Affordable Housing: Back to Basics

Author: Charlotte Dyer, Senior Associate, Planning, Real Estate, London

“Affordable housing” – two words that those working in the property and planning world can hardly move without seeing flashed about everywhere. There is a wealth of information available on the subject. However, much of it is technical, highly detailed and assumes an existing level of knowledge that can make it hard for those who are new to the industry or who haven’t previously come across affordable housing to really get to grips with the subject.  This blog is the first in a series of blogs that we will be publishing over the coming weeks that will go back to basics to explain what is affordable housing in England, what are the different types, who is eligible for it, how is it implemented and what it means for private developers.

1. Where is affordable housing defined?

2. What are the different types of affordable housing?

3. The London Plan

 

1. Where is affordable housing defined?

Perhaps one of the reasons why many find the topic of affordable housing so tricky is because there is no single, universally used definition of “affordable housing”. Put most simply, it is housing that is provided with some form of subsidy to make it (at least in theory) more affordable to those people who cannot afford to secure housing on the open market.

The most commonly used definition, at least as a starting point, is found in the National Planning Policy Framework (“NPPF”):

“Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market.”

As definitions go, it’s not the most helpful as one can’t understand it without also looking at the multiple other definitions that sit behind it. At least it is concise, though, which was of course a key aim for the NPPF.

However, in December 2015, the Government launched a consultation on revisions to the NPPF in which it proposed to amend this definition to expand the categories of affordable housing. In the two years that have since passed, we are still waiting for the final revised NPPF to be published.  It is now expected to be made available in spring 2018 so watch this space!

2. What are the different types of affordable housing?

Based on the draft NPPF, the different categories of affordable housing can be summarised briefly as set out below.

The following categories are rental only products:

Social rented: Housing owned by local authorities and private registered providers (more on that another time) and rented at levels in accordance with targets set by the national rent regime.  It can also be owned by private individuals or corporations and rented pursuant to equivalent rental arrangements which must first be agreed with the local authority or the Homes and Communities Agency.

Affordable rented: Housing owned by local authorities or private registered providers of social housing that is rented to households who are eligible for social rented housing.  This type of housing must be rented at no more than 80% of the local market rent.

Affordable private rented: Housing rented at a level that is at least 20% below local market rent, with provision made for it to remain available for rent at a discount for future households.

The following categories are sale only products:

Starter homes: New-build housing sold at a minimum of 20% below the market price, with sale prices subject to a cap of £450,000 in London and £250,000 outside London.

Discounted market sales: Housing for sale at a discount of at least 20% off local market value, with provision made for it to remain at a discount for future households.

The final category includes both rental and sale:

Intermediate: Housing for sale or for rent at a cost above social rent, but below market levels, with provision to remain at an affordable price for future households or for receipts to be recycled for alternative affordable housing provision or refunded to Government or the relevant authority.  There are many different types of intermediate products, including shared ownership, shared equity and discount market rented.

3. The London Plan

The Mayor of London obviously thinks that the subject of affordable housing isn’t complicated enough so for good measure he has created his own affordable housing sub-tenures for London. These are explained in the draft London Plan which was published for consultation on 29 November 2017.  In summary, they are:

London Affordable Rent: This is the same as Affordable Rented housing (see above) except that rather than being rented at no more than 80% of the local market rent, the Mayor expects rents charged for homes let for London Affordable Rent to be set at benchmarks substantially below this level, based on traditional social rents.

London Living Rent: This is designed to offer Londoners on average incomes a lower rent, enabling them to save for a deposit.  It is an intermediate affordable housing product (see above) with low rents that vary by ward across London.  As London Living Rent can be a step to home ownership, it can be considered as an affordable home ownership product.

London Shared Ownership: This is again an Intermediate product which allows London households who would struggle to buy on the open market to purchase a share in a new home and pay a low rent on the remaining, unsold, share.

Next time…

Hopefully now you should have a better understanding of what affordable housing means. However, unfortunately that’s just the start.  We will be continuing this series on affordable housing in future blog posts…

As a reminder, Herbert Smith Freehills are running workshops on the Mayor of London’s affordable housing and viability guidance, please click here to register your interest and see our previous blog post here.

For more information please contact:

Charlotte Dyer
Charlotte Dyer
Senior Associate, Planning, London
Email | Profile
+44 20 7466 2275

 

Leave a Comment

Filed under Development, Planning

Leave a Reply

Your email address will not be published. Required fields are marked *