The High Court has declared a key policy in the mayor of London’s planning guidance on affordable housing ‘unlawful’ – but what does that mean in practice? Matthew White, Partner and Head of UK planning, explains the impact of the decision in this article published on EGi on 25 June 2018, in hard copy in Estates Gazette on 30 June 2018.
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In this blog post, we explain in simple terms how a developer is now expected to set the level of affordable housing which the Mayor of London deems viable for a particular site. This is part of our ‘back to basics’ affordable housing series.
The Mayor is fed up with developers arguing that it’s not viable for them to deliver policy compliant levels of affordable housing due to the high prices they are paying for sites. In his Supplementary Planning Guidance (SPG) on Affordable Housing and Viability issued last August, Sadiq Khan refers to the ‘circularity’ this causes: land prices are higher than they should be because buyers and sellers are not factoring in delivering much affordable housing.
The Mayor wants to stop this by ’embedding’ delivery of policy compliant levels of affordable housing into land prices. To do this, he is going to have no regard to the price developers actually paid for a site. The maximum he will let developers factor in to viability calculations is the value a site has in its existing use plus a margin of 10-30% where appropriate (what he refers to as the “benchmark land value”).
Please read on for the five step guide to calculating the level of affordable housing the Mayor considers viable.
Herbert Smith Freehills is running workshops which talk through an example calculation to show how this approach to viability assessment works in practice. In the workshop we also run through calculations showing how early and late viability reviews work (post-planning) under the Mayor’s SPG. This will be the subject of future blog entries. Please contact us for more information.
Step 1: Gross Development Value
Step 2: Residual Land Value
Step 3: Benchmark Land Value
Step 4: Comparing Residual Land Value and Benchmark Land Value
Step 5: How much affordable housing can the developer afford to deliver on this site, factoring in the benchmark land value?
Herbert Smith Freehills are running workshops for property developers on housing and viability, with a focus on London and interpreting the Mayor’s recently adopted guidance on viability and affordable housing. In our workshops we run through a case study with actual calculations showing how viability reviews work under the Mayor’s new formulae. Please contact us for more information on the workshops.
Background: proposals on a national and London-wide scale to address the housing crisis
Following the Government’s Housing White Paper (in February 2017), several recent publications by the Government and the Mayor of London set out proposed changes to planning legislation and policy, designed to address the housing crisis:
– The Mayor of London adopted his Affordable Housing and Viability Supplementary Planning Guidance (SPG) in August 2017. This SPG aims to improve transparency and trust in the planning process, with a focus on viability information, and aims to increase the expectation of actual delivery of affordable housing to at least 35% (and 50% on public land) for each new development scheme which proposes 10 or more new homes, with an overall long-term strategic aim of at least half of all new homes in London being affordable. The method and explanations in the Mayor’s SPG are more detailed and rigorous than those in the Government’s national consultation (see below), and there have been industry calls for the Mayor’s methodology to be used nation-wide. Continue reading