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Developers able to demolish affordable housing provision

A new law is allowing property developers to wriggle out of their affordable housing obligations.

New legal loophole allows developers to shirk affordable housing obligations
New legal loophole allows developers to shirk affordable housing obligations. Photo: Christopher Furlong, Getty

A Bill that was quietly approved last year is allowing property developers to get out of their contractual agreements with local authorities to build or fund affordable homes.

The Growth and Infrastructure Act 2013 introduced new guidelines last April for developers to appeal their affordable housing obligations, if they could prove they would not make a “competitive return” on their developments if they adhered to them.

These obligations require developers to include a prescribed number of affordable homes in residential complexes they build, or else negotiate paying a subsidy to fund those affordable homes being built elsewhere in the nearby area.

Many people would agree that for councils to confer some responsibility for affordable homes onto developers in this way is only fair. After all, left to their own devices, most developers seek to maximise profits by focusing almost exclusively on building lucrative executive accommodation.

The new rules, shoe-horned into the Town and Country Planning Act, mean that residential developers can fight their way out of their obligations, despite having agreed them as a condition of gaining planning approval.

A developer simply has to argue that honouring their agreed contribution towards affordable housing has become commercially “unviable” for their business's development.

The government has introduced this loophole based on the idea that differing economic conditions between the planning stage of a development and its construction or completion can render initial agreements to build or fund affordable housing “unrealistic”.

Not only does the new appeals process seem unfair in offloading all commercial risk from developers on to local councils, but it also appears open to exploitation by rapacious developers who might present cases of confected “economic unviability” in order to maximise profits.

Some recent waivers issued by councils are worth examining. Last October Oldham Council was left £450,000 out of pocket after waiving the subsidy payment that developers Wiggett Construction had agreed to pay in lieu of making a fifth of homes in their new site in Greenfield “affordable”.

The company had originally agreed to pay £700,000 in three stages. Having paid the first installment of around £230,000, the company was due to pay the second upon the sale of the 45th property on the site. Oldham Metropolitan Council decided to waive the subsidy when Wiggett was just one house sale away from that benchmark, however, leading to outrage from local residents.

The same council also allowed another developer, Tamewater Developments, to escape paying more than £280,000 in agreed affordable housing subsidy earlier this month.

According to Construction News, 10 appeals are currently under consideration by the Planning Inspectorate to reduce or eliminate affordable housing obligations under the new law.

Among them are bids to remove requirements for 290 affordable homes in a Gloucestershire development and a £9 million contribution towards affordable housing in Blackpool.

As many developers are only just waking up to the possibilities of this new loophole, the impact on the number of affordable houses built is yet to be realised.

In order to appeal, developers must submit appropriate up-to-date evidence that overturns the original viability appraisal and indicates that they will not make a competitive return under current market conditions.

The crucial question is, of course, what benchmark profit margin equates to a “competitive" return? The government guidance does not spell it out. Industry experts suggest that most developers expect to make in the region of 20 per cent profit. Are local councils simply allowing developers to avoid paying their contribution towards affordable housing if it threatens their usual profit margin?

When the demand for affordable housing has reached such exorbitant and desperate levels as it has across the UK, developers should not be allowed to renege on promised contributions towards their provision whether it threatens their profit or not.