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Autumn Statement: mood music?

In the absence of the Housing White Paper, the industry is still left needing to mind the gap.  We have simplified budgets – abolishing the Autumn Statement – but no hint of simplified planning for growth.

The overall commitment to housing is welcome mood music, but the lack of detail on powers and fiscal incentives to support locally-led Garden Towns to deliver at the scale needed leaves a hole.  Expanding grant funding for affordable tenures is great news but at £25,000 per unit is not going to be life changing.

hamThe £2.3bn Housing Infrastructure Fund could be a game changer if it is used to reward areas for proactively planning for growth. Making an up to date housing land supply a condition for at least some of the funding would dangle the right carrot for authorities that currently only have the stick. The lack of fiscal measures for new settlements – incentivising forward funding of major infrastructure that can unlock delivery at real scale – is disappointing though.

Affordable Housing is heading towards life support – delivery in 2015-16 was 52% lower than last year.  The announcement in the Autumn Statement of a funding injection to deliver 40,000 affordable homes is welcome. It is a clear recognition that addressing the housing shortage is not simply about building more homes.  Yes, we need more but they must meet a variety of needs. There are further signals of a softening of the Government’s stance on Starter Homes – tenure flexibility replacing David Cameron’s commitment to a single tenure.

Without the Housing White Paper, there is also still a wait to see how the NPPF is going to be reshaped and in particular how housing land supply and Local Plan duties will be re-set following expert advice on accelerating delivery. If the Community Infrastructure Levy is to be replaced by a simplified flat national charge, the effect on infrastructure funding and the transitional arrangements need to be understood now, so that schemes in the pipeline do not get put into suspended animation.

The statement gives some clues about the Government’s direction of travel but, funding commitments aside, offers little substance.  We still await the detail in the Housing White Paper which we are told will be published “soon”.  Reasons for the delay are unclear. Have responses to leaks on more radical measures, such as penalising developers for slow delivery, prompted a re-think?

Brexit: A week later

flagWhat are the likely effects of the Referendum decision on planning? The real answer is that nobody knows but here is a guess:

  • There will be more devolution to city regions. There is clearly a distrust of Westminster and “experts”. Expect to see devolution being set in more of a sub-regional framework.
  • Although there will be delays, the further drop in interest rates and the need for investment will mean more emphasis on new infrastructure. Now is the time for city regions to refine their infrastructure plans, making sure that they fit comfortably within the National Infrastructure Commission ambitions.
  • More of the investment will be outside London. London has succeeded in part because of the staggering levels of infrastructure investment that have been made. Other regions deserve their turn.
  • The planning system will not change.  There is no “European” element that can be stripped out. Much that is blamed on Europe is, in fact, common sense and best practice around the world. For example, does anyone seriously anticipate that we will not environmentally assess plans for large scale development proposals?  Similarly, we already have international and national commitments on climate change. Expect no change.
  • There will be some siren calls to put the brakes on housing delivery. It will be argued that, with lower levels of immigration, objectively assessed needs will fall. In reality, immigration is unlikely to fall significantly or soon. In fact DCLG figures already assume a material reduction. And, if successful in reducing immigration, the likelihood is that there will be a need to accommodate some of the Brits presently living in Europe.  Expect no change.

Perhaps the greatest effect will be that Parliamentary time will focus on managing the crisis and broader constitutional issues. Hopefully, that means that there will be less time for planning reform and we can all move calmly to a proper plan-led system of the type envisaged by the Local Plan Expert Group.  This should be supported by a slightly simplified CIL regime after the Review with a less febrile property market and one better balanced around the country.

Mind the gap – if Starter Homes survive, there will be blood

cake

The Starter Homes initiative now faces an uphill struggle onto the statute books following setbacks in the House of Lords. Critics should be careful not to write them off, though, because the Government is adopting a twin track approach that is likely to deliver changes this year either way which will disrupt and reshape planning debates.

Even if the radical Starter Homes Duty is unravelled successfully by the House of Lords, it seems very likely that the Government will modify the NPPF  to make Starter Homes a qualifying affordable housing tenure and, potentially, attempt to give it the primacy that the Housing and Planning Bill 2015/16 was aimed at until the Lords rebelled.

