London – Page 6 – SIMONICITY

Affordable Housing Tax

In requiring the developers of private housing schemes to contribute to the provision of affordable housing, the planning system has become a tax collection system, and an inefficient, opaque one at that.
The OECD classifies taxes as follows:
“… compulsory, unrequited payments to general government. Taxes are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments.

The term “tax” does not include fines unrelated to tax offences and compulsory loans paid to government. […]

General government consists of supra-national authorities, the central administration and the agencies whose operations are under its effective control, state and local governments and their administrations, social security schemes and autonomous governmental entities, excluding public enterprises.”
Participants in the planning system seem to accept the political policy choice that has been made: to require developers to subsidise the provision of affordable housing, whether by requiring them to dispose of land or built units to registered affordable housing providers at less than market value (and nowadays at less than cost, given the increasing scarcity of any public sector grants or other forms of subsidy) or to make financial payments towards the provision of affordable housing elsewhere in the area.
The provision of market housing does not in any way increase the need for affordable housing, indeed over time by increasing supply if anything it should decrease it. It may be said that mixed use communities can only be achieved by requiring the inclusion of affordable housing within market residential schemes, but that in itself does not justify the state putting the cost of the affordable housing at the door of the developer. The only reason that affordable housing section 106 planning obligations meet the requirements of regulation 122 of the Community Infrastructure Levy Regulations 2010 (necessary to make the development acceptable in planning terms; directly related to the development; and fairly and reasonably related in scale and kind to the development) is because of local policies seeking such obligations, supported by national policy. Policy could have easily required development across the board to contribute to affordable housing – or another category of development other than market housing. Why shouldn’t we use plain language and describe the extent of subsidy on each scheme as a tax? Hypothecated it may be but it still surely meets that OECD definition. For the rest of this post I will refer to it as Affordable Housing Tax, AHT.
How to calculate AHT? Frequently, the high proportion of affordable housing that is required to be provided in connection with a private market housing development, when taken with the other costs of that development (including CIL where chargeable, a more straight-forward and transparent tax – that’s how bad AHT is!), would render the project unviable and so AHT ends up being as much as can be extracted from a development whilst allowing it to go ahead, assuming a fixed capped profit level for the developer and a fixed capped land value for the land owner (often less than its “real” value or actual acquisition cost).
Take London. The London Plan requires boroughs to seek to maximise affordable housing provision. The current Mayor has indicated that his “long-term aim is for half of all new homes to be affordable”. In his November 2016 draft affordable housing and viability SPG (the subject of my 1.12.16 blog post ), he introduced a ‘threshold approach’, whereby schemes meeting or exceeding 35% (by habitable room) affordable housing without public subsidy will not be required to submit viability information. There are also minimum requirements as to the proportions of different types of affordable housing that will be required (“tenure split” in the affordable housing industry jargon that we have grown up with). For schemes that cannot meet the threshold, viability appraisal is required to justify how much affordable housing the scheme can deliver.
Imagine such a concept in any other sector:
1. The market produces goods which reduce the need for the state to provide a service, or which are at least neutral.

2. The market is taxed on those goods, with the tax applied towards provision of that service, instead of that service being paid for by the state.

3. The level of that tax differs according to location but will often equate to all profits arising from the production of the goods, less a capped profit and capped input cost.

I’m expressing no view as to whether this process is right or wrong. However, I do feel that the underlying reality has been conveniently forgotten. And the collateral damage from AHT is:
1. loading complexity into the planning process, with local planning authorities having to fulfil both a tax assessment and tax collection role

2. encouraging bad outcomes, with developers incentivised to expend resources on AHT mitigation (complex affordable housing negotiations, arguments over tenures, viability appraisal)

3. reducing housing delivery by rendering some projects unviable.

How did we get here? There is an interesting 2002 study by the Joseph Rowntree Foundation, “Planning gain and affordable housing: making it count”, which starts with this brief history:

“Local authorities had been experimenting with ways of using the planning system to secure affordable housing in a number of areas in England in the 1970s, but official government endorsement first came in 1979 when the rural exceptions policy was announced. This enables rural planning authorities to grant planning consent for housing on sites that would not otherwise receive permission, provided that only affordable housing is developed on them.
The approach was more widely sanctioned to enable affordable housing to be secured on all larger housing developments in 1981 and subsequently included in all Planning Policy Guidance on housing (PPG3) issued since then (DETR, 2000). Provided that local planning authorities have policies in their adopted statutory development plans that assess the need for new affordable housing in their districts, they may require private developers to contribute to meeting this need. They may also set specific targets to be achieved on sites allocated for new housing in adopted plans. When developers agree to make contributions these are made legally binding contracts, where they enter into agreements with the relevant planning authority under section 106 of the 1990 Town and Country Planning Act as part of the process of securing planning permission.”

“In 1998, the policy was amended, to reduce site thresholds above which contributions would normally be sought, and to link it more closely with the government’s policies on social inclusion, mixed communities and urban renaissance through on-site provision of affordable housing (DETR, 1998). In the 2000 version of PPG3, the government made it clear that developers’ unwillingness to make contributions to affordable housing would be an appropriate reason, of itself, to refuse planning permission (DETR, 2000).

In the 2001 Green Paper on reform of the planning system the government proposed widening the scope of the affordable planning policy to incorporate small sites and commercial developments. It also proposed replacing negotiated contributions by standard authority- wide financial tariffs, which would still mainly be used for on-site provision. (DTLR, 2001a, 2001b).”
In my view, a significant turning point was paragraph 38 of PPG3 (1992): “A community’s need for affordable housing is a material consideration which may properly be taken into account in formulating development plan policies.”
This from an interesting 26 October 2011 paper by Tim Mould QC:
“At the time, the introduction of that policy provoked considerable controversy in planning circles. In Mitchell v Secretary of State, Roy Vandermeer QC sitting as a deputy High Court Judge held that a planning appeal decision based upon considerations of housing price and tenure was unlawful, on the ground that such considerations had nothing to do with the character and use of land. Had that view prevailed, the now conventional approach to delivering affordable housing through the planning process would have been dead in the water, considerations of price and tenure being part and parcel of the means whereby affordable housing is actually secured through the development control process.

That view did not, however, prevail. The Court of Appeal overturned Mr Vandermeer’s decision. In Mitchell v Secretary of State [1994] 2 PLR 23, Saville LJ said (page 26G-H) :

“On the law as it presently stands, therefore, the need for housing in a particular area is a planning purpose which relates to the character and use of land. Given that this is so, the proposition advanced on behalf of Mr Mitchell is that the need for a particular type of housing in an area is not a planning purpose which relates to the character of the use of land if that need is itself dictated or generated by considerations of cost or type of tenure.

I cannot accept this argument. To my mind there is no sensible distinction to be drawn between a need for housing generally and a need for particular types of housing, whether or not the latter can be defined in terms of cost, tenure or otherwise. In each case the question is whether, as a matter of planning for the area under consideration, there is a need for housing which the grant or refusal of the application would affect.

The fact that the need may be dictated by considerations of cost or type of tenure seems to me to be immaterial…. ….the fallacy in the argument is that it simply confuses the need for housing (which on the authorities is a legitimate consideration) with the reasons for that need and concentrates exclusively on the latter while effectively ignoring the former. ”

Thereafter the national planning policy for the delivery of affordable housing through the planning process became encapsulated in a departmental circular devoted to that topic – DETR Circular 6/98 “Planning and Affordable Housing“. Building on the established materiality of the need for affordable housing, paragraph 1 of the circular required local planning authorities to investigate the degree of need for affordable housing in their area and, based on that evidence, to include in their local plans a policy for seeking an element of such housing on suitable sites. Such policies would then be material consideration in determining an application for planning permission.”

Tim then points to PPS3 (2005), which is even more specific as to what was required from developers: “planning authorities were required to set overall targets for affordable housing during the plan period based on (inter alia) the findings of a Strategic Housing Market Assessment; to include separate targets for social rented and intermediate housing; to specify the size and type of affordable housing likely to be needed in particular locations; to set out the range of circumstances in which affordable housing would be required; and to set out the approach to seeking developer contributions towards affordable housing provision in their area. There was further guidance on the provision of affordable housing in rural areas.”
As we then move forward to the publication in 2012 of the NPPF, the references to seeking developer contributions to affordable housing are lost. Not because the approach has changed but because by now this is just the system, isn’t it?
The NPPF simply says this about affordable housing, para 50:

“To deliver a wide choice of high quality homes, widen opportunities for home ownership and create sustainable, inclusive and mixed communities, local planning authorities should:

* plan for a mix of housing based on current and future demographic trends, market trends and the needs of different groups in the community (such as, but not limited to, families with children, older people, people with disabilities, service families and people wishing to build their own homes);  

* identify the size, type, tenure and range of housing that is required in particular locations, reflecting local demand; and  

* where they have identified that affordable housing is needed, set policies for meeting this need on site, unless off-site provision or a nancial contribution of broadly equivalent value can be robustly justified (for example to improve or make more effective use of the existing housing stock) and the agreed approach contributes to the objective of creating mixed and balanced communities. Such policies should be sufficiently exible to take account of changing market conditions over time“ 

Similarly, there is the assumption in the Government’s 2014 planning practice guidance, along with specific references later introduced into the document as to the circumstances in which affordable housing requirements should not be sought (reflecting the 28 November 2014 written ministerial statement that set out the small sites threshold and the vacant building credit).

Throughout this period the availability of public subsidies to support the delivery of affordable housing has reduced.
What an example of mission creep all of this is. How enticing for successive governments to restrict general taxation by progressively increasing the burden of paying for affordable housing onto private sector residential development.
The political sleight of hand goes further: recognising the financial impact that this responsibility places on residential development, beneath the headline proportions of affordable housing that are sought, the definition of affordable housing has been adjusted to the disadvantage of those in most need of it:
– first with the introduction of affordable rent rather than social rent (see the House of Commons Library briefing paper dated 7 May 2015), affordable rent being a reduction of at least 20% on market rent as opposed to social rent’s generally lower, fixed rent, levels
– more recently with consultation on widening the definition of affordable housing to include “starter homes” and also, for build to rent development, discount market rent (see my 4.3.17 blog post).

