The viability attack on social and affordable housing

Guest post:

Bob Colenutt is a senior lecturer at the University of Northampton specialising in the analysis of the volume house building market. He has had a career in community planning and local government regeneration. He has recently been advising community groups in London on viability assessments and belongs to Planners Network UK.

The derelict Heygate Estate, Southwark (by secretlondon on Flickr)

It shows how far the provision of social housing by state or charity has fallen that many communities have been reliant in recent years on planning gain deals (a.k.a. Section 106 agreements) from commercial development schemes to fund affordable housing.

The concept of “affordable” housing is somewhat Orwellian, but it is all local authorities have got — and they have relied upon this mechanism, incorporating target percentages (typically 25-40% of all units in a scheme) in their local plans. The development industry has long resented this requirement, saying it reduces land value and profit, but has had little choice but to comply. But no more – the landowners, developers and financiers are getting their way.

Ironically, they have been helped out by the recession, which brought development to a standstill but gave landowners and housebuilders an excuse for saying they could not afford affordable housing quotas – suggesting that they would simply not build anything at all if they were compelled to adhere to “planning obligations” policies.

Now they have a new weapon to use – and are using it to devastating effect. The National Planning Policy Guidance 2012 requires planning obligations, local plans and Community Infrastructure Levy charges to be subject to “viability assessment”. Nowhere is the use of viability assessment more evident than in London, where fortunes can be made by developers and landowners using the Section 106 “get out” rules as defined in in the NPPF and subsequent planning guidance.

The evidence is extraordinary. The Bureau of Investigative Journalism has shown how thousands of affordable housing units have been lost through the “renegotiation” of section 106 agreements. Islington Council reported last year that developers were “routinely submitting artificially pessimistic viability assessments”. The community battle over the massive Heygate redevelopment in Southwark has revealed that 303 affordable units were lost because Lend Lease, a gigantic multinational developer successfully employed viability arguments. Southwark Council lamely complied, overwhelmed by the barrage of modelling and spread sheets from the developers. By not putting up a fight, Southwark drove a massive hole in their own statutory plan for 35% affordable housing in major developments.

Similarly in Greenwich, the Council accepted (with remarkably little interrogation) a viability assessment for the 10,000-unit Greenwich Peninsula site which reduced the amount of affordable housing by 527 units at a cost of £150 million. The developer is a Hong Kong billionaire trading under the name of Knight Dragon, who bought the land off the Greater London Authority for a bargain £50 million – and still wanted to reduce the affordable housing quota. The original master plan that required a mix of housing across the site was thrown aside – riverside sites were designed for private upmarket apartments only. So much for Greenwich Council’s planning policies.

The methods of the developers and their agents are simple. They undervalue the final development by making the costs of the scheme artificially high. Costs of construction, fees, contingencies, and finance are put at the high end of the range, while sales and rental value are at the lower end of the range. Bingo! The scheme is no longer profitable enough to carry the amount of affordable housing required by the local authority. This is all carefully obscured by using complex spread sheets and so-called viability models, with smoke and mirrors about assumptions, reliability of input data, and their own benchmark profit levels.

Local authorities rarely have the skills or political will (or sense of an alternative) to challenge these assessments. They commission “independent” checks on viability assessments, but in practice, they approach the usual suspects of valuers and consultants who obviously have no incentive to interrogate their own professional and commercial assumptions and conventions about residual valuation methodologies. Even the District Valuation Office, frequently used by local authorities, follow the same conventions and accept the modelling without serious questioning. Thus, very poor viability assessments get waved through — and thousands of affordable units are lost.

A further twist is that developers and local authorities hide this process behind a screen of “commercial confidentiality”. They argue that the data in their models, if revealed, would cause “commercial damage” i.e. undermine their competitive position in the market. No evidence for this damage is given. Community groups have successfully challenged these confidentiality agreements using Freedom of Information Appeal procedures. At Appeals in 2014 and 2015 into viability assessments for development schemes in Southwark and Greenwich, community witnesses have been able to reveal the true extent of the manipulation and undervaluation of major commercial schemes.

Viability assessments are frequent and rising in number. The aim of the property market and right wing development economists is to remove section 106 agreements altogether from development control and planning policy. In the meantime, all the main political parties, appear to accept that viability assessment should be mainstreamed into every area of planning and plan making. This means that market criteria have effectively captured the planning system.

A counter-attack by community groups across the country is essential – using every means to challenge and expose this fraud on the public interest. We need to make our own alternative assessments, inform the media, and challenge directly local councillors and planning officers who are compliant and often intimidated. It is time for councillors and the planning profession to show some guts and fight back – or else the Policy Exchange dream of ending the provision of affordable or social housing will become a reality.

[Image of Heygate Estate used under Creative Commons license, courtesy secretlondon on Flickr.]