Either way, the changes will undoubtedly have a radical effect on Local Plan and application processes:

  • Local Plan snakes and ladders. Again.  More complication, more fuss and evidence base changes. Government is likely to change guidance on Housing Needs assessment, to identify first time buyers as in housing need. This will overturn the apple cart on existing SHMAs and Local Plans, which will immediately become out of date.
  • Starter Homes will be exempt from CIL. There is no detail in the Technical Consultation on how or when this will come into effect or how the clawback will work where homes are sold in breach of the protected period restrictions. Care is needed in swapping tenures ahead of the changes coming into effect.
  • Transitional measures. The current Starter Homes Technical Consultation is not clear how any Starter Homes requirement would be phased in.  The industry must have some headroom so that the changes do not delay schemes submitted before a sensible transitional date.
  • There will be winners – the new price caps should deliver better returns where there is a straight swap for Shared Ownership.  Authorities will seek an increase in overall affordable provision.  The changes may end up bolstering the case for a fixed percentage of affordable housing in London.  At Lower Graylingwell, the 30% affordable provision has increased to 50% Starter Homes, for example. Developers will need to plan for the demise of ‘golden brick’ payments by Registered Providers, though, and assess the cashflow implications of another 20% of product as sale tenure. Marginal sites, including previously developed green belt will be sold heavily on the back of Starter Home delivery and should expect kinder words on appeal as a result.
  • The allowance for commuted sums in ‘high value areas’ will perpetuate the existing difficulty of policies that surrender to landowner expectations and muddy the waters for developers bidding for land.
  • There will be blood. The changes will bypass conventional housing need. Reluctant and resistant authorities with backlogs of vulnerable and excluded people on the housing register who cannot access a £450k home will point to the fundamental jurisdiction in the Town and Country Planning Act 1990 to take local, democratic decisions in the interest of good planning.

They may weigh the breach of the Starter Homes duty against the duty to meet needs. The extent to which the Regulations can oust that, or any breach creates a ground for legal challenge, will come to the fore. Great care will also be needed on reporting the effects of the affordability sacrifice.

Non-starter? New homes proposals are going to shake things up, if they survive

The Government’s Starter Homes proposals have been around for a while – consultation in 2014 led to new policies in March 2015, backing the commitment to deliver 200,000 by 2020, freeing Starter Homes ‘exceptions sites’ from affordable housing requirements and encouraging authorities to search for sites. The Housing and Planning Bill 2015-16 measures intended to realise that commitment will go well beyond the existing policy, if they survive the House of Lords Report stage.

Big picture

cakeStarter Homes will be new homes [1] for purchase only (and only by first time buyers under 40) to be sold at the lesser of 80% of market value or £450,000 in London (and £250,000 elsewhere).

  • Authorities will be under a statutory ‘general duty’ to promote Starter Homes when considering planning applications
  • A power for the Government to specify the proportion of Starter Homes on specific types of sites, nationally
  • A power for the Secretary of State to issue ‘compliance directions’ requiring Local Plan policies to be disregarded. This is a hitherto unknown command power by central Government and is possible casualty of the House of Lords’ scrutiny.

The Government has already made clear that tenure changes should be accepted without changes to the overall amounts of provision in S106 renegotiations.  The HCA is already putting this into practice, tenure swapping a policy compliant affordable split to Starter Homes on its Lower Graylingwell scheme in West Sussex.

All is (nearly) revealed

The NPPF Review has not been clear about the extent to which Starter Homes will actually be treated as affordable housing (albeit that they will be exempt from providing it).  We understand that the significance of the Starter Homes Technical Consultation on the Regulations which will shape the regime is that:

