Author: Charlotte Dyer, Of Counsel, Planning, Real Estate, London
This blog post explores how the meaning of affordable housing has evolved following the publication of the revised National Planning Policy Framework (“NPPF”) on 24 July 2018 and the Draft New London Plan showing Minor Suggested Changes on 13 August 2018. This is part of our ‘back to basics’ affordable housing series and is intended to supersede entry 1 in the series.
The 2012 NPPF defined ‘affordable housing’ as:
“social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market”.
For many years, this was the go-to definition of affordable housing used in legal agreements across England. To keep us all on our toes, however, this definition was changed in the 2018 NPPF to the slightly more wordy definition of:
“housing for sale or rent, for those whose needs are not met by the market (including housing that provides a subsidised route to home ownership and/or is for essential local workers); and which complies with one or more of the following definitions [of four categories of affordable housing]”.
The four categories are:
Affordable housing for rent: Housing owned by a registered provider (except where part of a Build to Rent scheme) which is rented in accordance with the national rent policy for Social Rent or Affordable Rent or is at least 20% below local market rents, with provision made for it to remain at an affordable price for future households or for the subsidy to be recycled for alternative affordable housing provision.
Interestingly, whilst the draft revised NPPF had deleted the reference to Social Rent as part of this definition, following widespread criticism of this decision, the published 2018 NPPF reinstated this reference in a move which was generally welcomed by the industry.
Starter homes: New-build housing available for purchase by qualifying first-time buyers 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.
Notably, the reference in the draft NPPF to the maximum annual household income of eligible buyers of £80,000 (£90,000 in London) has now been deleted and the NPPF instead refers to limits that may be set by secondary legislation, which the Secretary of State may make pursuant to the Housing and Planning Act 2016.
Discounted market sales housing: Housing for sale to eligible buyers at a discount of at least 20% below local market value, with provision made for it to remain at a discount for future households.
Other affordable routes to home ownership: Housing for sale that provides a route to ownership for those who could not achieve home ownership through the market. There are many different types of products that fall within this category, including shared ownership, relevant equity loans, other low cost homes for sale at a price at least 20% below local market value and rent to buy which includes a period of intermediate rent.
Not to be outdone by the new NPPF, the Mayor of London is also proposing to amend the definition of the London-specific affordable housing sub-tenures in the Draft New London Plan, in respect of which Minor Suggested Changes were recently published. These are as follows:
London Affordable Rent and Social Rent: Housing for rent to households on low incomes where the rent levels are based on the formulas in the Social Housing Regulator’s Rent Standard Guidance. The recent modifications make clear that rent levels should be calculated using a capped formula (for Social Rent) or benchmark levels published by the Greater London Authority (for London Affordable Rent). These levels should be “significantly less” than 80% of market rents.
London Living Rent: This is designed to offer Londoners on average incomes a lower rent, which varies by ward across London, enabling them to save for a deposit. It is an intermediate affordable housing product, meaning that rent levels are 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.
London Shared Ownership: This is another 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.
The Draft New London Plan confirms that other affordable housing products may be acceptable if, as well as meeting the broad definition of affordable housing, they also meet the May 2018 London Housing Strategy (“LHS”) definition of “genuinely affordable housing” and are considered by the borough to be genuinely affordable. Rather unhelpfully, the LHS does not actually contain one clear definition of genuinely affordable housing. Instead, Policy 4.1 ‘Genuinely Affordable Homes’ of the LHS states that the Mayor will support:
- homes based on social rent levels, allocated according to need to Londoners on low incomes, by using his funding and planning powers to deliver homes based on social rent levels, investing in councils that choose to deliver new council homes for rent and refusing to authorise any further conversions of social rented homes to higher rents;
- intermediate rented homes for Londoners on middle incomes who do not have enough savings to access mainstream or affordable home ownership, by using his funding and planning powers to deliver new London Living Rent homes and supporting a range of other types of intermediate rented homes as long as they are genuinely affordable to Londoners, generally meaning that they should be accessible by those whose household incomes fall under £60,000; and
- affordable home ownership aimed at Londoners who cannot afford to buy on the open market, by using his funding and planning powers to deliver London Shared Ownership homes, introducing a ‘London Charter’ to standardise approaches to service charges in shared ownership homes and supporting other types of affordable home ownership through his funding and planning powers, as long as the homes are genuinely affordable to Londoners whose household incomes fall under £90,000.
Figures published by the National Housing Federation earlier this year showed that the need for new affordable housing is significantly greater than previously estimated. It is commonly thought that the 2012 NPPF negatively impacted on the supply of affordable housing. The new, wider definition of affordable housing is hopefully therefore a positive step by government towards the provision of more, and a greater range of, this much-needed affordable housing across the country.
The inclusion of starter homes in the 2018 NPPF is of particular interest. In practice, to date, there has been very little take-up of starter homes and our experience is that local planning authorities have been unwilling to accept them as a tenure of affordable housing. It is yet to be seen whether the express reference to starter homes in the new NPPF will open the door to a new era of starter homes.
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