One advantage of calling a tax a tax would be that we could then have an honest conversation as to whether it is right that CIL always has priority over AHT. That 15% of CIL that is for neighbourhoods to apply (25% where a neighbourhood plan is in place) – can’t AHT take priority over that? Indeed, given that neighbourhood slice doesn’t even have to be spent on the provision of infrastructure (but on either “the provision, improvement, replacement, operation or maintenance of infrastructure” or “anything else that is concerned with addressing the demands that development places on an area”), why not advise that in areas of particular need of affordable housing the neighbourhood slice should automatically go toward affordable housing?
Of course the very term “affordable housing” is politician-speak. After all, all housing is affordable to some and unaffordable to others. Don’t we really mean “subsidised housing”, “low income housing” or “public housing”? I’m surprised indeed we haven’t yet seen it rebranded as “community housing”.
But what other approach could be taken to securing it, other than the present one?
An interesting exercise would be to calculate, nationally or authority area by authority area, the annual level of AHT that is secured from developers by way of section 106 obligations (some useful national figures to begin with are within Annex A of the Government’s May 2016 starter homes consultation paper) and then to work out what that might equate to if it became an across the board (all development, not just housing) CIL-type charge. As I say, why should the cost of affordable housing solely fall on residential development? Indeed, arguably it is employment development that adds more directly to the need for homes.
Indeed, as part of any review of CIL, doesn’t the concept of a Community Housing and Infrastructure Levy, or CHIL, have a ring to it?
Furthermore, whilst there is a much bigger role for local authorities to play in delivering affordable housing, direct and in conjunction with registered providers and the private sector (and potentially with a greater focus on neighbourhood, community, participation in delivery and management), why not turn the system on its head and boost production by making it positively in the developer’s interest to deliver affordable housing, through offering tax credits? This has been the US model, via the Low-Income Housing Tax Credit (LIHTC), ironically now under threat due to Trump’s proposed tax changes (see for example Bloomberg piece Trump Corporate Tax Shakeup Puts Housing Developers in Tailspin 26 April 2017).

Or do we have it right with our present system? Question.
Simon Ricketts 28.5.17
Personal views, et cetera

Money For Nothing? CPO Compensation Reform, Land Value Capture

To what extent might the state choose to tax land owners, through reducing their compensation entitlement, in order to facilitate the provision of housing or infrastructure, rather than subsidise that provision through more general tax raising? How can the state capture land value gains created by its own infrastructure provision, or due to its own strategic planning for development?
These questions are central to a number of current areas of public policy thinking, including:
– Using compulsory purchase
– Land auctions and land value capture charges
– Benchmark land values in viability appraisal
– CIL reform
There are some confluences arising in this area between current Conservative party thinking, other political parties, Transport for London and Shelter to name but a few. I’m not sure that land owner interests have yet joined all the dots. Developers may wish to partner more closely and regularly with local authorities with compulsory purchase powers, but in other situations should also be aware of the risks ahead for their businesses if additional costs are not sufficiently predictable as to come off the land price or if they cause land owners simply to hold rather than sell.
Using compulsory purchase

Compulsory purchase is already a practical mechanism for securing land where there is a compelling case in the public interest for interfering with private property rights. Of course it isn’t easy, and will never be. The power is draconian. The necessary procedural safeguards to protect against its abuse make for a slow, procedurally technical process and for uncertain outcomes.

Another disincentive for local authorities can be the significant compensation costs payable, given the fundamental principle that the land owner is entitled to what the value of his interest would have been were it not for the compulsory acquisition (the ‘equivalence’ principle). Even where compensation liability is being underwritten by a developer partner, the extent of compensation is:
– likely to affect whether the project is viable after all; and
– not ascertainable until all parties are too far in to back out due to the leisurely pace at which a compensation figure is determined (both pre- and post-reference to the Lands Tribunal, aka Lands Chamber of the Upper Tribunal).
The Conservative manifesto, published on 17 May 2017, refers to compulsory purchase in this one paragraph:
“We will enter into new Council Housing Deals with ambitious, pro-development, local authorities to help them build more social housing. We will work with them to improve their capability and capacity to develop more good homes, as well as providing them with significant low-cost capital funding. In doing so, we will build new fix-term social houses, which will be sold privately after ten to fifteen years with an automatic Right to Buy for tenants, the proceeds of which will be recycled into further homes. We will reform Compulsory Purchase Orders to make them easier and less expensive for councils to use and to make it easier to determine the true market value of sites”.

I am guessing that what is planned goes further than making the current system work better. Changes are being considered which would enable in some circumstances greater use of compulsory purchase and, in some circumstances, acquisition at lower values than the equivalence principle would suggest.
The February 2017 Housing White Paper says this:
“2.43 Compulsory purchase law gives local authorities extensive powers to assemble land for development. Through the Housing and Planning Act 2016 and the Neighbourhood Planning Bill currently in Parliament we are reforming compulsory purchase to make the process clearer, fairer, and faster, while retaining proper protections for landowners. Local planning authorities should now think about how they can use these powers to promote development, which is particularly important in areas of high housing need.

2.44 We propose to encourage more active use of compulsory purchase powers to promote development on stalled sites for housing. The Government will prepare new guidance to local planning authorities following separate consultation, encouraging the use of their compulsory purchase powers to support the build out of stalled sites. We will investigate whether auctions, following possession of the land, are sufficient to establish an unambiguous value for the purposes of compensation payable to the claimant, where the local authority has used their compulsory purchase powers to acquire the land.

2.45 [ ]

2.46 We will keep compulsory purchase under review and welcome any representations for how it can be reformed further to support development.”
Note the references to encouraging the use of compulsory purchase where development has stalled, and investigating the use of auctions to establish land value (more on that later in this blog post).
Revealingly, in the week before the publication of the manifesto there was a press release with this passage in its “notes to editors”:
“To further incentivise councils to build, the Conservatives also intend to reform compulsory purchase rules to allow councils to buy brownfield land and pocket sites more cheaply. At the moment, councils must purchase land at “market value”, which includes the price with planning permission, irrespective of whether it has it or not. As a result, there has been a more than 100% increase in the price of land relative to GDP over the last 20 years and the price of land for housing has diverged considerably from agricultural land in the last fifty years. Between 1959 and 2017, agricultural land has doubled in value in real terms from £4,300 per acre to £8,900 per acre, while land for planning permission has increased by 1,200%, from £107,000 to just over £1,450,000. Local authorities therefore very rarely use their CPO powers for social housing, leaving derelict buildings in town centres, unused pocket sites and industrial sites remain undeveloped.”
I’m guessing at the following policy strands for a future Conservative government from these various statements:
1. Further encouragement for use of CPO powers in the right circumstances, including particular encouragement where a “Council Housing Deal” is in place (guaranteeing social housing with a fixed-term right to buy for tenants) and possibly where private sector development is shown to have stalled (link this and the “delivery” elements of the Housing White Paper and this could be quite a stick to wield).
2. Further process reform likely.
3. Reform likely of the process for determining the compensation price to be paid, so that (1) figures are known earlier on, (2) the land auctions model is followed (see later in this blog post) to determine values in appropriate circumstances and (if those ‘notes to editors’ are to believed) (3) in some circumstances authorities will be able to acquire land for less than it is worth (possibly ruling out hope value unless planning permission or a certificate of appropriate alternative development under section 17 of the Land Compensation Act 1961, has actually been obtained).
The last point (still speculation) has caused consternation and excitement in equal measure. The principle of equivalence is at stake, but equally this opens up the prospect of securing land for development at an undervalue so as to achieve affordable housing at no cost to the state. Money for nothing (unless you are the land owner). Shelter for example have been lobbying for a similar approach. Their May 2017 paper Financing the infrastructure and new homes of the future: the case for enabling acquiring authorities to purchase land for strategic development under a special CPO compensation code May 2017 lobbies for Government to:

“enable acquiring authorities to purchase land for strategic development under a special CPO compensation code. This would involve three changes:

1) An amendment to the National Planning Policy Framework to allow planning authorities to designate land for strategic development;

2) An amendment to Section 14 of the 1961 Land Compensation Act to disregard prospective planning permissions on land designated for strategic development;  

3) An amendment to Section 17 of the 1961 Land Compensation Act to restrict the use of certificates of alternative development on land designated for strategic development.”

Shelter’s delight at the references in the Conservatives’ recent policy announcements is plain to see from their subsequent 16 May 2017 blog post Compulsory purchase and council homes – a new direction for housing policy?
Do the Conservatives really intend such a radical market intervention, or do they misunderstand how the compensation system currently works? The reference in the press release’s “notes to editors” that “councils must purchase land at “market value”, which includes the price with planning permission, irrespective of whether it has it or not” is of course wrong. The prospect of planning permission for development in the “no scheme world” is taken into account in arriving at a valuation but the existence of a planning permission is never assumed.

However logically necessary the concept is, the “no scheme world” (or “Pointe Gourde”) rule been much criticised for being difficult to apply in practice. Its complexities were most recently explored by the Supreme Court in Homes & Communities Agency v JS Bloor (Wilmslow) Ltd (22 February 2017), where Lord Carnwath said this:
“The rule has given rise to substantial controversy and difficulty in practice. In Waters v Welsh Development Agency [2004] 1 WLR 1304; [2004] UKHL 19, para 2 (“Waters”), Lord Nicholls of Birkenhead spoke of the law as “fraught with complexity and obscurity”. In a report in 2003 the Law Commission conducted a detailed review of the history of the rule and the relevant jurisprudence, and made recommendations for the replacement of the existing rules by a comprehensive statutory code…”

Lord Carnwath had himself of course chaired that review. Too late for the litigants in Bloor, now finally, by virtue of section 32 of the Neighbourhood Planning Act 2017 (which introduces new sections 6A to E into the Land Compensation Act 1961) we have a codified version of the “no scheme world” rule. (The compulsory purchase provisions within the 2017 Act are well summarised by David Elvin QC in a paper to the 2017 PEBA conference).

