Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Memoranda

Memorandum by The Chartered Institute of Housing, Local Government Association, National Housing Federation, Royal Town Planning Institute and Shelter (HOU 28)


  This submission sets out the views of five organisations that are each concerned with the provision of affordable housing: the CIH, LGA, NHF, RTPI and Shelter. A "Planning Policy Sounding Board" of experts in housing and planning recently convened by CIH has also been involved in drawing up the submission. Each organisation wishes this evidence to add to, rather than replace, the evidence that we have each already submitted for the Transport, Local Government and the Region's Select Committee Inquiry into Affordable Housing in May.

  The submission concerns itself with just one element of the inquiry, that of the role of planning obligations in providing affordable housing. Whilst we are each concerned with the role of the planning system more generally in the provision of affordable housing, the inquiry specifically requests evidence relating to planning obligations, and since we are of common mind on these issues, we saw fit to make this joint submission. Each organisation will also submit evidence on other aspects of the inquiry individually.

  We are also mindful of the fact that guidance on planning obligations exists within a wider planning policy framework that is in the process of being reformed. The groups represented here are concerned about the ongoing sustainability of communities, and are working in a wide variety of ways to improve sustainability, including through engaging with the process of planning reform. The organisations we represent also intend to make submission to the Committee's Inquiry into Planning for Sustainable Housing and Communities.


  Planning obligations provide a legitimate mechanism for securing affordable housing over and above that which can be financed through Social Housing Grant (SHG). In some parts of the country, where house and land prices are high, providers of affordable housing are becoming increasingly reliant on planning obligations to provide the necessary land. In areas where demand for housing is low and there are plans to restructure housing markets, planning contributions can still provide an important source of affordable housing to meet modern aspirations. This will be needed, for example, to rehouse those displaced when areas of obsolete housing are demolished as part of regeneration schemes.

  It is not possible to properly quantify the amount of affordable housing provided through planning obligations because current practice on monitoring is inadequate. Research for the Joseph Rowntree Foundation found that statistics collected by Government indicated that around 15,000 affordable homes per year are being provided with the help of some planning gain. However, the research team found that the actual level of affordable housing constructed was lower than the figures would suggest because of double counting, and in most cases some SHG funding was also made available.

  We believe that better use could be made of the mechanisms to provide affordable housing and contribute to the creation of sustainable communities. However, there are limits to the amount of additional affordable housing that can be produced. Even with the increased spending levels for affordable housing announced in the recent spending review, the output that can be achieved is still well below what is required. Planning obligations cannot be expected to make up the shortfall and much higher levels of funding are required if the problem is to be solved in the long term.

  We agree with the Government's objectives for planning obligations, set out in their consultation paper in December 2001 and would urge the ODPM to maintain the impetus of reform in this policy area. However, we believe that certain more immediate reforms to the system would significantly improve the chances of achieving those objectives. These are set out below.


  Work carried out by Sheffield and Cambridge Universities into the planning and affordable housing system found that local authorities have difficulty in interpreting government policy and in putting it into practice, and distinguishing between policy they are expected to follow, and good practice guidance that is offered to assist them in their work. We strongly recommend that this distinction should be made clearer in future government documents. Policy documents should set out clear, unambiguous objectives for the achievement of affordable housing. Good practice should then advise them as to how to go about implementing the policy in their area.


  PPG3 paragraph 15 supplies guidance on how affordable housing should be defined in the local plan area (in terms of the relationship between local income levels and house prices or rents for different types of households). Circular 6/98 paragraph 4 states that the term encompasses low-cost market and subsidised housing that will be available to people who cannot afford to rent or buy houses generally available on the open market.

  There are three reasons why we believe the guidance on definitions of affordable housing needs to be changed.

  Firstly, while local authorities are able to define what is affordable, it does not allow them to ensure that the housing actually provided is affordable in the long term. In many cases, low cost and "discounted" market housing is provided. Discounted housing fetches market prices on second and subsequent purchases. This means that the property is not affordable in the long term for those who cannot afford market housing, but instead the benefit is pocketed by the initial buyer. Low cost market housing on the other hand is only low cost relative to other properties on the same site. It does not necessarily comply with local authorities' definitions of affordable housing.