  • There will be a fixed 20% requirement for most schemes of 10 units or above.  Viability testing will be permitted, but the threshold for exceptions is likely to be a higher bar than hitherto accepted in viability appeals.
  • Starter Homes will be affordable housing in policy terms. In re-opening the NPPF consultation on changes to the definition of affordable housing, the Government is signalling its intention to modify the NPPF to allow Starter Homes to qualify. We understand that they are meant to be a ‘top slice’ of viability, which is intended to ensure that Starter Homes always float to the top of the affordable tenure pile in appraisals.
  • The 8 year ‘restricted period’ during which first time buyers will have restricted selling rights will allow the percentage of market value to taper up (like staircasing Shared Ownership equity).  This responds to concerns by lenders about the effect of sudden pulses of de-restricted units hitting the market at the same time.  These periods are controversial and likely to be significantly amended following the cross-party rebellion in the House of Lords.
  • Units will not be able to be let. The attractiveness of this, alongside a period where the market for re-sales is narrowed to first time buyers under 40 remains to be seen.
  • PRS is likely to benefit from a blanket exemption but will be expected to yield a commuted sum. The Government is likely to require such sums to be calculated based on the gain in value to the developer (and to require authorities to deliver Starter Homes with it). How it will factor in the costs of assembling land to do so is moot.
  • Standard S106 wording is being prepared.

Rebel Alliance

The defeats suffered by the Government at the Third Reading stage in the House of Lords on 11 April 2016 now cast a shadow over how radical this new tenure is likely to be. Amendments backed by a cross-party alliance of peers would:

  • Extend the protected period to 20 years and force starter homes owners to repay any discount (tapering by 1/20 each year) where selling earlier
  • Return control to local authorities on how many starter homes should be delivered locally, and was backed by a majority of 86 peers.

Both amendments were back by majorities of at least 85 peers and the likelihood of the radical changes envisaged by the flagship policy announcements last year coming into effect in 2016 look limited.

[1] including those constructed but not yet occupied

Transparency of financial benefits in planning

The Housing and Planning Bill (Clause 140) proposes to make public, through committee reports, the financial benefits of certain development proposals – as we have commented on before.  The report will need to list the benefits whether it is material to the LPA decision or not, and note the LPA’s position on the benefit, these include local finance considerations (as defined by the TCPA 1990 section 70 (inserted by the Localism Act 2011)).  CIL payments are included within this description whoever may be the beneficiary, i.e. the LPA as collecting authority for its own levy, or for the Mayor of London.

Piles-of-pounds1The Government’s technical consultation on implementation of the planning changes (issued on 18 February 2016, and invites representations by 15 April 2016) sets out that council tax and business rate revenue could also be included within the description ‘other financial benefits’, to be prescribed through regulations.  This will require the LPA to liaise with those relevant departments of its Council to ascertain estimates of the likely tax/ rates that will be generated by a development, and whether that is a material consideration to the decision to be made on the application.  This could prove difficult where the scheme is in outline and the full details of a development are not yet known, in particular where flexible uses are proposed.  New Homes Bonus benefits will also be required to be reported, again further liaison will be required to obtain the appropriate information, the level of funding and determine whether that funding is material.

Most committee reports already include a section on the benefits of a scheme, this would usually include an estimate of any levy charge payable (whether mayoral or its own), as well as section 106 agreement benefits – where a recommendation to grant permission will be subject to the planning agreement being entered into on the basis of the recommendation/ resolution of the committee.  The Planning Practice Guidance already encourages authorities to report financial benefits such as New Homes Bonus and CIL, regardless of whether there is no legal basis for treating them as material to planning decisions. Care is needed to do so without creating a ground for legal challenge that would otherwise have not existed.

The solar industry for example has, for a long time, offered community benefits, either in the form of works in kind (i.e. providing panels on a public building) or financial payments (usually for the benefit of projects promoted either in relation to reduction of energy consumption, or more commonly any projects promoted for the benefit of the community).  These offers are usually made to parish/ town councils.  However, there are a number of instances where payments have been offered, and made, to local schools or other unelected community groups.  The proposals in the technical consultation are likely to require these types of benefits to be included in committee reports and judged on whether they are material.  These arrangements are usually finalised outside of the planning system, by private deed.  This transparency could have opposing impacts – with the relationship between contributions and proposals being tested for materiality, opening routes for criticism and challenge.

CIL Review – can we fix it?

