Key Elements in Implementation
The first essential requirement is for a degree of legitimation of the approach in national planning policy. As noted earlier, the key step in England was to recognise that the community’s need for affordable housing was a ‘material consideration’. Once recognised in this way, within the framework of national planning policy, then local attempts at implementation are less likely to be derailed by legal challenges. We argued in an earlier section that British planning is distinct for its high level of discretion set within a policy framework—it is these features which make it possible to apply strong affordable housing obligations in this way.
The second essential requirement is to have an operational definition of affordable housing. The general concept has been that it should be housing (of adequate standard) available at a price/cost significantly below market level, and hence affordable by people excluded from the mainstream market.
It includes but is broader than traditional social rented housing. For example, in PAN2/2010 (Scotland), the following categories are specified: social rented (council or housing association/registered social landlord (RSL)); shared ownership; shared equity, discounted low-cost sale; non-subsidised lower-cost housing (e.g. ‘starter homes’); ‘intermediate’ or ‘mid-market rent’. There are some sensitive issues of where the real need is in a local area (e.g. more people may need social renting, but there is the existing supply of relets available for them), and of what happens to the housing in the future when the first occupiers move on. A strict approach would require the housing to be available ‘in perpetuity’ on an affordable basis, or at least that the subsidy embodied should be recycled to others in need, as in shared ownership/equity. Also, the Scottish approach may be seen as more lax than that applied in England, in the 2000s, by permitting discounted low-cost sale (without restriction on resale) or cheap starter homes, although since 2010 there has been effective relaxation on this issue in England.
The third essential element is to have robust evidence of need. This element led to the proliferation of local housing need studies and surveys after 1990. Problems with these, particularly the lack of standardised approaches, led to many arguments in local plan inquiries. Quite prescriptive guidance on ‘Strategic Housing Market Assessments’ (SHMAs, discussed further in Chap. 10) is intended to curb such disputes, as well as control spending on consultants and surveys. In Scotland, the guidance on Scottish Housing Need and Demand Assessments (SHNDAs) and the role of a special unit in the Scottish Government Centre for Housing Market Analysis (CHMA) have been to enforce standards and to provide a seal of approval on local needs assessments, again so as to avoid these arguments in planning inquiries.
The fourth element is to set target levels for different areas, for example, a norm of 25 % of new units to be affordable. In England, these targets are locally determined and quite variable. In Scotland, the guidance tended to encourage the setting of a common norm of 25 %, although authorities may deviate from this on the basis of evidence. Authorities with high needs might want to argue for a higher figure, but this has to be weighed against considerations of reasonableness and viability (see below).
The fifth element, which is really central, is the use of planning agreements (Section 106 in England, Section 75 in Scotland) as the key implementation mechanism. The planning agreement is negotiated, and site-specific, so it may be varied to reflect particular circumstances, although it is desirable that standard model forms of agreement be developed. Planning agreements have legal force and ‘run with the land’, so applying to subsequent owners if the site is traded. In Scotland, Planning Advice Note 2/2010: Affordable Housing and Housing Land Audits (PAN2/2010) also suggested the use of planning conditions, but these are generally a weaker mechanism.
An element which played a considerable role in the 1990s was the setting of a site size threshold, below which the policy would not apply. It is clear that it is very difficult to require on-site provision of affordable housing on very small sites, but the level of this threshold has varied quite a lot over time and space. For example, in the mid-1990s use of a high threshold (40 units) tended to undermine the policy; in England, the norm subsequently became 25 units, but even this encouraged some evasion by breaking sites down into smaller packages. It was argued that in rural areas a much lower threshold should apply. It can also be argued that there should be no threshold for the policy, in general (all developments should contribute), but that below a threshold the developer might be allowed to fulfil the obligation through a financial contribution.
This leads to the possibility of having payments in lieu (sometimes called ‘commuted sums’) rather than on-site provision in the form of mixed developments. Whilst the payments in lieu approach give flexibility and deals with the rural/small sites issue, it potentially opens the door to many developers opting for this approach, thereby undermining the general desired aim of mixed communities. This was a very controversial element in the Irish policy developed in the early 2000s. There is also evidence of this approach being used increasingly, along with off-site provision, in recent Edinburgh examples, partly because of reactions to the recession. A feature of financial contributions is that they are supposed to be accumulated in a separate, identifiable fund, and spent within 3 years; failure to reuse would result in the contributions being given back to the developer.
A requirement which has become increasingly recognised as integral to the approach is that there should be some check that the planning obligations, including both affordable housing and other infrastructure or community facility contributions, should still enable the development to be economically/financially viable and realistic. This requirement has received increasing attention in the post-recession period, and also as the amount of grant available to support the affordable housing has shrunk. Various toolkits for assessing viability have been developed—this is not traditionally an area which planners or housing officials have technical skills in. As explained further, viability basically comes down to a ‘residual value’ calculation, but there is no firm official guidance on what the minimum level of viability is.
Box 5.1 Viability and residual value
Viability has become a significant issue in relation to planning obligations generally, including affordable housing.
A residual value calculation is generally the key to the viability of any development. In simple terms:
Res Value = (Selling price—constr cost) x no of units—devel costs (incl plg obligs)
Residual value is the gross development profit that can be made from a development, the difference between what you can sell the units for and what it costs to build them and to develop the site. Developers are always making calculations of this kind, whenever they look at the feasibility of a scheme, although their calculations may be more complicated by taking account of the timing of cash flows and the costs of borrowing over the development period. The cost may be taken to include a minimum allowance for 'normal profit' of the developer and contractor.
In the land market, developers will bid for land based on expected residual value, and their competitors will do the same.
A consequence of this process is that the price of land is determined by the price of housing, NOT vice versa (although in the longer run the price of houses is somewhat affected by the amount of supply). Therefore, the cost of planning obligations (including affordable housing) should be borne by the landowner, not the developer or the house buyer (as long as the residual value is positive).
A complicating factor is that many housing developments take place on brownfield land, with some previous or existing urban land use rights, for example for industry or warehousing. These rights would give a floor value to the land above the minimal level of agricultural use. Therefore, the amount of residual value which could be used for affordable housing contributions may be less than the theoretical maximum.
Finally, although not formally required, the planning agreement approach does tend to raise questions about how housing associations become involved in the developments, suggesting changes in procurement practice, particularly where integrated mixed developments with on-site provision are involved. This may point more towards partnering between housing associations and private developers, although this has been less common in Scotland than in England.