As London’s housing market grapples with soaring costs, constrained land supply and stalled schemes with limited interest from registered providers, the Government and the Greater London Authority (GLA) have rolled out consultation on a targeted support package aimed at ‘reigniting’ delivery.
Much has been trailed about these proposals, with speculation and wishlists abounding to assist in unlocking viability and delivery in the capital, which is currently experiencing a housebuilding emergency as sites stall and delivery dries up.
But do the consultation proposals live up to the hype?
S106M have considered the key points:
CIL Relief
One of the headline moves is a temporary relief of CIL for qualifying residential schemes. The consultation suggests that for schemes delivering at least 20% affordable housing, borough (not Mayoral) CIL charges will be reduced by 50% for phases of development that commence before 31 December 2028.
Where affordable provision is greater than 20%, additional relief beyond 50% may be available.
Eligibility is restricted to brownfield land (excluding Green Belt or Grey Belt) and this relief will not apply to the Mayoral CIL.
CIL modelling will now need to incorporate this relief, particularly where affordable housing thresholds are met or exceeded.
This will apply only to schemes commencing after the relief is in place, and before December 2028 – so schemes which have already started will not benefit.
Given the level of error and misunderstanding already prevalent in liability notices, we imagine this additional complexity will lead to a significant increase in challenges. If you have a question about CIL Charges, please do give us a call.
Affordable Housing reduced via a new time-limited planning route
A new time-limited planning route will allow residential schemes on private land to secure planning permission with reduced affordable housing without a viability assessment upfront, provided they commit to delivering at least 20% affordable housing by habitable room and at least 60% of that at Social Rent.
That last point may well be a challenge to achieve, even with the caveats noted below and the CIL relief proposed. Social rent is significantly lower value than other tenures, and a majority of GLA policies allow affordable rent (a higher value tenure). So the net value implications may be minimal or even negative.
For sites on public land or industrial land (without reprovision of industrial floorspace), the threshold rises to 35%. This is an improvement from the current system, but again that focus on social rent may undermine the approach.
Grant funding will allegedly be available for 50% of those affordable homes, but the emphasis on social rent rather than affordable rent or other tenures may well render this something of a non-starter, and will require additional complexity in the system for SME developers in particular.
Review Mechanisms
Contrary to reports review mechanisms would sensibly be ‘done away with’ due to the challenges these pose to securing development finance, “gain-share” review mechanisms are suggested so that if market conditions improve after March 2030, additional affordable housing contributions may be required if the scheme has not passed a certain level of completion. This broadly aligns with the principle of early review mechanisms currently being used (if no start onsite within 24 months). However it appears to be something of a watering down of original proposals to remove review mechanisms entirely, and will likely continue to pose problems for securing development finance.
What about existing stalled sites though?
Perhaps more interestingly for practitioners, and surprisingly given the focus on stalled sites in wider commentary and political discussion – the question of how to deal with existing stalled consents is only briefly addressed at paras 33-34.
Para 33 suggests an expectation that developers must explore grant funding options before seeking any reduction of existing s106 agreement affordable housing levels above 20%.
If this remains unviable or undeliverable, para 34 suggests a deed of variation should be used to renegotiate this matter.
This is really no different from the current system, which will no doubt be disappointing for many with stalled sites.
Para 34 is particularly notable, however as wading into the debate about what is appropriate under a section 73 application to vary an existing applications’ obligations. Contrary to current practice and recent case law, ‘An application under this section to vary a condition of a planning permission should no longer be used as an alternative means of reconsidering fundamental questions of scheme viability or planning obligations.’ How this square is circled with current case law will be interesting; and it appears particularly odd to include additional restrictions when trying to facilitate delivery. An update to the Planning Practice Guidance is suggested to clarify this view, along with reference to National Policies.
However, the key point really is that there is no new relief or support proposed for existing sites which have commenced but stalled (as the CIL discount will not apparently be available) and in fact additional complexity is proposed in removing the s73 revision process for obligations (where an s106 agreement’s terms do not automatically apply to s73 applications).
Implications for S106 obligations and provision
From S106 Management’s perspective, these proposals are very much a watered down version of what is required to stimulate delivery, and unlikely to assist many SME developers:
· The reduced 20-35% minimum affordable housing threshold is of course welcome, but requiring 60% social rent rather than a less prescriptive approach to tenures is rather missing the point about the current struggles with delivery, viability and RP capacity. It appears likely that the net viability impact will be minimal or negative.
· CIL relief of 50%+ is a good concept, and reflects an interrelation with affordable housing cross-subsidy which often fails to be appreciated by local authorities. However, given the stipulations regarding commencement this will not apparently assist sites which have begun but stalled.
· It is also notable that the relief applies only to borough, and not mayoral CIL. Expect some political pushback in the consultation responses.
· There is little help for schemes which have already been consented, or commenced but stalled. This appears particularly shortsighted – particularly when combined with the ‘shutting down’ of the s73 approach to renegotiating obligations. Deeds of variation are entirely reliant on the council’s discretion, rendering any negotiation inherently in their favour, as there is no right of appeal.
· The lack of coherent approach to existing review mechanisms which are creating significant development financing challenges on smaller sites (which they were never intended to apply to) which is also disappointing. It is a widely acknowledged issue with obtaining development finance on smaller sites in particular, and a failure of planning policy in ‘blanket’ applying these mechanisms unnecessarily, when they are designed for larger multi-phase schemes.
· It is disappointing that there continues to be no acknowledgement of the difference between smaller and larger schemes in the treatment of affordable housing delivery and CIL. As many colleagues have recommended, an exemption for sites under a certain number of units would significantly improve delivery and free up capacity without the need for onerous viability assessment. However, it may be that a more central policy direction is expected on these matters.
· Given the above we still expect a significant number of viability assessments to be required for smaller schemes in particular, on a practical level if nothing else – as few providers will be interested in very small numbers of social rented properties on smaller schemes.
· CIL relief, while welcome, is fraught with error and misunderstanding already, so we expect an increase in challenges to liability notices over the coming months.
Next Steps and Commentary
In short, while the proposals will no doubt be touted as revolutionary by some, and may well assist volume housebuilders, in practical terms we cannot see they will significantly impact on the delivery crisis in London in the short term. Following consultation we expect some modified implementation in the new year.
However for existing schemes, or SME developers in particular it appears unlikely the proposals will significantly impact.
If you have a question about how the new proposals effect your site, please give us a call today.
