Local viability policy part 1: ‘We are pushing the system as hard as we can, but it’s a rigged system.’
30 Jan 2018
Those are the words of Bristol City Council’s cabinet member for housing, Paul Smith, describing his city’s battle against the viability loophole. In 2017, we showed how viability assessments are depriving local communities of the homes they need – with 2,500 affordable homes lost in just one year across just eleven councils.
Since then, the idea that developers need to cut affordable homes from schemes to make them profitable has become even less credible. The top developers have even reported growing profits and enormous bonuses.
We are campaigning to change national planning rules, and close the viability loophole for good. Central government first introduced the current rules on viability in 2012, protecting developers’ profits and inflating land values at the expense of urgently needed affordable homes. Now the new Ministry of Housing, Communities and Local Government (MHCLG) has an opportunity to fix this broken system in its upcoming re-write of the National Planning Policy Framework (NPPF). If the government follows through on its planned reforms, thousands more affordable homes will come through the planning system every year – without the government spending a penny of public money.
But while our focus has been on tackling the root of the problem in national planning rules, a quiet battle has been going on at a local level. Some councils have been using what powers they have to fight back against the viability loophole, and drive up the supply of affordable homes.
Councils fighting back
Take Bristol – an area feeling the crisis in housing supply and affordability as hard as anywhere. Here, the city council now publishes viability assessments online in full, making developers more accountable to the community. The council is choosing to develop more of its own land rather than selling it, so it can control the amount of affordable housing built – and ensure it is genuinely affordable to locals on low incomes.
Bristol has also been arming itself with evidence about the risk profile of local development and just how much affordable housing private schemes should be able to provide; strengthening the council’s hand in negotiations and planning appeals. As a result, some developers of Bristol schemes have been forced to accept profit levels of 17.5% rather than the standard industry minimum of 20%. This allows the council to claw back some of the affordable homes that would otherwise have been lost.
The council is a pioneer in tackling viability at a local level. Yet Bristol still lost 196 affordable homes last year, compared to what its local plan policy says should have been built. And where the council’s affordable housing policies are achieved in full, it is almost exclusively on public land – not the private schemes that make up the majority of development. Local policy has curbed the worst excesses of the viability loophole, but national planning rules still ultimately allow developers to wriggle out of providing affordable homes. As Bristol’s housing lead Councillor Paul Smith put it to Shelter: ‘We are pushing the system as hard as we can, but it’s a rigged system.’
What others are doing
Bristol is far from the only local authority getting tough on dodgy viability assessments. Brighton and Hove and several councils in London have also taken steps to get viability information in the public domain. London Mayor Sadiq Khan’s Supplementary Planning Guidance on viability has introduced new standards in the capital. In Tower Hamlets, a dedicated team of five viability specialists scrutinise every scheme with a shortfall of affordable housing. And Cambridge City Council has been so effective in enforcing its affordable housing policy, that few viability assessments ever get submitted there. Developers know that schemes are expected to include 40% affordable housing and have factored this into the price they offer to landowners, preferring the certainty of local policy to protracted negotiations and appeals they know they may lose.
What stops them
Bristol, Brighton and Hove, London, Cambridge – are you noticing a pattern here? Some councils are in a much better position to play hard ball over viability than others. In a buoyant housing market with strong demand and fierce competition for land, a council may well be able to refuse a bad planning application. It can wait for a policy compliant scheme to come forward instead. The council has some bargaining power.
This is not so in areas of the country with limited demand for housing, where many councils struggle to get developers building anything at all. This can produce an approach of ‘development at any cost’, in which councils desperate to attract new schemes and meet housing need targets are held over a barrel by developers, who can walk away at any time. A planning officer’s report from a scheme in a low-demand area of Leeds last year reveals the situation well: ‘Whilst the development does not provide affordable housing or green space due to viability, this is considered on balance acceptable when the requirement to provide it would mean the development of much needed housing would not come forward at all.’
The situation may be even worse in many rural councils. As well as having relatively little bargaining power, the smaller overall budgets and lower levels of development in rural local authorities make it difficult to justify employing dedicated viability specialists in the way urban councils like Tower Hamlets have.
Come back on 31 January for part two of this series. Find out what councils should be doing to limit the impact of viability assessments on affordable housing supply.
- For more on how to close the viability loophole for good, read our ‘Slipping through the loophole’ report