New section 6E has refined the rule so that it is now more difficult for claimants to rely on increases in value of their land created by the transport project for which the land has been acquired, where regeneration or redevelopment was part of the justification for the transport project.
The big question is whether a more radical manipulation of the “no scheme world” rule might be possible, even if it parted from the principle of equivalence. After all, if land for development could be secured at little more than agricultural value…?
It would be mightily difficult, indeed controversial to the extent of potentially being counter-productive, if land is to be acquired without prolonged legal wrangling. If in the real world your land has hope value for another form of development, why should that be ignored? However, in fact it’s not legally impossible.
Article 1 of the protocol to the European Convention on Human Rights states as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

(Incidentally, the Conservative manifesto confirms: “We will not repeal or replace the Human Rights Act while the process of Brexit is underway but we will consider our human rights legal framework when the process of leaving the EU concludes. We will remain signatories to the European Convention on Human Rights for the duration of the next parliament.“)
The European Court of Human Rights interprets Article 1 of the protocol so as to require compensation to be paid in relation to the confiscation of property. In Lithgow v UK (European Court of Human Rights, 8 July 1986), a case arising from Labour’s nationalisation of various industries under the Aircraft and Shipbuilding Industries Act 1977, the court said:
“The Court further accepts the Commission’s conclusion as to the standard of compensation: the taking of property without payment of an amount reasonably related to its value would normally constitute a disproportionate interference which could not be considered justifiable under Article 1 (P1-1). Article 1 (P1-1) does not, however, guarantee a right to full compensation in all circumstances, since legitimate objectives of “public interest”, such as pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value”.

Whilst a distinction was drawn in the case between state nationalisation of industries and the compulsory purchase of property, the same basic principles apply. It is clear from this and other cases that individual states are given a margin of appreciation to determine what is in the public interest. For example:
– Sporrong and Lönnroth v. Sweden (22 September 1982) (a case about longterm blight caused by ‘zonal expropriation permits’)
“…the Court must determine whether a fair balance was struck between the demands of the general interests of the community and the requirements of the protection of the individual’s fundamental rights…”
– James v UK (21 February 1986) (a challenge brought by the trustees of the estate of the Duke of Westminster to leasehold enfranchisement under Leasehold Reform Act 1967):
“Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is “in the public interest”. Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment both of the existence of a problem of public concern warranting measures of deprivation of property and of the remedial action to be taken… Here as in other fields to which the safeguards of the Convention extend, the national authorities accordingly enjoy a certain margin of appreciation.” The Court went on to find that the aim of the Leasehold Reform Act 1967, namely greater social justice in the sphere of housing, was a legitimate aim in the public interest.

Similarly, in theory a mechanism might be arrived at which in some way disentitled land owners in some circumstances from achieving a full market value for their land. But the circumstances would need to be carefully circumscribed and the reaction of most land owners would be to fight rather than one of flight.
It is not as if compulsory purchase compensation is presently particularly generous, even with the additional loss payments (capped, even for owner-occupiers, at the lesser of 10% of the compensation payable and £100,000) that were introduced by the Planning and Compulsory Purchase Act 2004 specifically to sweeten the pill for land owners and make compulsory purchase less contentious! Do we really want more uncertain situations such has arisen at the Aylesbury Estate, with the Secretary of State rejecting a CPO made by the London Borough of Southwark, on the basis of the prejudice that would be caused to leaseholders by the inadequate level of compensation payable to them, and now reportedly having consented to judgment following a challenge by the council, such that all concerned now face a re-opened inquiry?
Furthermore, if these amended compensation principles are only to apply to, for example, Council Housing Deals, how will dispossessed owners be able to recover their property, or further compensation, if the land ends up not being used for the restricted purposes for which the land was taken?
Lastly, that manifesto reference to making it “easier to determine the true market value of sites”. Does this suggest a simplification of compensation principles? Or an overhaul of the timescales for determining compensation liability? Transport for London have recently suggested (in the paper referred to in the next section of this blog post) that the Government might make “the process of acquiring land through compulsory acquisition more transparent by:

* Introducing an independent valuation panel to determine the market value of the land based on the ‘no scheme’ principle set out in the Neighbourhood Planning Bill 2016

* Establishing (early in the land acquisition process) an objective and transparent evidence base on alternative development potential in the absence of the scheme, for such a panel to determine ‘no scheme’ market values, for instance through the use of a modified section 17 certificate”.
Land auctions, land value capture charges

The passage quoted earlier from the Housing White Paper refers to “auctions”. Academic Tim Leunig has been promoting the idea of “community land auctions” for a long time and indeed the idea was toyed with in the early years of the coalition government, whilst to a number of us it seemed naive in its assumption as to how planning actually works:
“The council first asks all landowners to name the price at which they are willing to sell their land. By naming a price, the landowner gives the council the right to buy the land for 18 months at that price. The council then writes a development plan. As now, they will take into account the suitability of the land offered for development, but will also consider the price of the land, and the likely financial return to the council.”
Transport for London has more recently been promoting a more sophisticated “development rights auction model” as a method of capturing land value increases created by transport infrastructure improvements. Their 20 February 2017 land value capture report , summarises it as follows:
“For zones with high development potential (particularly for housing) with multiple landowners, the Government, TfL and the GLA should consider the development rights auction model (DRAM), a new land value capture mechanism.

The key features of the development rights auction model are:

* The integrated planning and consenting of land use and density in a defined zone around a major new transport facility, in parallel with the planning of the transport scheme  * The introduction of a periodic development rights auction, in which development rights over land put forward (voluntarily) by landowners are auctioned in assembled packages to a competitive field of developers. Gains above a reserve price are shared between the participating landowners and the planning/auctioning authority. No development taxes (such as CILs or s106 payments) are payable under this scheme. All non-operational but developable public sector-owned land within the zone is entered into the auction as part of a standard public sector land pooling arrangement

* The introduction of a high zonal CIL for those landowners who wish to self- develop rather than participate in the auction

* The use of reformed compulsory purchase order (CPO) powers (following successful passage of the Neighbourhood Planning Bill 2016) to deal with holdout problems that threaten to stall development, together with further consideration of other options as discussed in the report”.
The Government’s 8 March 2017 budget announcements included a memorandum of understanding entered into with the GLA, that says this:
“At Budget 2016, the government invited Transport for London (TfL) to bring forward proposals for financing infrastructure projects from land value uplift.

The government has agreed to establish a joint taskforce bringing together the GLA, TfL, London Councils, HM Treasury, Department for Transport (DfT) and Department for Communities and Local Government (DCLG) to explore the options for piloting a Development Rights Auction Model (DRAM) on a major infrastructure project in London.

Should a pilot of DRAM be agreed, it will be jointly evaluated by London and the government to review its effectiveness and determine whether a similar model could be applied to other infrastructure projects.”

I can’t presently relate the DRAM initiative to the reference in the Housing White Paper (quoted above) to establishing land value via auctions in CPO situations, following possession. What on earth is that a reference to?
TfL’s February 2017 paper has various other more radical policy suggestions to capture infrastructure-related land value increases, including changes to SDLT, to retention of business rates and a new “land value capture charge” This would “capture a proportion of the premium paid to landowners by new purchasers or tenants of residential property for access to new transport facilities“. (Shall we call a tax a tax though, folks?).
There is also a current RTPI research project The Use of Alternative Land Value Capture Mechanisms to Deliver Housing in England and Wales.
Benchmark land values in viability appraisal

One of the most contentious issues in relation to developers’ project viability appraisals (carried out for the purposes of seeking to agree reductions in the scale of section 106 affordable housing and other obligations) is the benchmark land value that should be applied as a cost input. Clearly it should not be the actual market value (which would lead to circularity) but equally it should not be just the existing use value (EUV), which would not reflect reality and would result in schemes being assumed to be viable when in reality they would not be because the land would not be made available at the assumed benchmark value.
The 2012 RICS guidance, Financial Viability In Planning , advises that it is appropriate to take into account alternative use value (AUV):
“Site Value should equate to the market value subject to the following assumption: that the value has regard to development plan polices and all other material planning considerations and disregards that which is contrary to the development plan.”
As summarised in my 1.12.16 blog post , the London Mayor is seeking to move away from accepting AUV, preferring an “EUV+” approach, ie existing use value “plus premium”, with the methodology for calculating the premium left undefined, and therefore a recipe for continuing debate.
In practice, surely any attempt to pitch EUV+ at less than AUV is equivalent to restricting the application of the “no scheme world” rule – a policy intervention to apply that shortfall for public purposes. Except that with viability negotiations, it could of course lead to development simply not proceeding. Is there then a stalled scheme and grounds for compulsory purchase? The extent to which this sort of economic intervention is acceptable needs to be carefully limited and defined.
CIL reform

There have been rumours that the reason why the Government parked in February any response to the CIL review team’s report was that the new ministerial team had started to think about whether in fact any replacement for CIL should encapsulate land value concepts (memories of the planning gain supplement anyone?). There is certainly no mention of CIL in the Conservative manifesto. Certainly the policy priorities as between CIL and affordable housing need to be reconsidered.

If we weren’t in such dire straits, we could of course go back to a position where the state invested in social housing and funded public services without weighing the costs so heavily on land owners and developers. In the meantime, over the next five years we’ll definitely see answers emerge to those questions I posed back at the beginning of this overlong post.
Simon Ricketts 20.5.17

Personal views, et cetera

Slow Train Coming: Strategic Rail Freight Interchanges In The South East

The planning system doesn’t just fail to provide homes. There are clear lessons to be learned from the unstructured and inadequate approach that successive governments have applied to securing appropriate strategic rail freight interchange developments (SRFIs, in the jargon) to serve London and the south east. That approach has now wasted decades without a spade in the ground, despite millions of pounds having been spent, countless inquiries and High Court proceedings and no doubt a lifetime of worry for those potentially affected. The difficulties with SRFIs also illustrate that the problems aren’t over even when planning consent is obtained – issues of commercial viability and land control are as fundamental.
This blog post summarises where the three leading contenders have reached: Goodman’s Colnbrook Slough scheme, Helioslough’s former Radlett Aerodrome scheme and Roxhill’s Howbury Park scheme, all in the green belt. It is a long story but that’s why I have tried to tell it.

What is an SRFI?

An SFRI is defined in the Government’s National Networks national policy statement January 2015 as a “large multi-purpose rail freight interchange and distribution centre linked into both the rail and trunk road system. It has rail-served warehousing and container handling facilities and may also include manufacturing and processing activities”.

What is the consenting process?

