UK's big developers axe thousands of affordable homes

Tony Gosling tony at
Mon Nov 11 11:00:52 GMT 2013

Thousands of affordable homes axed

Councils across the UK cave in as developers 
refuse to undertake building projects unless they deliver healthy profits
Mathiason, Will Fitzgibbon and George Turner
Guardian, Wednesday 18 September 2013
housing by canal social

If a developer can show that a council’s 
affordable housing target makes a development 
uneconomic, the requirement can be reduced or waived

Housebuilders and councils in Britain's biggest 
cities are failing to comply with affordable 
targets, and even ripping up legal commitments to 
build cheaper homes. A three-month study by the 
of Investigative Journalism for Society Guardian 
has established that 60% of the biggest housing 
developments currently in the planning system are 
falling short of local affordable housing 
targets, preventing thousands of cheaper homes being built.
The investigation reveals huge cuts to the 
proportion of affordable housing in one of the 
largest housing projects and how none of 
Birmingham's biggest housing developments meet 
its 35% affordable housing target. Separately, 
the investigation also shows how financial 
viability assessments on behalf of a leading 
housebuilder repeatedly persuaded councils that 
having larger affordable housing quotas would make schemes uneconomic.
Affordable housing includes social, rented and 
shared ownership for specified eligible 
households that can't afford to buy or rent on the open market.
The bureau's assessment of 82 of the biggest 
housing developments in 10 major cities found 
just 40% complied with local affordable housing 
targets. Other than Birmingham, the cities where 
at least 50% of housing schemes failed to meet 
local affordable housing targets were Bristol, 
Bradford, Cardiff, Manchester and Sheffield.
Leslie Morphy, chief executive of the 
homelessness charity Crisis, says: "With 
homelessness on the rise and millions of people 
languishing on housing waiting lists, we must do 
more to increase the supply of affordable homes. 
This is not just a numbers game, but about 
creating mixed, vibrant 
and avoiding ghettoisation of rich and poor."
In London, where the number of people accepted as 
homeless stands at 14,812, one of the largest 
developments going through the planning system 
shows less than 17% of the planned 15,000 units 
will be affordable. This is despite Lambeth, one 
of the two councils involved in the 195-hectare 
(480-acre) development in south London, stating 
to its tenants council two years ago that 
affordable housing could account for 35% of new units built in its section.
Pete Robbins, Lambeth council cabinet member for 
housing and regeneration, says: "We are serious 
about delivering a high level of affordable 
housing in every new development that comes 
forward in Lambeth. But this is much harder now 
because of the viability tests that give 
developers a chance to avoid our affordable 
housing targets. We continue to work hard to 
maximise affordable housing levels, but the 
bottom line is that our hands are increasingly tied."
Affordable housing targets set by councils are 
based on local demand and supply, the costs of 
housing locally and local wages. The targets are 
usually expressed as a percentage of new housing 
supply. The targets are not legally binding, and 
if a developer can demonstrate through a 
site-specific financial viability test that the 
target makes a development uneconomic, then the 
requirement can be reduced or waived.

Viability assessment

As the 
crisis intensifies, the bureau found repeated 
examples of housebuilders and 
consultancies winning council permission to 
significantly reduce the number of affordable 
homes using economic viability assessments based 
on projections which state that schemes will only be marginally profitable.
The bureau's analysis of St George – part of the 
Berkeley Group– one of the UK's most successful 
developers, showed it used financial viability 
assessments which repeatedly persuaded local 
authorities that increasing the number of 
affordable homes in its schemes would stop it 
meeting "industry-standard" profit margins of 
between 17% and 20%. St George's published 
accounts show that in the six years to 2012 its 
margins averaged 25.5% and its accumulated after-tax profits were £268m.
Michael Edwards, UCL senior lecturer in the 
economics of planning, says: "There are 
well-acknowledged systemic problems with the 
viability system. It is not functioning in a way 
that necessarily reflects economic reality. When 
developers make very large profits and yet cite 
viability as a reason not to build more 
affordable homes, common sense tells you there is 
an anomaly. And the public can't test whether the 
assumptions contained in viability assessments 
are fair because the assessments are confidential."
This "anomaly" arises because viability 
assessments are based on a site's projected 
profit, with little reference to the individual 
developer's financial circumstances.
There is nothing to suggest St George or any of 
its related entities has failed to comply with 
planning conditions. The company says it is 
committed to delivering 2,000 affordable homes, 
linked to its housebuilding pipeline, and it has 
already delivered thousands of affordable homes. 
In addition, it has contributed £76m to local 
infrastructure beyond the supply of affordable 
housing, such as roads, schools and green spaces.
The company says anticipated profit figures are 
only one factor in deciding viability and are 
independently assessed according to industry 
benchmarks. It believes it is wrong to compare 
overall pre-tax profits with the development 
margin on an individual site. Greg Fry, chairman 
of St George, says: "Councils independently 
assess the viability of a project based on the 
site in question, regardless of who might develop 
it or how profitable they are. The profitability 
of the developer has no bearing on the level of 
affordable housing required on a site."
Sir Edward Lister, deputy mayor of London 
responsible for policy and planning, says that 
while the priority is to get new schemes off the 
ground, the mayor would intervene in future to 
raise affordable housing numbers if it was shown 
that developers were making disproportionately 
large profits: "I'm not trying to defend the 
property industry, but I do believe they have 
been through a bad time and I believe it's more 
important to get building moving. Fifteen or 20% 
of something is better than nothing."