  The second reason relates to the fact that public policy is already embracing the need for various types of "intermediate-priced" housing to meet the needs of those who, whilst unable to afford market prices, would not normally qualify for social housing. For example:

    —  The Starter Home Initiative and recently announced "challenge fund" for providing housing for key-workers.

    —  The London Plan specifically sets out a requirement for 15 per cent "intermediate" housing (in addition to 35 per cent affordable housing).

    —  The identification by the Countryside Agency of a need for a range of housing for people on low and modest incomes to live in rural areas, including subsidised and some low cost sale housing.

  The third reason relates to both of the above points. Local authorities carry out assessments of need for different types of sub-market housing to meet needs, but are unable to specify the type of affordable housing that should be provided to meet these needs. Two cases serve to demonstrate the contradictory decisions that have been made on the issue.

  In Wychavon D.C. v Westbury Homes (Holdings) Ltd, the developer failed to provide the particular type of affordable housing specified by the council, based on its assessment of needs in the area (houses to rent through an organisation acting as a social housing provider). The court ruled that providing housing for sale at a discount instead was unacceptable, as it did not meet the needs of the area. In another instance, the Planning Inspector's judgement went in favour of the developer, Laing, who was offering a type of key-worker housing as the affordable housing contribution. The local authority, St Albans D.C. wanted social rented housing although this was not stated in the outline planning permission. The Inspectorate decided that since housing was also needed for key-workers in the area, this was an acceptable way for the developer to meet the planning obligation.

  These cases clearly demonstrate the predicament local authorities find themselves in when trying to meet demands for affordable housing. Whilst the first case seems to imply that authorities may be able to specify the type of affordable housing to be provided, based on assessments of needs, the guidance does not make this clear. Where there is a need for both social rented housing and housing for other groups that may not be able to afford housing at market levels (such as key workers), local authorities are unable, currently, to make the judgement that the need for one type is greater than another and require developers to provide accordingly. Clear mechanisms that enable councils to specify which types of affordable housing should be provided on particular sites, to meet assessed local needs, are required.

  All our points could be dealt with by distinguishing between two different types of affordable housing. Only housing that meets one or other of these definitions should be counted as affordable for the purposes of planning obligations. Local authorities also need to be able to specify which of the two types of affordable housing, or the mix of the two, are to be built on any site. This should be enshrined in Government policy in the appropriate place (possibly a future version of Circular 6/98). The two definitions would be:

Definition 1: homes for rent provided through a regulated organisation

  This definition would include housing to rent that is provided through a local authority or housing association that is regulated by an appropriate government body (including regulation of rent levels).

Definition 2: homes available in the long term to meet "intermediate" housing needs

  This definition would embrace the full range of tenures (housing for rent, shared ownership, low cost home ownership and for sale at a discount from the market price) where:

    (i)  the cost is affordable to working people who cannot afford market prices in the area, according to a locally defined definition based on the relationship between local income levels and house prices or rents for different types of households; and

    (ii)  a planning covenant (in the case of housing for sale) or involvement of a regulated organisation (in the case of housing to rent) ensures that this housing remains affordable in the long term to people identified as being unable to afford market housing.


  A major deficiency of the current system of planning obligations is that contributions of affordable housing sought are usually defined in terms of a target expressed as a percentage of total housing on the site. Research carried out by ENTEC, Nottingham Trent University and Three Dragons suggests that these targets are often set in a fairly arbitrary way. Officers tend to defer to tradition when entering negotiations (often asking for 25 per cent or 30 per cent contribution), but it would be preferable for them to have a full and proper understanding of the financial realities of developing sites.

  This lack of linkage between actual costs and the contribution being sought, coupled with a lack of knowledge leads to difficulties when authorities and developers negotiate the planning contribution. If authorities ask for too much, then developers will withdraw, but equally, developers have been known to exploit this lack of knowledge and achieve very small contributions as a result.

  A contribution based on a fixed percentage of total housing ignores the financial realities of site assembly. It obscures the issue of whether or not the contribution imposes an acceptable financial burden, and adds to the lack of transparency and unpredictability associated with planning obligations. It also assumes that the same proportion of affordable housing is required in all parts of a local authority rather than varying numbers of such housing being required of different sites, to reflect varying needs.