If the proposal falls within the criteria in section 26 of the Planning Act 2008 (eg a site area of at least 60 hectares, to be connected to national rail network and capable of handling (a) consignments of goods from more than one consignor and to more than one consignee, and (b) at least four goods trains a day), it falls under the NSIP procedure.

The only SRFIs so far consented as NSIPs have been Prologis’ Daventry International Rail Freight Terminal (3 July 2014) and Roxhill’s East Midlands Gateway Rail Freight Interchange (12 January 2016) (the latter against the examining authority’s recommendations). Goodman’s East Midlands Intermodal Park, Roxhill’s Northampton Gateway Rail Freight Interchange, Ashfield Land’s Rail Central Strategic Rail Freight Interchange (also Northampton) and Four Ashes’ West Midlands Interchange are all at pre-application stage.

An NSIP can of course include associated development. There can be uncertainties as to the extent of warehousing that is justified and the degree to which commitments are to be given as to its rail-connectedness. For applications made from 6 April 2017, up to around 500 homes may also be included (see section 160 of the Housing and Planning Act 2016 and the Government’s March 2017 guidance).

If the proposal doesn’t meet the NSIP criteria, it will need to proceed by way of a traditional planning application. The NSIP process has its pros and cons. It is interesting to note that the three schemes we will be looking at in this blog post have been proceeding by way of a planning application, with the site areas of the Colnbrook and Howbury Park schemes being 58.7 hectares and 57.4 hectares respectively (given an NSIP threshold of 60 hectares that looks like a deliberate “serve and avoid” to me…) and with the Radlett application process having predated the switching on of the 2008 Act.

The need case

The National Networks NPS sets out the need for SRFIs in paras 2.42 to 2.58:

“2.53 The Government’s vision for transport is for a low carbon sustainable transport system that is an engine for economic growth, but is also safer and improves the quality of life in our communities. The Government therefore believes it is important to facilitate the development of the intermodal rail freight industry. The transfer of freight from road to rail has an important part to play in a low carbon economy and in helping to address climate change.

2.54 To facilitate this modal transfer, a network of SRFIs is needed across the regions, to serve regional, sub-regional and cross-regional markets. In all cases it is essential that these have good connectivity with both the road and rail networks, in particular the strategic rail freight network (see maps at Annex C). The enhanced connectivity provided by a network of SRFIs should, in turn, provide improved trading links with our European neighbours and improved international connectivity and enhanced port growth.

“2.56 The Government has concluded that there is a compelling need for an expanded network of SRFIs. It is important that SRFIs are located near the business markets they will serve – major urban centres, or groups of centres – and are linked to key supply chain routes. Given the locational requirements and the need for effective connections for both rail and road, the number of locations suitable for SRFIs will be limited, which will restrict the scope for developers to identify viable alternative sites.  

2.57 Existing operational SRFIs and other intermodal RFIs are situated predominantly in the Midlands and the North. Conversely, in London and the South East, away from the deep-sea ports, most intermodal RFI and rail-connected warehousing is on a small scale and/or poorly located in relation to the main urban areas.  

2.58 This means that SRFI capacity needs to be provided at a wide range of locations, to provide the flexibility needed to match the changing demands of the market, possibly with traffic moving from existing RFI to new larger facilities. There is a particular challenge in expanding rail freight interchanges serving London and the South East.”

Annex C strategic rail freight network map

These facilities are important for our economy, and for reducing vehicle emissions (not that there is any reference to this, or indeed any other supra-local planning interventions, in the Government’s draft air quality plan published on 5 May 2017). Unfortunately, the strategy in the NPS is very general. Whilst there are the references to London and the South East in the passages above, this is even less specific than the former Strategic Rail Authority’s Strategic Rail Freight Interchange policy March 2004, much argued over at inquiries, which asserted that “required capacity would be met by three or four new Strategic RFI” in London and the South East and that the “qualitative criteria to deliver the capacity mean that suitable sites are likely to be located where the key rail and road radials intersect with  the M25.”

Currently it is down to the private sector to identify sites which may meet the NPS criteria, with a wary eye on what other sites may be in the frame – a game not for the faint-hearted, meaning a very limited pool of potential promoters.

Since the NPS, we have had DfT’s Rail Freight Strategy 13 September 2016:

Para 53 “This Rail Freight Strategy will not set out proposals for new enhancements to the network nor specify in detail the freight paths that will be needed in future. These issues are being considered by DfT on a longer timescale as part of the long-term planning process for the rail network, which will consider priorities for the railway beyond the current control period (from 2019). To inform the industry’s advice to DfT as part of this process, Network Rail is currently consulting on a more detailed Freight Network Study. This considers the requirements of the rail network over the next 30 years and is intended to support the series of Route Studies that have been published or are under development by Network Rail.”

Will we see an amended National Networks NPS in the foreseeable future so as to give greater direction? I doubt it.

So now let’s look at the most likely candidates to serve London and the South East

Colnbrook

Those with long memories may recall Argent’s LIFE (London International Freight Exchange) scheme proposed on land to the north of the A4 at Colnbrook, near Slough. The then Secretary of State dismissed an appeal against refusal of planning permission on 20 August 2002, stating:

“The central issue remains […] where to strike the balance between Green Belt and sustainable transport interests. The proposal would be inappropriate development in the Green Belt and would harm the openness of the Green Belt, at the same time there are positive aspects including some sustainable transport benefits”.

 “The Secretary of State continues to support the principle of encouraging more rail freight, but shares the Inspector’s judgement that the balance of benefits and disbenefits is against the LIFE scheme as currently proposed and that the general presumptions against inappropriate development in the Green Belt should apply”.

Goodman are now promoting a smaller SRFI on part of the site. Their scheme is now imaginatively called SIFE (Slough International Freight Exchange) and was the subject of a planning application in September 2010. It was refused by Slough Borough Council and an inquiry was due to take place into Goodman’s appeal in October 2012. However, the inquiry was then put in the sidings whilst the then Secretary of State decided whether to re-open an inquiry into the Radlett SRFI scheme, which he considered might have significant implications for SIFE. As it happened, due to delays in that inquiry process (of which more later), the SIFE inquiry was not rescheduled until The Radlett decision letter was issued in July 2014.

After a ten day inquiry in September 2015, the Secretary of State on 12 July 2016 dismissed Goodman’s appeal against refusal by Slough Borough Council of planning permission for SIFE. The Secretary of State addresses the extent to which there is a need for all three facilities (SIFE Colnbrook; Radlett, and Howbury Park):

“24. The Secretary of State has carefully considered the Inspector’s reasoning about need at IR12.88 – 12.103 and accepts the Inspector’s conclusion that the current policy need for a regional network has not been overcome by the SRFI at Radlett and SIFE is able to be regarded as a complementary facility as part of a wider network (IR12.104).

25. With regard to the Inspector’s analysis of other developments and sites at IR 12.105 – 12.106, the Secretary of State agrees that the NPS makes clear that perpetuating the status quo, which means relying on existing operational rail freight interchanges, is not a viable option.

26. The Secretary of State agrees with the Inspector that there is a reasonable probability that Radlett will be operational in 2018 and there is the prospect of Howbury Park being progressed to implementation. In addition, rail connected warehousing is under development in Barking. On the downside, the geographical spread is uneven. There is a noticeable gap in provision on the west side of London, with Radlett being complementary to rather than an alternative to SIFE. SIFE would contribute to the development of a network of SRFI in London and the South East and a wider national network in accordance with the policy objective of the NPS (IR12.107).”

However he goes on to reach the following conclusions as to whether there are very special circumstances justifying inappropriate development in the green belt:

“13. The Secretary of State agrees with the Inspector’s comments at IR12.8, and like the Inspector, concludes that the appeal proposal would be inappropriate development in the Green Belt and that it is harmful as such. As the proposal amounts to inappropriate development he considers that, in the absence of very special circumstances, it would conflict with national policies and with the CS. Like the Inspector, the Secretary of State considers that the NPS does not change the policy test for SRFI applications in the Green Belt or the substantial weight to be attached to the harm to the Green Belt (IR12.8). For the reasons given by the Inspector at IR12.9 – 12.11, the Secretary of State agrees with the Inspector’s conclusion (IR12.12) that the proposed development would result in a severe loss of openness.

14. The Secretary of State agrees with the Inspector that the introduction of major development on the site, even if enclosed within well-defined boundaries, would not assist in checking sprawl and hence would conflict with a purpose of the Green Belt (IR12.13). For the reasons given by the Inspector at IR12.14, the Secretary of State agrees that the proposal would not be compatible with the purpose of preventing neighbouring towns merging into one another. The Secretary of State accepts the Inspector’s conclusion that the proposed development would encroach into the countryside. He agrees too that this conflict is not overcome by the proposed creation of new habitats and other aspects of mitigation in existing countryside areas (12.15). The Secretary of State agrees with the Inspector’s overall conclusion that these conflicts should be afforded substantial weight (IR12.18). The Inspector acknowledges that the proposed SRFI development’s location in the Green Belt may well be an optimum solution in relation to existing patterns of distribution activity, but like the Inspector, the Secretary of State concludes that this does not reduce the actual harm that would occur (IR12.19)”

His overall conclusions:

“40. The Secretary of State accepts that the most important benefit of the proposal is the potential contribution to building up a network of SRFIs in the London and South East region, reducing the unmet need and delivering national policy objectives. In addition, there is the prospect of SIFE being complementary to Radlett and other smaller SRFI developments and improving the geographical spread of these facilities round Greater London. In this context, the Secretary of State accepts that the contribution it would make to meeting unmet need is considerable.

41. He accepts too that SIFE would comply with the transport and location requirements for SRFIs to an overall very good standard. He acknowledges that sites suitable for SRFIs are scarce and the difficulty in finding sites in the London and South East region. On account of this factor, and the standard of compliance achieved, he affords meeting the site selection criteria significant weight. No less harmful alternative site has been identified in the West London market area, a factor which he affords considerable weight. Attracting less but nevertheless moderate weight are the economic benefits, the reduction in carbon emissions and improvements.

