Government proposes to relax affordable housing requirements on smaller developments


Author: Mark Harnett


When the concept of a Community Infrastructure Levy to be paid on the grant of a planning permission was introduced by the Government in April 2013, the Government made it clear that the levy was largely intended to replace the practice of securing contributions to infrastructure from developers through planning agreements (section 106 obligations). It was envisaged, however, that section 106 obligations would continue to be required to deal with two matters, first the carrying out of any works that were required to address any direct impact from the development (for example, highway improvements at the access to the site) and secondly, affordable housing. The requirement to provide affordable housing therefore remained as a substantial additional cost to developers sitting alongside the Community Infrastructure Levy.

The Government has long recognised that the additional burden of affordable housing has often made developments unviable. It therefore introduced legislation in 2013 to give developers a special right to apply for a variation of affordable housing provisions in section 106 agreements coupled with a right of appeal to a planning inspector if the local authority refuses to vary the provisions. (For all other types of section 106 obligations this right only arises five years after the agreement was originally entered into.) At an appeal, the inspector would consider the evidence on viability and has the power to reduce the affordable housing provisions in the section 106 agreement for a temporary three year period if he considers that reducing the affordable housing burden would enable the development in question to become viable. There have been a number of appeal cases reported already in which developers have been successful in persuading a planning inspector to adopt this approach.

The Government has now announced that it intends to go one step further and exempt smaller developments from the obligation to provide affordable housing at all.

On 1 December 2014 it announced that, following a consultation exercise that it carried out earlier in the year, it has changed the guidance on national planning policy to say that local authorities should not seek affordable housing on small scale sites of ten units or fewer and which have a maximum combined gross floor space of 1,000 square metres. This relaxation will apply to all residential annexes and extensions built on such sites. While some local authorities (such as Barnet) already have a similar policy, many other local authorities (including Enfield, for example) look to attach an affordable housing obligation to developments which involve the creation of any additional residential units.

In responding to the consultation, some local authorities argued that the Government’s proposed ten unit threshold would impact disproportionately on rural locations because a higher percentage of development schemes in rural areas fall below that threshold than is the case elsewhere. They argued that the proposed ten unit threshold would therefore significantly hamper their ability to provide adequate levels of affordable housing for local people.

The Government has acknowledged this concern and therefore the ten unit threshold is reduced to five units in designated rural areas. These are areas specifically designated as such under the Housing Act 1985 which includes National Parks and Areas of Outstanding Natural Beauty. If the five unit threshold is implemented by the relevant council, the affordable housing contribution on developments of between six and ten units should be in the form of a cash payment only and should be commuted so that it does not become payable until after completion of the development. The thinking here is to enable developers to benefit from reduced borrowing costs by enabling the affordable housing contributions to be met from sale receipts.

The Government has also amended the guidance to provide a further benefit for those developing on brownfield land in that if a site exceeds the threshold at which affordable housing can be required, local authorities should deduct the existing gross floor space of any vacant buildings which are being brought back into use before calculating the affordable housing requirement. This floor space reduction should also be applied by the local authority if the developer is proposing to demolish rather than reuse an existing building, in order to ensure that developers are not put under any artificial pressure to retain buildings where it would otherwise be sensible to demolish them.

Although the Government is primarily concerned with the impact of affordable housing on small scale developments, it has announced that the same threshold will also apply to other tariff style contributions such as those that are sometimes sought in relation to education and flood protection requirements.

Unlike the new rules for applying to vary affordable housing obligations that were introduced last year, the new thresholds have been introduced in the form of Government guidance rather than legislation. As such, the new thresholds will not be binding on councils who may still look to impose affordable housing obligations on developments falling below the stipulated thresholds. However, if the developer were to refuse to agree to enter into a section 106 obligation to deliver affordable housing in those circumstances and took the matter to appeal, the appeal inspector could be expected to apply the new Government policy fairly rigidly and might order the council to pay the costs that the developer has incurred in lodging the appeal.

The revised guidance is already in place, so those who have already or are about to submit a planning application for a scheme falling below the thresholds should be able to avoid an affordable housing obligation. Those who have recently obtained consents subject to an affordable housing requirement may wish to consider whether it is worth reapplying for a new permission without the affordable housing if that permission has not yet been implemented.

(Since writing this article, two local authorities, Reading Borough Council and West Berkshire District Council, have commenced an action for judicial review of the Government’s guidance. We will circulate an update once the outcome of these court proceedings is known.)

Mark Harnett, Partner, Fladgate LLP (mharnett@fladgate.com)

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