No subject raises more dispute around housebuilding than viability assessments, which allow market housing to be built with few affordable housing units. This week housing charity Shelter has called on the government to “close the viability loophole”.
As most developers know, the subject is inevitably more difficult than housing campaigners would like. Planning obligations requiring affordable housing in market housing developments only started in the 1990s, a time when house prices were rising but the government did not want councils building their own homes.
From circular 1/97 onwards, the government told planning authorities not to require contributions that would make developments financially unviable; viability is not the ambiguity in the law suggested by the word “loophole”. In circular 05/05 the government suggested “use of independent third parties” might help work out when that would happen: the viability assessment was born before the recession.
It was only when the recession struck, with housing developers taking one of the biggest hits, that a large proportion of new developments started to be accompanied by viability assessments arguing that affordable housing policy requirements could no longer be met. The government also agreed to relax the definition of viability and allow renegotiation of previous signed agreements made unviable by market changes.
It should be of no surprise that councils, facing pressure over their own legal duty to find affordable homes, should fight against any possible reduction. In many cases the councillors are being pressed not to yield an inch by constituents and local party activists, who rarely have intimate knowledge of planning law or development finance.
What does it mean for developers? If the development itself is unwelcome then councillors are growing increasingly willing to simply vote them down rather than be criticised (and possibly facing deselection) for “selling out to developers”. More far-sighted or secure councils now routinely add review mechanisms so they can be assured of increased contributions from developments that proved more profitable at completion. When this happens developers should not be shy of making committees aware of the review.
Probably the most difficult aspect of viability is over confidentiality. When circular 05/05 made clear that “in cases where a dispute relates to the viability of a proposal the independent third party might have access to financial information provided by the developer on a strictly confidential basis”, its drafters may not have anticipated the way it would look like councillors and developers agreeing secret deals.
In an era of investigative bloggers, leaks and Freedom of Information legislation, perhaps no-one should have given high odds for viability assessments staying confidential. A three year campaign in Southwark over the Heygate estate regeneration ended in 2015 with most of its assessment (and the council’s scrutiny of it) being disclosed. Now councils are requiring applications to include a viability assessment which can be published.
Unless a sudden change lifts the housing market and makes development suddenly more viable, concern about viability assessment will not go away. Developers seeking to get planning permission on schedule and for viable developments must take account of the pressures on individual planning committee members. Talking to communities well in advance of submission always helps.