Written evidence submitted by Homes for the South West [FPS 070]

 

About Homes for the South West

Homes for the South West is a group of chief executives from some of the largest housing associations in South West England.

We are working together to identify and tackle the barriers to new housing in our region. Our collective voice is making the case for new housing at a local, regional and national level. Homes for the South West have 22,000 new homes in the pipeline by 2025, and we are ready to invest £2bn in new housing. With the right frameworks and support from government, we could do even more; we estimate that an additional £1bn of funding would help us to deliver an extra 20,000 new affordable homes in the South West.

Overview

The current planning system is not working to deliver the number of houses the UK needs, especially affordable homes and homes for affordable and social rent. We welcome in principle the government’s proposals to simplify the planning system. We have specific suggestions about the impact of the proposed Infrastructure Levy on the supply of affordable homes and we hope the government will consult further. Connecting the new Infrastructure Levy with Local Plans will be essential if affordable housing numbers are to be maintained.

The planning system and build-out rates are both obstacles to delivering more homes: improving the planning system should include measures that address build-out. We need to increase output by at least 30% in the South West in order to meet existing and projected need. Reforms to the planning system will play its part in this much needed step change. However, more certainty is also required regarding shared ownership products. Regular reforms, like Right to Shared Ownership and First Homes, are creating significant ambiguity that will impact on our pipeline. We estimate a reduction in planned programme delivery of between 5-10% as a result of recent reforms.

Local design codes with high standards will support delivery of beautiful housing and there should be incentives for those that invest in the long-term beauty of the houses and places they develop. Resources within the local authority will be needed to ensure this happens.

We support the proposed changes to the standard methodology, including the baseline and the market signal adjustment to address affordability. We also welcome the removal of the current cap on the affordability adjustment.

Simplifying local plans will provide greater certainty and transparency. We support streamlining the planning process and providing more certainty. Greater digitalisation will make the process easier for local authority officers and clearer to the public and applicants.

We would welcome a more open-minded debate about the impact of the Green Belt on affordable housing delivery, although we recognise this is a highly politicised issue. For many, the ‘Green Belt’ and ‘Green Field’ are the same when they are not. Revisiting the definitions and clarifying where development on ‘Green Belt’ would benefit the community is needed.

Previous attempts to capture land value have proved challenging and we have concerns that the government’s current proposals will not make it easier to deliver more affordable homes. A review of the Land Compensation Act is long overdue.

 

1.      Is the current planning system working as it should do? What changes might need to be made? Are the Government’s proposals the right approach?

 

Proposed changes to the planning system

We support the principle of refining the planning system to make it more transparent, to improve standardisation and to give greater certainty of decisions and timing.

Level of affordable housing

Affordable housing need should be assessed at a local level and form a key component of the local housing targets both in terms of overall numbers and tenure types.

To address ever worsening affordability, the government should deliver no less than the current level of affordable housing as a proportion of new stock, and where possible significantly boost the supply of affordable homes. This will not be possible by extending products like First Homes (for the reasons set out in the appendix to this submission).

We believe local authorities are best placed to set the tenure mix in their Local Plans based on local need and consultation with the community. A nationally prescribed set minimum of any ‘affordable’ tenure risks making the Local Plans disconnected to local need. One option to deliver more affordable homes would be to define First Homes as a separate open market stimulus whilst retaining existing affordable housing products and requirements.

We are concerned the Infrastructure Levy (IL) could result in a reduction of affordable housing. If the IL is set too low, possibly because it seeks to cover too large an area, it could result in a total IL value not much more, or even below the value of the affordable housing requirement. It is unclear if this would enable the developer to reduce and remove their affordable housing requirement in favour of paying more towards other local infrastructure.

Whilst there is a place for off-site provision there should be a presumption towards on-site delivery unless there are exceptional circumstances and/or an off-site provision would enable the delivery of significantly more affordable homes.

The current proposals for an Infrastructure Levy (IL) to replace the Community Infrastructure Levy (CIL) and Section 106 planning obligations provide very little detail regarding how delivery will take place; how levels will be set, what the makeup will be, or indeed how it will be secured, delivered, if needed, varied and monitored on a site by site basis. One essential requirement of the new arrangements must be that approved Local Plans must be supported by the new Infrastructure Levy so that the planning gain is directed to support the democratically agreed housing targets, particularly the affordable elements. Without this connection, it seems unclear how funding will be ringfenced to ensure the governments commitment of having no less delivered in future can be achieved.

The current CIL regulations provide for exemptions and relief, it is unclear if the new IL will make similar provisions. The government should consider the retention of these provisions to support the delivery of affordable led schemes and provision for estate renewals where the overall housing stock may not significantly change but there is a significant development value.