Part 1 of our CIL Review blog highlighted the Government’s appetite for retaining and reinforcing the Community Infrastructure Levy.  Our suggested reforms for this year are:

  1. Simplify regulation: The CIL Regulations are the product of a set of amendment instruments for each year since 2010, plus the changes made by the Localism Act.  These reforms – delivering phased charging, abatement, flexibility on offsets for existing floorspace and other improvements – have been welcome.  The resulting system is now mired in horrible complexity though.  The Review should explore how much regulation could be simplified or simply discarded.
  2. cilSimplify phasing: The introduction of phased charging in 2014 is a great tool for managing CIL liability. The process for defining and amending CIL phases should be significantly easier for investors though.  Breaking the link between planning phase and CIL phases is necessary to end what has become a time consuming exercise.  Likewise, the effect of S96A changes on phasing should be made absolutely clear to avoid CIL-bearing schemes being forced to use time consuming planning processes to achieve changes that are material to CIL but immaterial to planning.
  3. Delivery: Uncertainty over the way that CIL expenditure will be focussed on planned growth is unhelpful.  The Review will have to consider the balance between the discretionary use of CIL, against the need to avoid it being drained away from investment in new infrastructure to support Local Plans. A slightly more prescriptive framework for some of the really big ticket items used to justify CIL setting would be sensible.
  4. CIL Agreements: CIL breaks down for the largest schemes and is a drain on the system and general source of bafflement.  The Review will need to grapple with how much flexibility can be created for genuinely ‘Strategic Sites’. It is possible to contractualise CIL payments for major schemes so that much of the current regulatory fog is cleared, as long as:
    1. it is compatible with value capture, so that the overarching CIL burden itself cannot be reduced by the use of agreements;
    2. it is compatible with procurement law, which will mean that the point at which CIL liability arises will need careful thought, the powers to enforce under Part 9 of the regulations are applied and instalments continue to apply;
    3. the valuation assumptions for ‘works in kind’ are less dysfunctional.
  5. Pooling + Double Dipping: The law is regarded as confusing but could easily be left as it is, but furnished with proper guidance about how the R123 restrictions should be used to focus debate on the whether there is a real justification for planning obligations. The R123 list and R123(2) pooling restrictions should be recognised as a diversion, and binned.
  6. Look afresh at Affordable Housing investment. The Localism Act changes are widely seen as having successfully removed affordable housing from the realms of CIL ‘infrastructure’.  The merits of that political choice should be revisited – recycling a limited amount of CIL into innovative affordable tenures would make sense and address the viability debates that dominate housing.
  7. Create freedom: Allow authorities to forward fund infrastructure and repay debt from CIL. The rate at which they may do so is currently set at 0%, despite their access to preferential borrowing rates. Authorities with a Local Plan less than 3 years old should be empowered to do so, as long as the CIL repays only new infrastructure.
  8. Reduce choice: The Localism Act 2011 amendments to the Planning Act 2008 allowed CIL to be spent on existing, as well as new, infrastructure. That undermines the purpose and legitimacy of CIL. Take it back, or at least only allow it for authorities with a recent plan that meets needs in full without the need for future green belt reviews.
  9. Charge Setting: The Examination process is mercifully short and focussed. It is too rarely burdened with substantive objections. There is little that needs to change, other than the level of engagement with the process. The scope for abuse of differential rates and the application of residential charging rates to so-called ‘ancillary’ spaces should be reigned back in or made absolutely clear at the charge setting stage.
  10. Exemptions, distractions and diversions: There are too many developments that do not pay CIL and too much CIL is diverted away from local authorities who need it to provide the infrastructure to support development.  Good development should be supported by infrastructure, and that needs funding.  Let’s cut back on those who do not have to pay and let’s make sure the entirety of the money raised is available for new capital expenditure.

 

CILly season over? CIL review promises another chance to get it right

We hosted the British Property Federation’s seminar on CIL reform at the end of 2015.  The new year offers a chance to address some of the unintended quirks of the Community Infrastructure Levy that have undermined the originally stated intention when adopting the CIL Regulations in 2010 of a “faster, fairer, more certain and transparent means of collecting developer contributions to infrastructure“.

cilWay of the future?