42. In common with the Inspector in her conclusion, the Secretary of State has been persuaded by the irreparable harm that would be caused to this very sensitive part of the Green Belt in the Colnbrook area, leading to the high level of weight he attaches to this consideration. Overall, the Secretary of State concludes that the benefits of the scheme do not clearly overcome the harm. Consequently very special circumstances do not exist to justify the development. Furthermore, he finds that planning conditions would not be able to overcome the fundamental harms caused to the Green Belt, Strategic Gap and Colne Valley Park and the open environment enjoyed by the local community. In addition, he has concluded that the proposal does not have the support of the NPS because very special circumstances have not been demonstrated.”

Goodman challenged the decision on the basis that it was wrong for the Secretary of State, in adjudicating the “very special circumstances” test, to give no weight to Goodman’s argument that it was inevitable that a Green Belt location is essential for meeting the need for an SRFI in this location. However the decision has been upheld: Goodman Logistics Developments (UK) Ltd v Secretary of State (Holgate J, 27 April 2017). Holgate J stated:

“It should be noted that Goodman did not advance the extreme argument that the need for another SRFI to serve London and the South East was such that it was inevitable that a a Green Belt site would have to be released for that purpose. There is no policy support for any such proposition. The NPS does not suggest that the need for a network of SFRIs, or for any particular SFRI, is a need to be met come what may, irrespective of the degree of harm which may be caused, or indeed the degree of need for an SRFI in a particular region. Instead, Goodman relied upon an “inevitability” which was qualified. The claimant argued that it is inevitable that another SRFI to serve the London and South East region will be located on a Green Belt site and harm to the Green Belt will occur, if the need for such a SRFI is to be met. The merits of the “inevitability” argument put forward by Goodman were therefore dependent upon the decision-maker’s assessment as to what importance or weight should be attributed to that need and whether that need should indeed be met after taking into account all the harm that would result.”

He goes on:

“The degree of harm that would result from the appeal proposal is only inevitable (in one sense) if the decision-maker concludes that the need for the SRFI and any other benefits flowing from the proposal are of such weight that the balance comes down in favour of granting planning permission. It is not in fact inevitable that the balance will be struck in that way

But if the “need” for SRFIs is not allowed to amount to “very special circumstances” for the purposes of green belt policy, and if there is room for a balancing of the seriousness of that need as against the degree of harm that would be caused, does this lead to unnecessary uncertainty right until the conclusion of the decision making process? Couldn’t the suitability in principle of development in the green belt have been resolved at an earlier stage, preferably via the national policy statement? Similarly, the uncertainties as to the inter-relationship between the three schemes. Why was a decision on Radlett (positive or negative) allowed to become a prerequisite to determining SIFE?

So what next for the site? As it happens, the proposed new runway at Heathrow Airport in combination with associated mitigation proposals and associated development would in fact take up most of the site in any event. Is this planning process now at least partly about establishing “no scheme world” value?

Radlett

Helioslough’s proposal for an SFRI on the former Radlett Aerodome site has a similarly lengthy – and even more convoluted – history. Two appeals had been dismissed for rail freight distribution proposals on the site, which again is in the green belt. The second appeal decision, dated 7 July 2010, turned on a conclusion by the Secretary of State that the Colnbrook site could be a less sensitive site than the Radlett site for an SRFI and that therefore “very special circumstances” for the development of the Radlett site had not been made out.

Helioslough successfully challenged that decision. On 1 July 2011 HH Judge Milwyn Jarman QC ordered that the Secretary of State‟s decision be quashed, holding that the Secretary of State had misconstrued the Strategic Gap policy in Slough’s. Core Strategy and consequently had failed to treat that as an additional policy restraint over and above the Green Belt designation. So the appeal fell to be redetermined by the Secretary of State.

Prior to redetermining it, the Secretary of State consulted with the parties as to whether to conjoin a re-opened inquiry with the inquiry that was to be held into the SIFE Colnbrook appeal. On 14 December 2012 he notified the parties that we was not going to re-open the inquiry but determine it on the basis of the evidence already before him. On 20 December 2012 he issued a letter indicating that he was minded to allow the appeal, subject to completion of a section 106 agreement.

St Albans City and District Council sought to challenge by way of judicial review the Secretary of State’s decision to not to re-open the inquiry. However that challenge was refused permission by Patterson J on 14 June 2013 (and a subsequent renewal application before Collins J failed).

As it happened, the “minded to grant subject to section 106 agreement” indication was unsatisfactory for the promoter too, which had problems completing a section 106 agreement due to land ownership difficulties (part of the site being owned by Hertfordshire County Council) which had led it to press for obligations to be secured by way of negative Grampian-style condition. Helioslough challenged the Secretary of State’s continued delay in issuing a final decision but permission to proceed with judicial review was rejected by John Howell QC sitting as a deputy judge on 1 July 2013.

A section 106 agreement was finally submitted and the Secretary of State granted planning permission in his decision letter dated 14 July 2014. His conclusions were as follows:

“In conclusion, the Secretary of State has found that the appeal proposal would be inappropriate development in the Green Belt and that, in addition, it would cause further harm through loss of openness and significant encroachment into the countryside. In addition the scheme would contribute to urban sprawl and it would cause some harm to the setting of St Albans. The Secretary of State has attributed substantial weight to the harm that would be caused to the Green Belt. In addition he has found that harms would also arise from the scheme’s adverse effects on landscape and on ecology and that the scheme conflicts with LP policies 104 and 106 in those respects.

53. The Secretary of State considers that the factors weighing in favour of the appeal include the need for SRFIs to serve London and the South East, to which he has attributed very considerable weight, and the lack of more appropriate alternative locations for an SRFI in the north west sector which would cause less harm to the Green Belt. He has also taken account of the local benefits of the proposals for a country park, improvements to footpaths and bridleways and the Park Street and Frogmore bypass. The Secretary of State considers that these considerations, taken together, clearly outweigh the harm to the Green Belt and the other harms he has identified including the harm in relation to landscape and ecology and amount to very special circumstances. Despite the Secretary of State’s conclusion that the scheme gives rise to conflict with LP policies 104 and 106, in the light of his finding that very special circumstances exist in this case he is satisfied that, overall the scheme is in overall accordance with the development plan”.

Inevitably, the council challenged the decision. They asserted that the Secretary of State had applied too strict a test in considering whether he could depart from conclusions he had reached in his initial decision and that the Secretary of State failed to take into account a recent decision that he had made on a nearby site. The challenge failed: St Albans City and District Council v Secretary of State (Holgate J, 13 March 2015).

So shouldn’t this be a scheme that is now proceeding, after all of that work? Reserved matters have been applied for, leading to local heat if a report of a recent planning committee is anything to go by. But the rub is that Hertfordshire County Council as land owner hasn’t made a decision as to whether to make its land available to enable the development to proceed.
Howbury Park
The third scheme is one in Crayford, again on green belt land, that was initially promoted by Prologis and secured planning permission on appeal in December 2007. However, due to the global financial crisis it did not proceed and the permission is now time expired.

Roxhill has now replaced Prologis as developer and has submitted fresh applications for planning permission to London Borough of Bexley and to Dartford Borough Council (the proposed access road is in Dartford’s administrative area).

Bexley members resolved to approve the scheme on 16 February 2017 but Dartford members resolved to reject it on 20 April 2017 following their officers’ recommendation. So presumably we may see yet another appeal.

The Bexley part of the scheme is of course within the remit of the Mayor of London, but not the Dartford part, so there is little that he can do by way of intervention. In any event, it will be seen from his 6 June 2016 Stage 1 report that he is not particularly providing a clear strategic lead on the issue:

“11. … The majority of the SRFI developments to date have been in the Midlands and the North, and the aspiration is to have a network of three SRFI around the M25, including this site at Howbury Park, South East London, Radlett, North London(approved by the Secretary of State) and Colnbrook, West London (decision awaited from the Secretary of State) to build a national network.”

“28 Although London Plan policy 6.15a Strategic Rail Freight Interchanges is supportive of the type of facility proposed due to identified strategic need, policy 6.15b caveats this support and sets out criteria which must be delivered within the facility.

A) The provision of strategic rail freight interchanges should be supported. Including enabling the potential of the Channel Tunnel Rail link to be exploited for freight serving London and the wider region.  

B) The facilities must: (a) deliver model shift from road to rail; (b) minimise any adverse impact on the wider transport network; (c) be well related to rail and road corridors capable of accommodating the anticipated level of freight movements; and (d) be well related to the proposed market.  

29 Supporting text paragraph 6.50 acknowledges that these types of large facilities can often only be located in the Green Belt. The Howbury Park site is referenced as a site potentially fulfilling these criteria, reflecting the previous planning permission. Paragraph 6.50 also states:

‘The Mayor will need to see robust evidence of savings and overall reduction in traffic movements are sufficient to justify Green Belt loss in accordance with policy 7.16, and localised increases in traffic movements.’ “

 ”38 The need for a SRFI is accepted, and is borne out through the NPS, the London Plan and the Inspector’s decision on the 2007 case. The applicant has made a compelling ‘very special circumstances’ case but GLA officers would advise further clarification should be sought on the biodiversity benefits of the proposal and the environmental benefits, notably whether the emission savings and overall reduction in traffic movements are sufficient to justify the loss of Green Belt in line with London Plan policy 6.15 and supporting paragraph 6.50. It should be noted that TfL has raised concerns in respect of the potential impact on the passenger rail network and has suggested conditions to limit the hours of operation of rail movements in and out of the SRFI. GLA Officers would want to know the full details of the potential impacts on the wider transport network (in line with London Plan policy 6.15B (b) and whether such conditions would hinder the operation and whether this would reduce the potential emission savings and traffic movements. GLA officers would also seek details of the proposed biodiversity management plan and compensatory measures. GLA officers would also expect a similar obligations package as that previously agreed to encourage the take up of rail use.

39 For the above reasons, at this stage, it is considered premature for GLA officers to make a concrete judgement as to whether the applicant’s very special circumstances case outweighs the identified harm to the Green Belt, and any other harm.”

Concluding thoughts

Even if your work never brings you into contact with the rail or logistic sectors, these convoluted stories must surely give rise to serious concerns. Successive governments have said that these types of facilities are needed in the public interest, for the sake of our national economy and to reduce polluting road freight miles. And yet they wash their hands of any responsibility for lack of delivery.

The consequences of not providing clear strategic guidance is that years are spent on expensive, contentious planning processes. Often by the time that a process has concluded the world has moved on and the process has to start all over again.
These are massively expensive schemes to promote. What can we do to make that investment worthwhile? If a site is unacceptable, can’t we indicate that at the outset and not many years later?