Legal commitments

In Birmingham, not one of the nine biggest 
schemes assessed by the bureau meet the 35% 
affordable housing target. In one planned 
353-unit project, even the allocation of 12 
affordable units – just 3.4% of the scheme – is 
considered "unviable" by planning advisers representing the developer.
Councillor Ian Ward, deputy leader of Birmingham 
city council, says affordable housing targets 
haven't been met because major developments in 
the city centre focus on affluent urban 
professionals. "Requirement to provide affordable 
housing is lower in this area than for other 
areas of the city, as there is less demand for 
family accommodation," he points out.
But freedom of information disclosures obtained 
by the bureau show that over five years more than 
2,300 affordable homes have been axed from 
housing schemes across the UK even after builders 
and councils signed off section 106 legal 
agreements specified these homes must be built. 
Section 106 is a clause within the 1990 Town and 
Country Planning Act that provides a mechanism to 
recoup contributions from developers for 
infrastructure requirements to enable a scheme to 
go ahead. It has become the main way affordable 
housing is delivered. But under new legislation 
that came into force in April, developers now 
have the ability to fast track challenges against 
a "section 106" if it can show that building the 
low-cost homes required makes a scheme unviable.
In Cheshire, a council decision to allow a 
consortium of leading housebuilders to axe 252 
affordable homes in the 1,200-unit Winnington 
Urban Village in Northwich after legal sign-off 
has "opened the floodgates" to developers 
requesting similar reductions, says Labour 
councillor Brian Clarke. Cheshire West and 
Chester council says that under the revised 
arrangement, money for affordable housing "will 
be available if the development can afford it".
In south Devon, research by the bureau shows that 
109 affordable homes have been scrapped after 
legal sign-off. Anne Fry, an independent 
Teignbridge district councillor, warns: 
"Developers are just picking us off at the 
moment." She says she and her colleagues struggle 
to cope with the technical demands of developers 
seeking to reduce affordable housing contributions.
The district council states: "Teignbridge has not 
lost 109 affordable homes through the s106 
process – those homes would never have been 
provided because the developments were not 
viable. By demonstrating flexibility and an 
awareness of market conditions, Teignbridge has 
ensured the delivery of a viable level of affordable housing."
Councils are bracing themselves for a big 
increase in retrospective appeals by 
housebuilders. Ten of the biggest builders – 
which between them own enough land to build more 
than 300,000 homes – together made pre-tax 
profits of £1.1bn last year, according to bureau analysis.
The burden to maintain low-cost housing supply is 
increasingly being left to housing associations. 
Yet Chancellor George Osborne's spending review 
in June announced that housing associations would 
receive only £3.3bn in the three years from 2015, 
which amounted to a cut of 2.2% on top of the 
overall 63% funding reduction made in 2010.
There are 1.85 million people on council waiting 
lists in England – up 69% in 10 years – and, as 
of last June, there were 56,210 households in 
temporary accommodation, up 9% in the past 12 months.
in June showed the number of affordable house 
building starts backed by the government-funded 
Homes and Communities Agency and the Greater 
London Authority in the financial year to 2013 
was 36,206 – 33% lower than when the coalition came to power.
"In high-value areas the problem social landlords 
face is access to land, and section 106 
agreements gives them access to these sites," 
says Rachel Fisher, National Housing Federation 
head of homes and land. "Local councils therefore 
have a responsibility to their communities. They 
must ensure that the planning system continues to 
take into account what local people and families 
need – and be committed to delivering these homes."

• Additional research by Victoria Hollingsworth 
and Jude McArdle at the Bureau of Investigative Journalism
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