The Community Infrastructure Levy (“CIL”) was introduced in April 2010, with a promise of a ‘comprehensive review in 2015’. The Review was announced in late 2015 and will conclude in the in the Spring, with the expert group tasked to assess “the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to recommend changes that would improve its operation in support of the Government’s wider housing and growth objectives“.  Our commentary for Planning Magazine is here.

Better than the rest

The CIL emerged from Kate Barker’s Reviews of Housing Supply (2004) and Land Use Planning (2006). Quicker and more transparent approaches to infrastructure funding and delivery remain at least as important 10 years on. The fundamental objectives of CIL remain right:

  • using a part of the unearned increment on land value growth to deliver infrastructure to support planned growth;
  • underpinning the legitimacy of development.

The Review is therefore intended to refine CIL, not rub it out. It is flawed, but as noted at the BPF’s session, arguably the best alternative to other land value taxes – none of which can claim the same distinction of having lasted between two political terms. Improvement will take place, but the development industry needs to engage with the Review.

The call for representations closes on 15 January. Our next blog will set out our thoughts on reforms that could be delivered this year.

Housing and Planning Bill – consents with benefits?

This third part of our Q&A on the Housing and Planning Bill 2015 considers how the Government’s proposed duty to list financial benefits associated with planning may create trip wires for development.

calcWhat is the new duty?

Clause 115 introduces a new requirement for local planning authorities to provide information about the “financial benefits” of any planning application when reporting it, including:

  • list of any material and non-material financial benefits of the application, whether to the local planning authority or otherwise;
  • a statement of the planning officer as to whether each benefit is material to the application.

The benefits are the ‘local finance considerations’ introduced by the Localism Act 2011 (the Community Infrastructure Levy (CIL) and the New Homes Bonus) and others specified in regulations (which may also define the amount or value of various benefits).

Why?

The Government is keen to ensure that the benefits of development are known, including the role of CIL and other funding in delivering community infrastructure and other investment.  Communicating the value of plans for growth remains a critical aspect of promoting contentious development. There is a risk that the changes will make it inadvertently harder.

What might the practical effects be?

Requiring councils to report on benefits has the potential to increase the risk of judicial review. When a duty to give reasons for approval was introduced in December 2003 by an amendment to the Town and Country Planning (General Development Procedure) Order 1995, it gave rise to legal nit-picking and numerous challenges on the grounds of the adequacy and coherence of reasons. The duty was put out of its misery by a subsequent amendment to the Order in September 2010.

As currently drafted, the Bill requires councils to not only decide whether something constitutes a financial benefit, but also whether the benefits are material or not to the application. Given the current struggle to resource the core planning work needed to process applications, this is unlikely to be a welcome burden. Equally, the question of materiality is one that is rarely dealt with cleanly in practice –  in relation to CIL, where the need for a genuine planning relationship between CIL and the scheme itself to qualify as a material financial consideration is often ignored.

Speeding tickets: further reforms for section 106

The Housing & Planning Bill 2015 now takes forward some of the elements of the Treasury’s 2014 Autumn Statement to speed up planning decisions. It does not pick up the commitment to introduce a dispute resolution mechanism for Section 106 negotiations to speed up housing starts trailed earlier this year (and announced in the July 2015 Productivity Plan).

The Government is still considering its options, including a combination of legislative changes and ‘soft’ measures to steer the S106 process. Our Manifesto for Planning 2015 called for a model agreement to be adopted, to limit the current reinvention of the wheel for each scheme. Once the dust has settled on the Housing & Planning Bill, there are a few further things that Government could do to nudge the process.

Dispute resolution system (DRS) challenges

The responses to the 2014 Autumn Statement reflect the challenges in applying a dispute resolution approach to planning decisions, not least:

  • sumoThe risk that DRS may drain scarce resources away from the core development management process itself.
  • What can/ should be binding and non-binding. Recognising that a DRS outcome cannot override committee resolutions means that the timing of DRS needs careful consideration. Going back to committee to give effect to a DRS decision is unlikely to appeal to many applicants.
  • Allowing DRS to be triggered before committee consideration, including binding elements (for example, on compatibility with regulations 122 and 123 of the CIL Regulations 2010) and providing incentives to behave responsibly would help.

