Local Plan - Preferred Options Consultation Document (Reg18)
Appendix F – Affordable Housing
In support of Policy LP5, this appendix provides guidance on how the Council would consider planning applications for housing or mixed-use development where the applicant considers the 30% affordable housing requirement to be economically unviable, or where there are exceptional circumstances that might justify alternative approaches to affordable housing provision.
Where the 30% affordable housing requirement is considered by an applicant to be economically unviable
Because the policies in this Local Plan have been tested for economic viability, the circumstances in which it is considered that 30% on-site affordable housing will make a housing or mixed-use development economically unviable should be wholly exceptional and will be related to the specifics of the site or development in question such as abnormally high development costs.
Where an applicant considers viability to be an issue, they will be expected to submit, with their application, an economic viability appraisal on an open-book basis that will be made publicly available for inspection. To scrutinise the evidence set out in that economic viability appraisal, the Council will normally employ an independent specialist consultant – the cost of which will be recouped from the applicant.
Where the Council or the independent consultant is able to accept that evidence demonstrates the 30% affordable housing requirement to be economically unviable, the Council will consider reducing the percentage requirement to a level that is judged to be viable – based on the evidence that has been independently scrutinised.
Because the viability of development can change over time, the Council may require a ‘review mechanism’ to be written into a s106 legal agreement requiring the viability of the development to be tested again at one or more times before, during or after the development has taken place. If viability is proven to have improved, the review mechanism may require developers to either provide more affordable housing on site or otherwise make a financial contribution to the Council for the purposes of providing affordable housing off-site. The level of contribution, either on site or off site, will correspond with the level of any surplus profit identified through the viability review.
Where on-site affordable provision is not considered to be practical or deliverable
There may be exceptional circumstances where provision of 30% affordable housing on site as part of development might not be practical or deliverable and where an alternative approach such as a financial contribution towards off-site provision may be preferable. Such circumstances will be site or development specific and would have to be considered on their merits. An example where on-site provision is sometimes deemed to be impractical is on flatted developments where the Council, or a nominated partner such as a housing association might have difficulties in managing a proportion of flats or apartments within a block of otherwise private development.
Where the Council or other nominated body is not able to accept on-site affordable housing
There may be circumstances where either the Council or another registered provider is not in a position to acquire 30% of dwellings on site affordable housing, possibly for financial reasons; or where the amount of money offered to acquire those properties is lower than would be expected for the overall development to be economically viable. These circumstances are more likely to come about in the run up to a development taking place, which might be after planning permission has already been granted and a 106 legal agreement has already been put in place.
Where the Council or other nominated body’s offer for the properties is considered by the applicant to make the development unviable, then viability testing (as set out above) would be required alongside any application to vary the s106 legal agreement.
In the event that neither the Council or another body is willing or able to acquire the property, alternative approaches to affordable housing delivery such as a financial contribution towards off-site provision could be considered through a deed of variation to the s106 legal agreement. However, the lack of interest would have to be evidenced through correspondence with the Council or other registered providers.
Financial contributions towards the provision of affordable housing off-site
In cases where the Council agrees that there is an exceptional argument for a financial contribution for the delivery of affordable housing off-site, in lieu of on-site provision, the contribution will be calculated in line with the following principles and methodology.
As an overarching principle, the financial contribution the Council would seek will equate to the value of the discount on normal market value that the Council or another registered provider would seek on the acquisition of the homes that
would normally be delivered on the site. The starting point would be a 35% discount on market value but having regard to the mix of type of affordable housing that would have normally been sought on site. That contribution can then be used by the Council or another registered provider, alongside other funding to either construct or acquire housing in an alternative location.
An adjustment would be required to reflect the fact that, in accepting off-site affordable housing provision, the total number of homes to be constructed as a result of the development will increase and the number of affordable homes required off the back of that increase will, in turn, need to increase proportionally in achieving a 30% requirement. To give a simple demonstration, a development of 100 homes would normally be required to provide 30 homes (30%) in the form of affordable housing on site. If it is agreed that there are exceptional circumstances that justify an off-site affordable housing in lieu of on-site provision, those 30 homes would be being delivered off-site thus increasing to total number of homes to 130 – for which the adjusted 30% affordable housing requirement would actually be 39. Thus, the financial contribution would need to equate to the discount on market value required on 39 properties and not 30.
The 35% discount would apply to the average anticipated market value for housing across the site which would be advised by the applicant and tested by the Council using independent advisors if necessary, before being agreed. It would then be multiplied by the total number of affordable units that would have been required on site, with the adjustment to account for increased off-site provision set out above.
So, for a simple worked example of a scheme of 100 dwellings where it might be determined that the average market value of property across the site would be £300,000, a 35% discount would equate to £105,000 discount per affordable property. If then multiplied by 39 (for the reasons set out above), the financial contribution the Council would seek through a s106 legal agreement would be £4,095,000, index linked to account for inflation. If, on calculation, the proposed financial contribution raises concerns about economic viability, then this would need to be tested through a viability appraisal and independently scrutinised at the applicant’s cost.
Alternative arrangements for the ‘gifting’ of affordable housing at nominal cost
In exceptional circumstances where it is demonstrated that neither the Council nor another registered provider is unable to take on 30% affordable housing on site, for practical, financial or other reasons, another alternative approach could be the ‘gifting’ of a smaller number of units at a nominal cost (normally £1) for which the total value of the asset transferred to the Council or other body would equate to the 35% discount that would normally be sought if 30% of property were being acquired for use as affordable housing. In essence, this approach would be equivalent of an off-site financial contribution being utilised to purchase property from the site at market value – albeit at no net cost to the Council or registered provider. This approach can work particularly well where property is to be transferred to a local housing trust looking to manage its own stock and to prioritise local needs of the community.
Taking the simple example above of a development of 100 homes where the average market value would be £300,000 per unit and where 30 homes would normally be secured through a s106 legal agreement and acquired with a 35% discount on market value. Applying the ‘gifted’ approach would first calculate the value of the 35% discount on 30 units at £3,150,000 (i.e. £300,000 x 30 x 0.35) and then equate that figure back to a whole number of dwellings with an asset of £300,000 each which, in this case would be 10 units to be transferred to the Council or nominated body for £1 each along with a financial contribution of £150,000.
This approach, for this example, would result in only 10% rather than 30% of homes on site being provided as affordable housing but would potentially enable a level of affordable housing to be delivered that would otherwise not be possible if the Council or other registered providers are not in a position to secure 30% at a discounted value.
Cascade arrangements within a s106 agreement
Affordable housing, whether provided on site, through financial contributions or through an alternative approach would be secured through a s106 legal agreement on the grant of planning permission. Where appropriate, to enable flexibility to respond to changing circumstances, the Council may consider including ‘cascade arrangements’ within the clauses of a s106 agreement.
These arrangements would normally, as a priority, require the provision of 30% (or a lower percentage if justified through viability evidence) of homes on site to be acquired by the Council or a nominated partner(s) at a discount on market value to be provided in the form of affordable housing. The arrangements could however allow the Council to agree to an alternative approach, where circumstances justify, with the second priority being a smaller number of gifted units on site transferred to the Council or a nominated partner(s) at a nominal cost of £1. If the gifted approach is not preferred, for whatever reason, the Council could then agree the third priority of a financial contribution for off-site provision.
