swept away? If so, the document needs to explain either why this is acceptable and desirable or how these matters will otherwise be addressed.
Additional confusion arises when these bold statements as to the removal of section 106 obligations are then contrasted with the footnote to paragraph 4.22: “As above, a Section 106 planning obligation could still be used to secure a covenant on the land, where necessary. However, the value would be captured through the Infrastructure Levy, rather than Section 106”. What does that mean? What would the “covenant on the land” and if the only point is to make sure that the infrastructure levy binds successors in title, why not leave that for the legislation itself?
Is anyone out there clearer at this stage ?
2. What will happen to CIL?
The community infrastructure levy will be replaced by the consolidated infrastructure levy, which will work in various significantly different ways to the current system. For instance:
• It will be a “nationally-set value-based flat rate charge”. I try to unpick this in my answer to question 3 below.
• It will be “levied at point of occupation”.
• “Revenues would continue to be collected and spent locally.”
• “we would also allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure. Enabling borrowing combined with a shift to levying developer contributions on completion, would incentivise local authorities to deliver enabling infrastructure, in turn helping to ensure development can be completed faster.” [If a developer needs specific infrastructure to be delivered in order to enable development to proceed, how will this be documented? What if, as is usually the case, the developer would prefer to deliver the infrastructure, e.g. build the school?]
• The “London Mayoral Community Infrastructure Levy, and similar strategic Community Infrastructure Levies in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure” [Is this retained as in retained under the current CIL system so that in London CIL would continue to operate alongside the new levy, or is this retained as in “rolled into”?]
• “We will also look to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights” [This is odd – development pursuant to PD rights is not exempt from CIL at the moment. Is this flagging more widely that exemptions will be removed? That would have been a sensible, simplifying, approach were CIL levels to be reduced, but here we are faced with an increased Infrastructure Levy…]
3. How will the new Combined Infrastructure Levy be set?
• It will be a “nationally-set value-based flat rate charge, set nationally, at either a single rate, or at area-specific rates”. [Clearly this can’t in any circumstances mean a nationally-set flat rate charge of x per square metres but must mean a nationally-set proportion of (I assume) gross development value.]
• There will be “a value-based minimum threshold below which the levy is not charged, to prevent low viability development becoming unviable, reflecting average build costs per square metre, with a small, fixed allowance for land costs. Where the value of development is below the threshold, no Levy would be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold”. [When would the developer have certainty that the threshold was not exceeded, or indeed as to what the value (and therefore charge) is considered to be, through what procedure and with what rights to appeal against the valuation? Is the valuation a notional one, applying a formula, or an actual valuation?]
• “buoyant, so that when prices go up the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements.” [the timing of the valuation date will be critical, as will how to deal with phased and revised schemes and so on].
• “It would aim to increase revenue levels nationally when compared to the current system” [so more than £7bn, on the basis of the findings in that study – in a way which will need not to disincentivise owners and developers from carrying out development].
That’s all I can glean from the document. It seems to me that local planning authorities will lose much flexibility, for instance in the setting of differential rates for different types of floorspace (the document does focus to a significant extent on residential development – what rate would be set for, say, offices, logistics or retail, particularly given the weaker relationship between non-residential uses and the delivery of affordable housing, and what about not for profit development – will we need to reintroduce a number of the current CIL exemptions?
4. What requirements will there be on local authorities as to how they apply combined infrastructure levy receipts?
• “With Section 106 planning obligations removed, we propose that under the Infrastructure Levy, authorities would be able to use funds raised through the levy to secure affordable housing”. I try to unpick this in my answer to question 5 below.
• “We could also increase local authority flexibility, allowing them to spend receipts on their policy priorities, once core infrastructure obligations have been met. In addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax.” [So, infrastructure levy surplus receipts (after delivery of “core infrastructure”) become unhypothecated tax receipts – the less the authority spends on infrastructure, the lower it can keep its council tax, hmm…]?
• “If a new approach to development contributions is implemented, a small proportion of the income should be earmarked to local planning authorities to cover their overall planning costs, including the preparation and review of Local Plans and design codes and enforcement activities.”
5. Under the new system, how can local planning authorities set requirements for affordable housing and seek to ensure that they are delivered?
• “We will be more ambitious for affordable housing provided through planning gain, and we will ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision”.
• “This could be secured through in-kind delivery on-site, which could be made mandatory where an authority has a requirement, capability and wishes to do so. Local authorities would have a means to specify the forms and tenures of the onsite provision, working with a nominated affordable housing provider. Under this approach, a provider of affordable housing could purchase the dwelling at a discount from market rate, as now. However, rather than the discount being secured through Section 106 planning obligations, it would instead be considered as in-kind delivery of the Infrastructure Levy. In effect, the difference between the price at which the unit was sold to the provider and the market price would be offset from the final cash liability to the Levy. This would create an incentive for the developer to build on-site affordable housing where appropriate. First Homes, which are sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.” [So presumably the developer could net-off the costs of on-site delivery from its infrastructure levy liability. How is this to be documented? Who adjudicates on the obvious valuation issues arising?]
• “Under this approach we recognise that some risk is transferring to the local planning authority, and that we would need to mitigate that risk in order to maintain existing levels of on-site affordable housing delivery. We believe that this risk can be fully addressed through policy design. In particular, in the event of a market fall, we could allow local planning authorities to ‘flip’ a proportion of units back to market units which the developer can sell, if Levy liabilities are insufficient to cover the value secured through in-kind contributions. Alternatively, we could require that if the value secured through in-kind units is greater than the final levy liability, then the developer has no right to reclaim overpayments. Government could provide standardised agreements, to codify how risk sharing would work in this way” [How to safeguard against misuse?]
• “To ensure developers are not rewarded for low standard homes under the Levy, local authorities could have an option to revert back to cash contributions if no provider was willing to buy the homes due to their poor quality.”
• “Local authorities could also accept Infrastructure Levy payments in the form of land within or adjacent to a site.” [Back to ensuring a robust valuation process].
Again, maybe it’s just me but I’m left scratching my head. This is a wholly different approach to extracting contributions for affordable housing and for ensuring that they are delivered. Basic questions:
• How will the requirements (quantum, tenure mix, size] be set at policy stage and determined at application stage (in advance of valuations) such that there can be confidence that development will not be stalled through lack of viability?
• Are we moving to a system where all affordable housing is delivered by a local authority nominated housing provider, with less ability for the developer to seek to improve viability?
• How can there be any confidence that this mechanism will result in more on-site affordable housing than at present?
Again, thoughts welcome – it’s not that the proposals can’t be made to work, it’s just that much more input is required and, in my view, a cautious approach needs to be taken so as to guard against the inevitable unintended consequences.
The deadline for consultation responses is 29 October. We are likely to be collating a Town response, if only on specific issues such as this. If you would be interested in feeding in your thoughts, then please let me know, although, health warning, we are not in the business of designing fruit by committee!
SIMONICITY 