Dispute avoidance – better behaviours

Nudging stakeholders towards dispute avoidance would be a more effective short term approach with long-term benefits, encouraging common gaps in the planning process to be plugged:

  • Far more structured Section 106 negotiations
  • Reducing the number and complexity of obligations
  • Up to date, detailed, site allocations with clear, detailed, mitigation requirements.

The last remains a pipe-dream in the current system and it remains to be seen whether the Housing & Planning Bill will really change much.

Soft Targets

Government could make a big difference now, by:

  • Adopting a Model  Section 106 agreement along the lines of the CLG/Law Society Model 2010 Second Edition. A more coherent and effective set of mechanisms for deferred/ catch up contributions would be positive.
  • Adopting Model Conditions.  There are some good Call In decisions out there with sensible, short and effective conditions that can rob Section 106 agreements of most of their content.
  • Recommending in the PPG that:
    • The Model Conditions and Model Agreement clauses are used, unless there are clear justifications for departure (and making it clear that the reasons may be subject to DRS).
    • Proper Heads of Terms or a complete Model Agreement are submitted with an application.
    • Detailed delivery programmes are agreed for Section 106 negotiations, which would finally give some purpose to Planning Performance Agreements.
  • Amending the Planning Guarantee provisions in the Fees Regulations so the ability to claw back the application fee is not lost where an extension of time is agreed but then exceeded.  That would provide the intended incentive to get on with it in the way that the NPPF and Planning for Growth require.

No back doors for office to resi (yet)

We noted earlier this year that there would be no more office to residential changes of use under ‘Part O’ Permitted Development rights under the new General Permitted Development Order 2015.  At the moment, the right to switch from B1(a) office use to C3 residential with only a prior approval requirement falls away in May 2016.

More or Less?

officeThere have been around 900 applications for Part O prior approval in each quarter of the last year.  As funding for new Part O scheme shrinks due to uncertainties (see below), the Party Conference season is expected to yield a pronouncement on whether Part O rights will be extended.  They may be carried over on the basis that:

  • existing Part O rights survive for 3 years from prior approval (or deemed approval);
  • new approvals are subject to a requirement to deliver some of the Government’s 200,000 Starter Home commitment;
  • there is a limited ability to consider the effect of the loss of strategically significant office supply at the prior approval stage;
  • ‘exempted areas’ are retained.

Do or Die

In the meantime, developers and investors must work on the basis that the Part O rights cease to be available after 30 May 2016 unless the ‘use of the building falling within C3… was begun’ by then (under article 2 of the GPDO 2015 and paragraph O.1 of Class O).

What constitutes being ‘in use’ (and how much of any converted building it should cover) is unclear.  The courts have been clear that a change to residential may be taken to have occurred before the ‘relevant premises’ are brought into actual occupation (which includes units being brought into a marketable condition).  The extent to which empty units will be considered ‘in (C3) use’ will potentially be influenced by the extent to which:

  • the residential use is capable of being carried on; and
  • the previous B1(a) office use is no longer realistically capable of resumption.

If the Part O regime is not extended, the values at stake mean that the answer will inevitably be tested in the courts.

Die Another Day?

Article 4 Directions can be put in place withdrawing permitted development rights.  Whilst the Secretary of State can – and regularly has – prevented them being confirmed, several are now in effect.  There has been confusion around their effect – do they kill the rights or extend them? The GPDO 2015 now states – article 4(2)) – that where a Direction comes into force it will not affect the carrying out of the development where “the prior approval date occurs before the date on which the direction comes into force and the development is completed within a period of 3 years starting with the prior approval date“.  This ensures that Part O prior approvals pre-dating the coming into force of a Direction will remain available regardless of the Article 4 direction.  But, and it is an important but, it does not push the drop dead date for commercial-residential permitted development beyond 30 May 2016.  Where investors and developers know that buildings cannot be brought ‘into use’ before 1 April next year, their valuation assumptions should therefore reflect the risks.

CIL effect

Developers are still regularly, and wrongly, advised that CIL will not apply to Part O changes of use. Care needs to be taken about the assumptions around, and evidence of, lawful use for the relevant period before the change to C3 use takes place to avoid a shock on CIL.