Small and medium-sized developers

We have concerns about the government’s proposals to raise the small-sites threshold for affordable housing for a time-limited period. This proposal will reduce the number of affordable homes built on small sites and will disproportionately affect rural communities, like those we represent in the South West of England, which are more reliant on smaller sites. There is a risk that smaller sites will become more attractive to major developers, crowding out smaller developers. We work with many smaller developers, using our long-term commitment to development to underwrite the viability of smaller sites.

Reducing the number of affordable homes on smaller sites will make the land more expensive, and deny SMEs the upfront funding from housing associations, who buy affordable stock early in the process. More expensive sites will also reduce housing associations’ ability to acquire land, reducing the overall number of affordable homes built.

We support building more homes to boost the economy, but affordable housing delivery must be a significant part of the solution. The current proposals underestimate and underutilise the positive role housing associations could have to help deliver more homes in the right places and support SMEs to survive and grow, including boosting home ownership.

We urge the government to reconsider this policy change and consider other mechanisms to assist SMEs with cashflow and grant funding. We support the proposals made by the National Housing Federation (NHF), including mechanisms to defer or commute some S106 provisions where appropriate.

2.      In seeking to build 300,000 homes a year, is the greatest obstacle the planning system or the subsequent build-out of properties with permission?

 

Build out rates

The planning system and build-out rates are both obstacles: improving the planning system should include measures that address build-out.

Delivering homes of a variety of types and tenures, with multiple developers on sites and different products being built at the same time will deliver more homes. The government should provide a robust policy framework that realises the potential of the affordable housing sector to boost build out rates. A widening of the definitions for rural exception sites could be one of the simpler adjustments.

3.      How can the planning system ensure that buildings are beautiful and fit for purpose?

 

Beautiful buildings

We are committed to building beautiful and sustainable places, creating neighbourhoods that work for local people and enhance the built and natural environment. We support locally-delivered design codes. Design quality is driven by cost, encouraging developers to meet minimum standards. We would welcome incentives for housing associations that invest in communities over the long term.

We support proposals that provide a clear framework in which design codes are prepared and applied. High level codes are welcome to provide certainty and consistency in decisions and living standards whilst local guides that acknowledge local vernacular to avoid pastiche design. Where local codes are developed and required to support development, there needs to be a clear framework in how, and importantly when, these will be produced. To ensure they are an effective tool to delivery there needs to be clarity on how conflict and delay can be managed through the process.

4.      What approach should be used to determine the housing need and requirement of a local authority?

 

Assessing housing need

We support the proposed changes to the standard methodology, including the baseline and the market signal adjustment to address affordability. We also welcome the removal of the current cap on the affordability adjustment.

Historic suppression of housing need, and in some areas, a persistent under supply of housing is a significant concern to us due to the long term implications this has on affordability for both access to a decent home and the prospect of home ownership. The proposed methodology makes some positive steps in addressing affordability, particularly in high value areas, and providing authorities with a clear minimum requirement.

Whilst we are broadly supportive of these changes, and the proposed methodology in the Planning for the Future White Paper (White Paper), it does not make sufficient provision for further upward adjustment to address more specific localised and cross-boundary issues such as economic growth. The methodology needs to recognise the specific needs for some communities to grow and support inward investment and regeneration.

5.      What is the best approach to ensure public engagement in the planning system? What role should modern technology and data play in this?

 

Public engagement

Simplifying local plans will provide greater certainty and transparency. However, the technical work required to deliver robust local plans would be resource-intensive for local authorities.

Community engagement at the local plan stage should be a basis to move plans forward, with local consent. However, further community engagement when more detailed plans are brought forward can confuse a process when they fall back on the fundamental principle of a development. Instead, community engagement at the design stage should identify and address specific issues around homes that will be delivered for local communities.

Use of technology

We support the principle of streamlining the planning process and providing more certainty. Greater digitalisation, done properly and with the right software providers, will only serve to make the process easier for local authority officers and clearer to the public and applicants.

Requiring planning statements and technical reports to be more concise is a positive suggestion. Much of the detail is prepared and required to support the technical build drawings but this detail is sometimes lost and overwhelming for the audience viewing planning submissions. There is however, on some projects, a need for a greater level of detail to ensure all stakeholders are fully aware of the technical constraints and proposed design solutions and/or mitigation.

Planning conditions can often be inconsistent or present disproportionate barriers to deliver. We are broadly supportive of introducing further standardisation, although there does need to be a degree of flexibility to address specific site issues. The process around agreeing conditions could possibly be refined requiring greater consultation between the applicant and LPA prior to issuing consent.

We support the principle of planning officers, as the employed professional, having greater delegated powers. As the planning professional there should be greater regulation limiting the circumstances in which their recommendations can be overturned.

6.      How can the planning system ensure adequate and reasonable protection for areas and buildings of environmental, historical, and architectural importance?

