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Landowners benefit from planning changes as affordable housing delivery falls, new study finds
New research has found that interpretation of recent changes to the planning system have had a significant, negative impact on affordable housing provision in London, through unintentionally inflating land values.
The study, commissioned by 13 London Boroughs and undertaken by a consortium of Royal Agricultural University, Reading University, Kingston University and Ramidus Consulting, reports that since April 2009, whilst average London house prices have nearly doubled from £245,000 to £472,000 annual affordable housing delivery in London has dropped by 37 per cent. This, the study argues, should have enabled a greater proportion of housing for low and medium income households to be provided in new developments. Instead, the surge in London house prices, together with a raft of new national planning measures intended to stimulate house building in the wake of the 2008 financial crisis, has led to a rise in residential land values of nearly 150 percent, but has not significantly boosted the delivery of new affordable homes as hoped.
A central part of the planning process, reinforced by the National Planning Policy Framework introduced in 2012, is the requirement for the assessment of economic viability of residential developments. The research, conducted in summer 2016, revealed key flaws in this viability testing system, particularly in relation to the way that land is valued and found that these were a major cause of reduced affordable housing delivery.
Some consultants acting for developers and landowners argue that land values should be based on the price that a developer has paid for land or evidence from transaction prices of other sites. However, the more a developer pays, the fewer the affordable housing units can be supported, as policy requires that economic development return be maintained. This circularity means that viability testing can be manipulated to the developers’ benefit, leading to inflated land values, a reduction in the level of affordable housing and what is, in effect, a transfer of risk from the developer to the community.
In the light of the major flaws in national planning guidance, the study recommends that changes to economic viability testing be made as a matter of urgency. Further, it recommends a scaling back of viability testing to apply only to sites with clear barriers to delivery, firmer affordable housing targets and that planning viability assessments should take into account the value of land in its current use - not in its proposed use. It also calls for more transparency, greater resources for the public sector planners and different mechanisms to encourage the release of land for development.
Professor Sayce of the Royal Agricultural University, who led the study said “The requirement to provide good, affordable housing as an integral part of the development offer in London is universally supported. However, the system as currently operating is deeply flawed. By unpacking the circularity argument, and through our recommendations, we hope we have provided a firm agenda to enable government, professional bodies and the development community to break what is, for the community, a vicious circle.”
Professor Neil Crosby of Reading University agreed saying, “We have shown viability testing to be flawed and working against planning intentions; if it is to be retained, we need a complete rethink of how the development appraisal model is applied in this context".
Cllr Diarmaid Ward, executive member for housing and development at Islington Council, which was the lead commissioning authority for the study, said: “This research provides an important insight into factors that are exacerbating London’s affordability crisis. It offers a basis for achieving a better balance between the interests of landowners, developers and the community in the planning system and key steps towards providing housing that people can afford.”