To what extent should land ownership issues be resolved at the outset of a major project?

Should the NSIP threshold be reduced? These schemes end up being determined at a national level anyway. Why not funnel them through a process that is more fit for purpose?

Why don’t we bite the bullet and arrive at more spatially specific policies in the National Networks NPS rather than leave it for promoters to read between the lines as to what the Government’s approach may end up being to particular proposals – particularly given the inevitably sensitive locations involved, often in the green belt? (Or is that taboo issue the answer to my question?).

Simon Ricketts 6.5.17

Personal views, et cetera

Make No Little Plans: The London Plan

“Make no little plans; they have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone be a living thing, asserting itself with ever-growing insistency” (Daniel Burnham)
The current version of the London Plan is no little plan, but fails the “magic to stir blood” and “noble, logical diagram” tests. It runs to over 400 pages, which is surely ridiculous – particularly since it is legally constrained only to deal with “matters which are of strategic importance to Greater London”. (Whilst no replacement for a formal document, New London Architecture’s 2015 summary of the document in a four minute video fronted by Peter Murray shows how the key messages can be got across in a more accessible and rousing style).

We are expecting initial non-statutory public consultation this autumn into a review of the current plan, so as to reflect the policy priorities of our third London Mayor, Sadiq Khan. Following this initial process, there would then need to be two formal consultation stages (the first with the London Assembly and GLA bodies, the second with the public) before an examination in public into the submitted document, which the Mayor projects for summer 2018, and perhaps adoption (his fingers still crossed) in autumn 2019. So even on a best case the Mayor will not have an adopted plan until over three quarters of his way through his four year term of office.
His predecessors had the same problem. It took Ken Livingstone four years from election in 2000 to have in place the first London Plan (which ran to an even more thudding 420 pages) and it took Boris Johnson three years from election in 2008 to have in place his 2011 Replacement London Plan, which, subject to three sets of alterations, remains the current plan, supplemented by no fewer than adopted 21 SPGs with two further SPGs currently in draft (Culture and Night Time Economy (April 2017); Affordable Housing & Viability (November 2016)). The extent of reliance on SPGs is no doubt partly down to the exclusion of non-strategic matters from the plan itself (although the SPGs cover a whole range of strategic matters) but as much as anything is probably down to pragmatism, given the slowness of the statutory process.
Strange and dysfunctional system isn’t it? Particularly when one recalls that the inspector, Anthony Thickett, concluded his report dated 18 November 2014 into the Further Alterations to the London Plan as follows:
“57. The evidence before me strongly suggests that the existing London Plan strategy will not deliver sufficient homes to meet objectively assessed need. The Mayor has committed to a review of the London Plan in 2016 but I do not consider that London can afford to wait until then and recommend that a review commences as soon as the FALP is adopted in 2015 (IRC3). In my view, the Mayor needs to explore options beyond the existing philosophy of the London Plan. That may, in the absence of a wider regional strategy to assess the options for growth and to plan and co-ordinate that growth, include engaging local planning authorities beyond the GLA’s boundaries in discussions regarding the evolution of our capital city. “
There are urgent and important issues to be grappled with, with implications far beyond London postcodes. Why do we put up with such slow processes?
The London Plan, or “spatial development strategy” to give it its statutory title, is a strange and unwieldy beast and, as we await consultation on its new incarnation, let’s remind ourselves of some of the curiosities arising from its statutory basis in sections 334 to 341 of the Greater London Authority Act 1999 and the Town and Country Planning (London Spatial Development Strategy) Regulations 2000.
The legal structure for the plan arrived at in the 1999 Act was at the time largely novel. The plan superseded the then Government’s non-statutory regional planning guidance (specifically, RPG3, the then regional planning guidance for London) and the procedure set out for the adoption of this new strategic regional plan echoed in part the examination-in-public process for structure plans of the time. (My recollection from then was that the emphasis on “strategic” was to mark a contrast from the over-prescriptive and slow plan-making of the previous Greater London Council – nice try!).
When the development plans system (over-engineered in the extreme) was created by virtue of the Planning and Compulsory Purchase Act 2004 (which also introduced statutory regional spatial strategies for the rest of England), although the London Plan was not a “development plan document”, it was part of the statutory development plan alongside the boroughs’ development plan documents (ie core strategies etc). Under section 38(6) of the 2004 Act, planning applications therefore must be determined “in accordance with the plan unless material considerations indicate otherwise”.
Increased powers were devolved to the Mayor, including, by way of the Mayor of London Order 2008, the ability to direct that he should be the local planning authority on a planning application of potential strategic importance and determine it himself. The plan’s policies are central to the call-in criteria in Article 7(1) of the Order, all of three of which must be met in order for the Mayor to be able to intervene:
“(a) the development or any of the issues raised by the development to which the PSI application relates is of such a nature or scale that it would have a significant impact on the implementation of the spatial development strategy;

(b) the development or any of the issues raised by the development to which the application relates has significant effects that are likely to affect more than one London Borough; and  

(c) there are sound planning reasons for issuing a direction”

The application of the criteria was tested in R (Spitalfields Historic Trust) v Mayor of London (Gilbart J, 10 May 2016).

By way of the Localism Act 2011 the regional spatial strategies were abolished but the London Plan remained. The extent to which the London Plan was a development plan for the purposes of the new “duty to cooperate” that the 2011 Act introduced (by way of inserting a new section 33A into the 2004 Act) was left unclear. The plan also now sat not just above the boroughs’ individual local plans but also above potentially a tier of neighbourhood plans below those plans.
When the Government’s National Planning Policy Framework (haiku-like little plan, in contrast to the swathes of guidance it replaced) was published in March 2012, it cancelled the guidance there had been in Circular 1/2008 as to the contents of the London Plan. There is now very little direct guidance for the Mayor in the NPPF or indeed in subsequent Planning Practice Guidance.
These are some of the key legal elements of the London Plan process:
What it must contain
The plan’s functions are unique:
As well as the Mayor’s “general policies in respect of the development and use of land in Greater London” (section 334(3)), it must deal with any “general spatial development aspects” of the other strategies, policies and proposals that he is responsible for, whether or not they relate to the development or use of land (section 334(4)). These other strategies include transport, bio-diversity, waste, air quality, noise and culture.
The plan “must deal only with matters which are of strategic importance to Greater London” (section 334(5)). The meaning of “strategic” was tested in R (Mayor of London) v First Secretary of State (Forbes J, 7 April 2008). The then Mayor had directed that Brent Council should refuse planning permission for a student housing scheme on design grounds. The developer appealed against the refusal and in allowing the appeal the Secretary of State awarded costs against the Mayor on the basis that he should not have intervened on grounds that were not of strategic importance. The Mayor challenged the award of costs but the court held that the Secretary of State had been entitled to reach that conclusion.
Co-operation
There has been legal argument as to the extent to which the formal “duty to co-operate” (for what it’s worth) is engaged in relation to the London Plan. This occupied time at the examination of the 2012 examination of “revised early minor alterations” to the plan and the 2014 examination of further alterations.
Inspector Geoff Salter in his report dated 19 June 2012 concluded that the duty did not formally apply:
“Section 110 of the Localism Act introduced a new section (33A) of the Planning and Compulsory Purchase Act 2004 which imposes a duty on local planning authorities and other prescribed bodies to co-operate in a range of planning activities. The Mayor is a prescribed person for the purposes of the duty but the London Plan is in effect a regional strategy (RS), the preparation of which does not fall within the list of activities covered by the duty, such as preparation of Development Plan Documents (DPDs). Activities that can reasonably be described as preparing the way for activities such as DPD preparation fall within the duty. However, I do not agree with the South East Waste Planning Advisory Group and the East of England Waste Technical Advisory Body that the LP can be considered to meet this definition, since its production is an activity in its own right“.
Whereas Inspector Anthony Thickett in his report dated 18 November 2014 appears to reach the opposite conclusion:
“Section 33A(3) lists the activities to which the duty applies. The first activity is the preparation of development plan documents. The London Plan is part of the development plan for London but the Mayor points to Section 38(2) of the 2004 Act which defines the FALP as a spatial development strategy and not a development plan document. Section 33A(3)(d & e) apply the duty to any activities that can reasonably be considered to prepare the way for or support the preparation of development plan documents. The preparation of the FALP is an activity in its own right but it must, in my view, also prepare the way for and support the preparation of development plan documents.”
By the time of the most recent examination, into further minor alterations to housing and parking standards, inspector David Hogger’s report dated 15 December 2015 simply accepts the Mayor’s position that the duty does not formally apply, as set out in a procedural note submitted to him which contains the following passage:
“Although the duty applies to the Mayor in respect of other authorities’ plans, it is the Mayor’s view (upheld by Leading Counsel) that section 33A does not apply specifically to the activity of preparing or amending the London Plan. However, London Plan Policy 2.2 makes clear that the Mayor is strongly committed to working with authorities and agencies in the East and South East of England to secure sustainable development and the management of growth in the wider metropolitan area and to co-ordinate approaches to other strategic issues of common concern.” (paragraph 3.6)
The point may be a sterile one in part given that all three Inspectors found that in practice there had been sufficient co-operation in any event, in the context of specific duties in the 1999 Act for the Mayor to:

* consult on any alteration to or replacement of the spatial development strategy (the London Plan) with counties and districts adjoining London (section 335), and
* inform local planning authorities in the vicinity of London of his views concerning any matters of common interest relating to the planning or development of London or those areas (sections 339 and 348).

However, it is a point that needs urgently tidying up to avoid legal uncertainty in the context of the forthcoming plan.