             

Protections for areas of environmental, historical and architectural importance

We support the government’s proposal to set up a body to support the delivery of provably locally-popular design codes and its proposal that every planning authority should have a chief officer for design and place-making. It will require local planning authorities to be properly resourced and equipped with the right skills. It is important that in setting up a new body the government ensures it is accountable, makes timely decisions and does not create and additional drag on planning decisions. The balance of resources should be invested in local authorities rather than this new body.

Design should be given greater emphasis at every level, and we support the government’s proposal that it be included in Homes England’s strategic objective.

  1. What changes, if any, are needed to the green belt?

The Green Belt

Under the current planning system, where constrained authorities are unable to meet their housing need, they would have to look at all possible alternatives including a review of the Green Belt. We would welcome a more open-minded debate about the impact of the Green Belt on affordable housing delivery, although we recognise this is a highly politicised issue. The main focus in the first instance would be to clearly define the difference between ‘Green Belt’ and ‘Green Field’ which often confuses the public opinion and hinders the regeneration of smaller ‘green’ areas which are to all intents and purposes simply a nuisance in the local community.

8.      What progress has been made since the Committee’s 2018 report on capturing land value and how might the proposals improve outcomes? What further steps might also be needed?

 

Land value capture

Previous attempts to secure land value uplift levies, or taxes, have been too complex to implement and where enacted fraught with difficulties (Gain Supplement (2006); Development Land Tax (1976); Development Gains Tax (1973); Betterment Levy (1967); Development Charge (1947)).

The government’s proposals state that:

In areas where land value uplift is insufficient to support significant levels of land value capture, some or all of the value generated by the development would be below the threshold, and so not subject to the levy. In higher value areas, a much greater proportion of the development value would be above the exempt amount, and subject to the levy.

Our concern is that the use of the final value development might not recognise the impact existing use value has on viability. A greenfield site in a high value area will generate significantly greater land value uplift compared to a brownfield site that by its very nature will also experience much greater build costs. Such an IL policy would limit more sustainable sites coming forward and fail to secure the funds to deliver the necessary infrastructure. The IL could also under value the level of uplift generated from higher value greenfield sites.

Whilst there are provisions for less viable schemes to be IL exempt below a set threshold it is unclear how the necessary infrastructure and local affordable housing need will be addressed.

We are concerned the proposals could have a disproportionate impact on areas with lower sale values but potentially higher infrastructure costs. Whilst this is likely to be more of an issue on more northerly towns and cities and running at odds with the levelling up agenda, it will still have an impact on other areas experiencing pockets of deprivation and requiring much needed investment and regeneration.

We have previously called on government to review and reform the Land Compensation Act so that there is a fairer distribution of the uplift in ‘hope’ value created in land when planning for housing is secured. This remains for us a priority if we are to ensure that land is released for development at a fairer price.

 

October 2020

 

Appendix: First homes

First Homes will assist some people to become home-owners through an open market subsidy. However, we have significant reservations about the policy as an affordable housing product. Local authorities should agree with developers the proportion of first homes in a new development. It is unclear that demand justifies the government’s nationally mandated requirement that 25 per cent of all affordable housing units secured through developer contributions should be First Homes. First Homes require greater subsidy than other affordable housing products and will reduce the overall supply of affordable housing. Where First Homes replace shared-ownership they will reduce housing associations ability to cross-subsidise.

Case studies

 

Example 1: Cost of subsidy for First Homes

  • An average newbuild house in the south west of England costs approximately £324,000.
  • Based on the above, First Homes will provide the purchaser of the average home a £97,200 discount.
  • A typical shared ownership product allows the purchaser to buy between 25% and 75% of the property, representing a reduction in the purchaser’s value share of between £81,000 and £243,000. Unlike First Homes the reduction against open market value is retained by the housing association. Staircasing allowing the purchaser to buy a greater share over time provides additional revenue back to the housing association to be reinvested back into affordable housing.

 

Example 2: Comparison of affordable home ownership products against affordability

Product

Property value / purchasers share

Deposit (5%)

Required Minimum Income

Affordability based on required minimum income vs average income2

Open Market1

£324,000

£16,200.00

£76,950.00

x

First Homes (30% discount OMV)

£226,800

£11,340.00

£53,865.00

x

Help to Buy 80%

£259,200

£16,200.00

£60,750.00

x

Share Ownership 50%

£162,000

£8,100.00

£38,475.00

x

Share Ownership 25%

£81,000

£4,050.00

£19,237.50

ü

Shared Ownership requirement based on average earnings2
(35.4% Shared Ownership)

£114,616.00

£5,730.80

£28,654.002

ü

1 Based on ONS UK House Price Index for June 2020 (SW average newbuild)

2 ONS ASHE Full-time employees' pay by work region, SW 2019 provisional data

 

Based on the table above, a buyer on an average salary, buying an average priced newbuild home within the south west of England would only be able to afford a mortgage to cover 35.4% of the value. Significantly less than required for First Homes.