  The key factor that determines the profit margin in developing a site, and therefore the size of the contribution that could realistically be made, is the relationship between the cost of development and property value. We suggest, therefore, that authorities should be encouraged to collect information on financial viability and to take this into account when seeking to determine both the level of affordable housing required and the need for public subsidy. Any such calculation should include reference to wider planning obligations and to abnormal costs such as decontamination. We believe that new good practice guidance is needed to assist local authorities in this task.

  The form of the affordable housing contribution should be typically in kind (rather than cash) and provided on the same site. This will help to promote community sustainability by ensuring that house types and tenures are mixed. Certain circumstances could warrant an exception to on-site provision and the payment of a cash sum, as is the current practice. Retaining this small amount of flexibility will give local authorities scope for redirecting some of the cash and provide affordable housing on other sites where needs are great but costs of development may restrict the amount of affordable housing that can be delivered. We suggest that Circular 1/97 should be more specific in regard to on-site provision and use of commuted sums.

  Changes of this nature would have the following benefits:

    —  the system would be more understandable, transparent and predictable;

    —  negotiations would be more focused—on how the specific case deviates from the financial assumptions used;

    —  the system would be fairer, the scope for developers being over-burdened would be reduced, and local authorities will be better equipped to negotiate an appropriate contribution; and

    —  the link between the contribution and the needs of the site being developed would be maintained.


  Circular 6/98 states that in practice, affordable housing policies should normally only be applied to housing developments of at least 25 dwellings or 1 hectare (15 dwellings/0.5 hectare in London), in all settlements with a population of more than 3,000. Settlements with a population of less than 3,000 are exempt from thresholds.

  This group of organisations believes that there is no justification to continue to apply this threshold on site size. We suggest that this should no longer be a matter for government policy. Many sites in both urban and rural settings are small and below these thresholds. The sequential approach to releasing sites to maximise brownfield development has already had the effect of reducing the size of sites becoming available for development, and this will continue as long as the policy is in place. We understand that many constrained urban authorities in the south of England now face the "inner London problem" that they have no sites above the threshold and are dependent on small windfall sites. In rural areas, the provision of just two or three affordable houses on a small site in a village or market town could make a significant difference to local people who need access to affordable housing, but the threshold prevents this housing being provided except in settlements below 3,000.

  When seeking an affordable housing contribution, it is acknowledged that smaller sites may sometimes offer lower margins. Setting the contribution sought at a level that reflects the difference between the development costs and property price (taking into account the higher development costs on smaller sites) would simply result in a lower contribution being sought. The argument that site size precludes development of affordable housing is not, in our view, justified and in exceptional circumstances where this could be demonstrated, developers should be required to offer an appropriate financial contribution.


  The scope for delivering affordable housing through planning obligations is less in rural areas where sites are relatively small. Even in settlements of less than 3,000 population, where the thresholds do not apply, the relatively high cost of land and of developing small sites provide a barrier to affordable housing provision. More fundamentally, planning obligations will only work where sites are already available for development of market housing. They will not in themselves bring forward land suitable to meet local housing needs.

  This group of organisations therefore supports the suggestion (in the original consultation on planning obligations) to allocate land solely for affordable housing where there is a demonstrated need and where it is needed to increase social diversity in the area. We suggest that there could be a maximum limit on the size of such sites to, say 15 units.


  As explained earlier in this submission the arrangements for recording affordable housing provision, including that provided through planning obligations, are not adequate for proper monitoring. A better approach is required and we suggest that boroughs might be expected to measure the following indicators in the future:

    —  The number of affordable housing units granted permission per annum, broken down by type (social rented, shared ownership, low cost ownership).

    —  The number of affordable units completed per annum broken down by type.

    —  The proportion of the above provided on s106 sites (and therefore the remaining proportion provided as 100 per cent affordable housing schemes).

    —  The number provided as "off site" units.

    —  The amount of cash in lieu received per annum.

    —  The amount of cash spent per annum and the number of resulting additional units provided.

    —  The number of affordable units approved and constructed indicating the amount of Social Housing Grant/Local Authority Social Housing Grant that was included.

    —  An assessment as to whether the affordable housing target set in the local plan has been met (as a proportion of the overall housing completion rate).

    —  The number of empty homes brought back into use per annum, broken down by type.

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