The previous Mayor established the Outer London Commission to consider how parts of outer London might better realise their economic potential. Given as well Anthony Thickett’s urging in his report of the need for a new approach given the pressures for housing, inter-relationships with surrounding areas outside London’s formal boundaries cannot be ignored. The Outer London Commission’s March 2016 report, Coordinating Strategic Policy And Infrastructure Investment Across The Wider South East, touches on the taboo subject of green belt review:

“3.24 […] a strategic review [of green belt boundaries] in London may raise legal issues. The NPPF is very clear that Green Belt reviews should be a local planning authority matter and the two London’s Mayors have so far accepted this. However, S30 of the GLA Act enables the Mayor to take action to further one or more of the authority’s principal purposes. Moreover, the London Plan is legally part of the Development Plan for any area of London and, more practically, the NPPF is clearly written with single tier planning authorities in mind. A case might well be constructed to justify Mayoral/strategic involvement in a review (he already addresses other issues to which the NPPF attributes responsibility to the local planning authority). A formal legal opinion on the admissibility of the Mayor leading a strategic review might inform this.”
No doubt, the new plan will duck the issue, but should it?
Relationship with the boroughs
Section 24(1)(b) of the Planning and Compulsory Purchase Act 2004 requires borough plans to be in general conformity with the London Plan.
The content of the plan is clearly of critical importance to the boroughs and the sensitivity is heightened given that the Mayor does not have to accept an inspector’s recommendations. Differing political priorities between the Mayor and boroughs can lead to tensions, as we saw in relation to the affordable rented housing policies in “revised early minor modifications” introduced by Boris Johnson. Nine boroughs challenged the policy which had been adopted in the face of recommendations from inspector Geoff Salter in his report dated 19 June 2012. They argued that the policy would unlawfully preclude them from imposing borough-wide caps on rent for affordable rented housing at lower than a London-wide default level of 80% of market value.
The dispute reached the High Court in London Borough of Islington (& 8 other London boroughs) v Mayor of London (Lang J, 25 March 2014). The court dismissed the challenge:
“28. In my view, the Claimants have failed to establish that the Defendant’s strategy is contrary to the NPPF. The NPPF is a national policy framed in terms of broad policy objectives. Detailed decisions on how those objectives can be best achieved have to be made at a regional and local level. The only reference to rent caps for affordable rented housing is in the definition of affordable rented housing, which provides that the rent must be “no more than 80% of the local market rent”. Paragraph 47 of the NPPF does not speak either for or against local rent caps. Nor does it prevent the Defendant from adopting a London-wide policy against rent caps with which local boroughs must comply. There are other ways in which the Claimants can and should “use their evidence base” to ensure their local plans meet “objectively assessed needs” for affordable housing…”
The future
So, a plan is to be adopted in 2019 with a two year preparation process, within which period the environmental and other implications of emerging policies will need to be thoroughly tested. How will it point London forward in a certain and confident way given the various current uncertainties over such issues as Brexit (given the particularly internationally-facing role that Greater London plays, a clear priority for Khan will be to avoid a hard Glexit, regardless of the consistency of any Brexit); Heathrow; Crossrail 2; the Bakerloo Line extension and other infrastructure proposals, and whatever emerges as the (new) Government’s air quality plan? But perhaps above all of these uncertainties remains the continued desperate need for increased housing, with affordability a key component.

What a challenging prospect the Mayor and his team have ahead of them in appropriately directing boroughs and developers with clarity and precision, retaining the good, snipping out the unnecessary or counter-productive. Let’s hope that, in every respect save its length, this turns out to be no little plan.
Simon Ricketts 23.4.17
Personal views, et cetera

London Calling: Mayoral Interventions

Sadiq Khan is now 10 months into his role. How has he been using his Mayor of London Order 2008 powers to intervene in relation to strategic planning applications? The number one priority in his manifesto was, after all, to:
“tackle the housing crisis, building thousands more homes for Londoners each year, setting an ambitious target of 50 per cent of new homes being genuinely affordable, and getting a better deal for renters.” 

The consultation draft of the new London Plan is expected in August 2017, although we already have his draft affordable housing and viability SPG with its 35% affordable housing threshold approach (below which viability appraisal justification is required), covered in my 1.12.16 blog post. Ahead of the anticipated adopted version, a couple of items in the 14 March 2017 report to the London Assembly’s Planning Committee are of background interest:

– from page 9 a transcript of a discussion held on 1 February 2017 with James Murray, Jamie Ratcliff and private sector representatives in relation to the draft SPG

– from page 51 the Committee’s proposed response to the draft SPG.

Given that the Mayor’s intervention powers under the 2008 Order (to direct refusal of an application or call it in for his own determination) are the most direct levers that he can pull in relation to specific development proposals, it is perhaps surprising that so far we have not seen them used as much as under the last days of the Johnson regime.
This is how it stands as at 18 March 2017:
Flamingo Park, Bromley
Khan’s first intervention was in fact to direct refusal on 15 June 2016 of the Flamingo Park scheme in Bromley of a Green Belt scheme for a new stadium for Cray Wanderers FC along with 28 flats. (One for pub quizzes: Cray Wanderers claim to be the oldest football club in London – and second oldest in the world!).
The London Borough of Bromley was minded to grant planning permission, but the Mayor considered that the ‘very special circumstances’ test for inappropriate development in the Green Belt had not been met. He added:
“Whilst writing I would take this opportunity to express my concern as to the lack of affordable housing and the effect the excess parking provision will have on the highway network in the vicinity of the site.”
Unusually, the Secretary of State promptly intervened and called in the application before the refusal was issued. The Mayor was preparing to defend the refusal direction but the applicant Cray Wanderers announced yesterday (17 March 2017) that it has withdrawn the application following legal advice and discussions with the Mayor and Bromley Council. It will resubmit a new application “in the next four to six weeks”.
It will be interesting to see the extent to which the new scheme sees any increased housing component and the approach taken to affordable housing.

Plough Lane, Merton

Khan’s next intervention also related to a proposed football stadium – this time Galliard Homes proposal for a new 20,000 seat football stadium for AFC Wimbledon and 602 residential units, on the Wimbledon Greyhound Stadium site, next to the site, now redeveloped for housing, of the old Wimbledon FC stadium in Plough Lane (Wimbledon FC now having of course having emigrated to Milton Keynes as MK Dons). (I hope you’re following this – I rather wish I had included Wimbledon and Cray Wanderers in my 7.1.17 blog post Level Playing Fields: Football Stadia & Planning).
The proposals included 9.6% affordable housing (all intermediate, shared ownership) with a review mechanism. The application was called in by previous Mayor Boris Johnson on 26 March 2016 (against GLA officers’ advice), but in an unusual twist, Mayor Sadiq Khan released it back to Merton on 19 August 2016 for Merton to approve. I had previously doubted (and possibly still do) whether it is lawful for a Mayor to release back an application which has previously been called in – there is certainly no express power to do so – but the Mayor’s reports set out the legal justification that he relies on.
Bishopsgate Goodsyard, Hackney

There is one further Johnson hangover, the application for the mixed use redevelopment of Bishopsgate Goodsyard (including 1,356 residential units) which was called in by him on 23 September 2016 at the request of the applicant. Despite having been called in presumably with the intention of approving it, or at least reaching a determination more speedily than if it had been left with the London Borough of Hackney as local planning authority, the application then hit the buffers when a GLA officers’ report was published on 8 April 2016, recommending that he refuse it at the representation hearing arranged for 18 April 2016. The applicant decided to defer the hearing to address the issues and there it rests. The next twist is anyone’s guess. Will Khan even have to reach any decision or will we see withdrawal and resubmission?

We now come to two much more recent decisions, both on 10 March 2017. The Mayor’s draft SPG was obviously referred to in both cases and affordable housing review mechanisms imposed in both cases, with a cap of 50% – which is the borough-wide requirement applicable in both cases (albeit Haringey’s emerging local plan appears to be proposing a lower 40% borough wide target).
Hale Wharf, Haringey
Haringey members had resolved, against officers’ recommendations, to refuse planning permission for this 505 residential unit scheme, within the Upper Lee Valley Opportunity Area and the Tottenham Housing Zone, on no fewer than eleven grounds. The Mayor called it in on 4 January 2017 and approved it on 10 March 2017 as recommended in his officers’ stage 3 report.
The position secured on affordable housing was as follows:
“a minimum of 177 units (35% of overall units) to be affordable, with 20% affordable rent and 80% shared ownership by habitable room.

Details of affordability will be secured. Review mechanisms as follows will secure the delivery of more affordable housing (up to 50% of the scheme or the level of grant funding) should it be viable:  -

Review mechanism (1): In the event that the development has not been substantially implemented within 2 years of the date of the decision, an updated viability assessment shall be submitted in order to establish if additional affordable housing can be provided and any such additional affordable housing shall be provided on site;  -

Review mechanism (2): A viability assessment shall be submitted prior to substantial completion of Phase 1 in order to establish if additional affordable housing can be provided and any such additional housing shall be provided on site;  -

Review mechanism (3): A viability assessment shall be submitted prior to substantial completion of Phase 3, to establish whether there is any surplus from the completed scheme which can be contributed towards off-site provision of affordable housing.  -

Review mechanism (4): Further review if development stalls for a period of more than 24 months.”
It’s worth noting that there was already significant GLA funding being given for infrastructure for the scheme before the application was called in but the Mayor’s involvement appears to have secured £7.75m worth of affordable housing funding to a registered provider, so the review mechanism will be aimed at recovery and recycling of that grant funding.
Palmerston Road, Harrow

Harrow members resolved, again against their officers’ recommendations, to refuse an application by Origin Housing for a mixed use development within the Harrow and Wealdstone Opportunity Area and the Heart of Harrow Housing Zone to provide 187 residential units, within 5 buildings of between 1 and 17 storeys. Again, on 10 March 2017 the Mayor accepted the recommendations in his officers’ stage 3 report.
The affordable housing position secured is as follows:
– a minimum of 74 homes (40% of overall units) on the site to be provided as affordable homes, with 30% affordable rent and 70% shared ownership (40% was proposed in the original application but the tenure mix is different);

– a viability review mechanism will secure the delivery of more affordable housing (up to a level of 50% of the scheme) should it be viable.

The affordable housing is with grant based on the Mayor’s Affordable Housing Programme 2016-21, with an early review mechanism if enabling works are not substantially commenced within two years.

Conclusions

Of course the Mayor has to be selective as to how to use his powers. After all, the legal limits are clear from R (Spitalfields Historic Trust) v Mayor of London (Gilbart J, 10 May 2016), where Mayor Johnson’s use of the Mayoral call in power was tested and just about survived. However, so far, perhaps true to the man – and maybe no bad thing – we have seen a more cautious approach from Sadiq Khan:

– one direction of refusal where, who knows, a compromise may be on the cards

– one previously called in application returned to the borough to determine

– two applications called in and approved, but both schemes offering more than 35% affordable housing, with a review mechanism potentially to get to 50% – both schemes in opportunity areas and London housing zones where officers’ recommendations to approve had been overturned.

