A flexible plan

Do uncertain times require a more flexible approach to planning agreements and affordable housing? Paul Skelton examines the options.

Demand for affordable housing and numbers on waiting lists are still rapidly increasing whilst available funding and, in many locations, the availability of suitable land that can viably be developed are becoming increasingly scarce. If the demand for housing supply generally and affordable housing supply, in particular, is to be met, it looks as if new approaches will be needed from registered providers, the private sector and local government.

The provision of affordable housing faces a regime of unprecedented change and uncertainty over the next four years of the HCA’s Affordable Housing Programme (“AHP”). The programme represents a move from a capital funded development model to one which is more reliant on revenue with an accompanying transfer of greater responsibility for delivery and financial risk onto the registered providers. Providers are now expected to maximise their rental income by charging the new affordable rents (up to 80% of market value) and to use this to increase the supply of housing.

This change is founded on the basis that by allowing providers the option to charge the new affordable rent (i.e. up to 80% of the local open market rent) and the flexibility of fixed term tenancies of no more than 2 years they can and are encouraged to maximise revenue from new lettings to finance ongoing development. The difficulties with this model have been much debated over the last few months, particularly in respect of the impact of proposed welfare reforms and caps on benefits together with regional disparity over rent levels where social rents in some cases are already as high or higher than market rent. The risk of further political change within the next four years and the risk of rising borrowing costs are further factors creating uncertainty.

Other than in certain exceptional cases, there will be no funding through the AHP for affordable housing developed through planning agreements. This will naturally depress the value of such affordable land which in many cases will have a material effect on the viability of private sector schemes. Accordingly, the level of financial modelling and negotiation between registered providers and private developers will be more intense than ever. Local authorities can expect private developers to be laying these financial models at their door and increasing the pressure for concessions to be made in planning agreements such as the quotas for affordable units.

Within this challenging landscape, there are, of course, the tenants. In particular, new tenants may face higher rents and less security in the type of tenancy they might be offered. A much criticised aspect of the new model is that in affecting new tenancies granted, it will have the biggest impact on those trying to move from waiting lists into affordable accommodation for the first time. Arguably, many of these will be amongst the most vulnerable and most in need of support.

The boundaries between the public and private sector in producing solutions to supply affordable housing are being blurred. Registered providers are being asked to work more closely with the private sector, take more risk and be more entrepreneurial. In the same way, they and the private sector will look to local authorities to work with them and be open to more creative approaches to planning agreements. In this way, local authorities will be increasingly pulled in the competing directions of economic pragmatism to ensure viability on the one hand and their social and statutory responsibility to provide housing for those in need on the other. Increasingly complex viability models are likely to be put forward and local authorities will be expected to engage with these and negotiate planning agreements with a clear understanding of them

Greater sophistication and flexibility in planning agreements could unlock development potential. Of course this not only applies to new agreements but developers and registered providers are also revisiting existing ones, including some longstanding agreements to see if they can be changed. The most common variation at the moment will be to change the requirement to retain land as affordable housing so it can include the new affordable rent tenancies. However, there are ways in which planning agreements could reasonably be made more flexible and ease concerns over risk and viability such as:-

• Cascade mechanisms, allowing unit mix to change to allow for a greater number of affordable rent or shared ownership units where the existing mix did not match a registered provider’s viability requirements. This might also need to provide for shared ownership being converted to social rent or affordable rent in certain circumstances
• Cash payments in lieu of some or all of the affordable housing quota on a development site to unlock the full value of a site in certain circumstances and to allow for a greater number of units to be provided elsewhere
• Inserting “overage” style clauses in planning agreements so that a cash sum is paid or a reduced quota of affordable units is agreed to on the basis of viability assessed on a projected gross development value but additional money will become payable if the value in fact increases
• Wider, more flexible, definitions of what constitutes “affordable housing”
• Drafting which gives flexibility for further agreement directly between the registered provider and the local authority which avoids the need to enter into a formal deed of variation which may require the inclusion of multiple landowners and parties to the original agreement in the variation (e.g. inclusion of words such as “or as may be otherwise agreed by the local authority”)
• Drafting provisions allowing a mortgagee exercising a power of sale to sell free of affordable housing restrictions after a period of offering to other registered providers of not more than six weeks (a period of three months or more is now rarely accepted by a lender who is lending at open market values and the level of borrowing against existing stock is now more important than ever for providers in the new regime of reduced grant funding).

Local authorities will need to consider carefully how far they are willing to accommodate this type of flexibility but it is clear that the sector is going through a period of rapid change and there is no question that established precedents and positions will become increasingly out of touch with economic reality if there is no room for change or creative thinking. Trying to juggle the needs of local residents, the demand for housing supply and the economics of commercial development is going to be harder than ever for the next few years but the answer must be to take a pragmatic approach and recognise that different circumstances may require new solutions.

Paul Skelton is a partner at Cripps Harries Hall. He can be contacted on 01892 506 108 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..