Administrations usually become more interventionist over time. I headed this piece London Calling, but with Mayor Khan we certainly haven’t yet seen The Clash.
Simon Ricketts 18.3.17
Personal views, et cetera

Affordable Housing & Viability: London Leads

Full credit to Sadiq Khan for pressing ahead with his heavily trailed draft Affordable Housing and Viability SPG despite the Government’s inexplicable delay in publishing the Housing White Paper (whatever its contents prove to be). The deadline for consultation responses to the draft SPG is 28 February 2017. As the draft warns, when the Government’s detailed proposals in relation to starter homes are published, presumably as part of the white paper, there will be knock-on implications for the SPG – after how can the percentages in the draft SPG possibly survive the imposition of a mandatory starter homes top slice?
The SPG will be guidance rather than policy (although I suspect that the distinction may over time prove largely semantic when non compliant schemes come before the Mayor for sign off) and LPAs are “strongly encouraged” to follow it for schemes of ten or more dwellings. The SPG will supersede section 3.3 (Build to Rent) and Part 5 (Viability) of the March 2016 housing SPG. The rest of that SPG remains current. It will inform the drafting of the new London Plan, a consultation draft of which is expected in Autumn 2017.
What follows will become very familiar I’m sure to all of us negotiating London section 106 agreements. The level of prescription may prove helpful in narrowing the scope for re-inventing the wheel, subject to the attitude that LPAs take to what after all is only draft non-statutory guidance.
The ‘threshold’ approach
The draft SPG introduces a ‘threshold approach’, whereby schemes meeting or exceeding 35% (by habitable room) affordable housing without public subsidy will not be required to submit viability information.
Schemes are divided into “route A” and “route B”.

Route A schemes are:
. applications which do not meet the 35% threshold and required tenure split;

• applications which propose affordable housing off-site or as cash in lieu contribution;

• applications which involve demolition of existing affordable housing (in particular estate regeneration schemes);

• applications where the applicant claims the vacant building credit applies.

Route B schemes are schemes which meet the 35% threshold and required tenure split (and which do not otherwise fall within the route A scheme definition above). Viability appraisal is not required, although there will be an “early review mechanism … triggered if an agreed level of progress is not made within two years of permission being granted” (the agreed level of progress being defined at the outset in the section 106 agreement).
The required tenure split
The required tenure split is:
– “at least 30% low cost rent (social rent or affordable rent) with rent set at levels that the LPA considers ‘genuinely affordable’ (this will generally be significantly less than 80% market rent). As part of [the] consultation, LPAs are being invited to give guidance on what rent levels they consider to be genuinely affordable if above the benchmarks for London Affordable Rent”.
– “at least 30% as intermediate products, with London Living Rent … and/ or shared ownership being the default tenures assumed in this category. For viability purposes, London Living Rent homes in mixed-tenure schemes can be treated similarly to shared ownership, as it can be assumed that they will be sold on a shared ownership basis after a period of 10 years”.

– the remaining 40% is to be determined by the relevant LPA but must be “genuinely affordable”.

“London Living Rent is a new type of intermediate affordable housing that will help, through low rents on time-limited tenancies, households with around average earnings save for a deposit to buy their own home”. It has “ward-level caps … based on one-third of median gross household income for the local borough. The cap varies from the Borough median by up to 20 per cent in line with house prices within the ward”. The Mayor intends to limit eligibility for London Living Rent and other intermediate rent products to households on incomes of £60,000 a year or less, down from £90,000.

“[F]or intermediate dwellings to be considered affordable, annual housing costs, including mortgage (assuming reasonable interest rates and deposit requirements), rent and service charges should be no greater than 40% of net household income.
For shared ownership properties, to ensure mortgage costs assumptions are reasonable, boroughs, developers and registered provides are advised to assume buyers will access RPs, with a term of 25 years and a 90% loan to value ratio. The prevailing average interest rate being offered to lenders based on the terms above should be used to calculate the monthly payments. Generally shared ownership is not appropriate where unrestricted market values of a unit exceed £600,000”.
Viability appraisal
Viability appraisal will be required to following a prescriptive approach, set out in part 3 of the draft. In relation to some familiar areas for dispute:
– “The price the RP has agreed to pay for each unit should be used in the viability appraisal and should be enshrined in the Section 106 agreement (for phased schemes the price in the Section 106 should be inflation linked)”.

– It should be assumed that all developers will incur generic average finance costs based on standard market rates.

– The IRR approach will not generally be appropriate for schemes of fewer than 1,000 units.

– The benchmark value will be based on an existing Use Value plus premium (EUV+) approach, rather than the circularity of a market value approach. The Mayor will generally only accept an Alternative Use Value (AUV) approach where there is an existing implementable permission for that use.

The Mayor expects “all information to be made public, including council and third party assessments. Applicants will have the opportunity to argue that limited elements should be kept undisclosed, but the onus is on the applicant to make this case”.

Review mechanisms
Section 106 agreements for route A schemes will need to require a two stage review mechanism:
– An “early review” where an agreed level of progress with the scheme is not made within two years of the permission being granted. Any surplus to be split 60/40 between the LPA and the developer and any surplus identified to translate into additional onsite affordable housing. “Thus plans should identify which units would switch to affordable accommodation in the event of an increase in viability at this early stage. If the agreed level of progress has been made, this review will not be triggered. All signatories to the Section 106 need to commit to making their best endeavours to fulfil their relevant requirements (setting out key milestones and requirements) to deliver the scheme and account may be had of the market situation at time of review”.

– A “near end of development review which will be applied once 75% of units are sold. Where a surplus profit is identified this should be split 60/40 between the LPA and developer. The outcome of this review will typically be a financial contribution towards off-site affordable housing provision”.

– The surplus is applied up to a total of 50% affordable housing.

The review should consider changes in gross development value and build costs using formulae set out in Appendix A to the draft SPG and which should be set out in the section 106 agreement.
Build To Rent
Specific favourable provisions apply to Build To Rent, defined as complying with the following criteria:
“• a development, or block/ phase within a development, of at least 50 units;

• the homes to be held as Build to Rent under a covenant for at least 15 years;

• all units to be self-contained and let separately;

• unified ownership and unified management of the development;

• professional and on-site management;

• longer tenancies offered (ideally three years or more) with defined in-tenancy rent reviews; and

• property manager to be part of an accredited Ombudsman Scheme and a member of a recognised professional body”.

The Build To Rent restriction should usually be by way of section 106 agreement and should include a clawback mechanism if the units cease to be used for Build To Rent purposes. Two potential, alternative , clawback mechanisms are being consulted upon:
– to seek to recoup the initial loss of affordable housing if the homes are sold out of the Build to Rent sector, based on an appraisal submitted at application stage showing the reduced number of affordable homes possible due to the Build To Rent model.

– a clawback to secure a total of 35% affordable housing.

Affordable housing within Build To Rent schemes can be by way of discounted market rent (DMR), managed by the private sector landlord. The Mayor is seeking that the DMR be at London Living Rent.
Some relaxation of space standards may be acceptable for Build To Rent products, particularly where they are subject to a longterm covenant that they will remain as Build To Rent.
Differences are recognised in the approach to viability for Build To Rent schemes. Particularly:
“a different approach to profit (often lower than a build for sale scheme);
• different approaches to sales and marketing;

• rate of sale/disposal – this will generally be faster for a Build to Rent scheme (generally a build to rent appraisal will assume a development period and then a sale to an investor or operator); and

• potentially lower risk compared to for sale schemes”.

Finally, the Mayor is keen to secure the following five management standards:

“- Longer tenancies (three years or more) should be available to all tenants. These should have break clauses for renters, which allow the tenant to end the tenancy with a month’s notice any time after the first six months.

– Within these tenancies there should be formula-linked rent increases. The LPA should not stipulate the level of rent increases on market rate tenancies, but these should be made clear to the tenant when the property is let and LPAs should ensure they are not set to discourage tenants from taking longer tenancies. Rents should normally be reset on each new tenancy.

– There must be on-site management. This does not necessarily have to mean full time dedicated on-site staff in every case, as this could be unviable and unnecessary on small schemes. However all schemes need to have prompt issue resolution systems and some daily onsite presence.

– Providers must have a complaints procedure in place and be a member of a recognised ombudsman scheme. They must also have membership of a designated professional body, such as the British Property Federation or Royal Institute of Chartered Surveyors.

– Finally, properties must be advertised on the GLA’s London-wide portal, in due course, which can be in addition to any advertising the provider may already be undertaking”.

Registered providers/grant funding

Applicants are encouraged to have registered providers on board at pre-application stage.
The Mayor’s grant funding will only be available for route B applications if it increases the proportion of affordable housing above the nil-grant position to a level of 40% or more.
“The Mayor’s Homes for Londoners: Affordable Homes Programme 2016-2021, sets out how grant is going to be used to increase the amount of affordable housing delivered on developer-led sites above 35%, and to support approved providers deliver programmes with at least 50% affordable housing”.
 Concluding thoughts

In 2015 private sector schemes only delivered on average 13% affordable housing. Will this approach nudge the percentage upwards? This largely depends on whether developers believe that to button down 35%, with no review as long as development is not delayed, and with no need for viability appraisal, is sufficiently achievable or attractive. If it isn’t then it will be business as usual, with viability appraisals submitted to seek to secure a significantly lower percentage.

How will LPAs react, particularly those inclined to hold out for the 50% target? And how will the imposition of a mandatory proportion of starter homes impact on this nuanced, London-specific approach?

Is the Mayor’s target of 50% now unachievable by flagging 35% as in practice acceptable or can the use of public land and grant funding make any appreciable difference?

Pass. But at least the likely structure of section 106 agreements for route A, route B and Build To Rent schemes (or rather the Mayor’s starting position) is increasingly clear. Which means, if the approaches are commercially palatable, faster permissions and less delay to development (particularly with the spectre of reviews triggered by delayed implementation). And:

Mayor of London: 1

Secretary of State: nil.
Simon Ricketts 1.12.16
Personal views, et cetera

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