First things first. On London reported last month that Sir Sadiq Khan looked like making a big adjustment to a key planning policy by lowering the percentage of “affordable” homes he wants included in property developers’ proposals for residential schemes.
As Charles Wright wrote, the expectation in the sector was that the Mayor’s “threshold” would be lowered from its current 35 per cent, with some smart money being on a drop to 20 per cent. Then, last week, a leak confirmed this, along with a few more details about plans that City Hall, developers themselves and the government have been discussing for months.
It seems the drop will be for a limited period – a temporary, emergency measure of about two years – and might be accompanied by letting developers off other “planning gain” contributions, such as the Community Infrastructure Levy (as is already the case in Greater Manchester). Certain London Plan policies are likely to be relaxed too.
There’s been a lot of highly polarised political media commentary about this news. Unsurprisingly, populist Left voices have been raised in outrage, because for them “the developers” can only ever be greedy and bad and must always be fought and thwarted as a matter of principle. Also unsurprisingly, voices on the Right are saying “about time too” and reasserting their own core belief that lowering the threshold will enable housebuilding in London to pick up.
Meanwhile, those who work in the planning, development and construction world are giving a measured welcome to what has emerged so far and are waiting for the full, official announcement. As this article goes live, that is intended to be made later this week.
What useful difference might the forthcoming changes make? Please note my use of that word “useful”.
Let’s start with Mayor Khan’s hopes for housing supply when he was first elected, back in 2016. His goal was for 50 per cent of all new homes in London to meet his definition of “genuinely affordable”, a term that encompassed everything from homes for social rent to low-cost home ownership dwellings, typically shared ownership. Hitting that target – a percentage, not an absolute number – would be achieved through three avenues of housing supply.
- A minimum of 50 per cent of all homes built on publicly-owned land meeting the Mayor’s “genuinely affordable” description.
- Significantly more than 50 per cent coming from housing associations (and, later, boroughs) with the help of government funding Mayors distribute through their affordable homes programmes on terms negotiated with the government.
- And 35 per cent of “affordable” homes built by private developers secured through agreements under Section 106 of the Housing Act (1985). These are deals done at borough level as a condition of planning consents being granted.
It’s that last part that is about to change. Importantly, what is sometimes termed the “35 per cent rule” isn’t actually a rule at all. It isn’t something the Mayor has been imposing on private sector developers by force, a diktat they must obey. He doesn’t have the ability to do that. Rather, it was introduced as an incentive, one codified in a piece of supplementary planning guidance (SPG) devised by the deputy mayor for housing of that time, James Murray (now an MP and Treasury minister).
Mayors of London have a limited and uneven set of powers. Among the stronger ones is the freedom to block or even take control of the determination of some planning applications. These are initially submitted by developers to the relevant local councils, whose officers then decide whether or not those plans conform with that council’s planning policies. They then recommended them, or otherwise, for approval by the council’s planning committee of elected councillors.
But if the scheme is above a certain size, the applicant’s plans also need to adhere to the planning policies of the Mayor, to whom they must be referred by the council in question. Developers and, indeed, boroughs are mindful of this and devise and assess development plans accordingly, knowing that City Hall can intervene if it isn’t happy with them.
Khan’s SPG – guidance, not a “rule”, remember – advised developers that plans which proposed new homes of which 35 per cent (or more) were “genuinely affordable” would be looked on favourably and dealt with quickly – put on a “fast track” to a likely green light and no mayoral intervention.
Those that didn’t would be subjected to a detailed City Hall scrutiny of their viability calculations. Was it really not possible for 35 per cent of the homes specified in the scheme to be “genuinely affordable” without its finances failing to stack up? If City Hall’s assessors thought the developer could do better, it would be sent away to think again. Failure to meet the threshold didn’t necessarily mean the scheme biting the dust, but would entail it being later subjected to “viability review mechanisms”, which could result in the amount of affordable housing accepted being increased if its profitability was found to have improved.
Broadly speaking, developers thought they could live with all this. Yes, they’d have preferred a 30 per cent threshold, better still a 25 per cent. Yes, they were unhappy about late stage viability reviews. But there were also upsides to the SPG. Under Boris Johnson or, to be precise, his deputies for planning, first Sir Simon Milton and then Sir Eddie Lister, negotiations with City Hall were on an individual, case by case basis. That could have advantages. But so could the Khan approach.
For one thing, a fixed threshold provided certainty. Developers knew, from the start, exactly what the Mayor wanted from them. There was no ambiguity about the carrots and sticks. They tailored their plans accordingly.
For another, the threshold approach was designed to hold down the price of land. In London, land is scarce. As a chap called Mark once said of land in general, they’re not making it any more. The more expensive it is – and in London it can be very expensive – the more profit developers need to make to cover that high cost and, therefore, the less room they are likely to have in their projected margins for “affordable” homes they can’t sell for as much.
However, the creation of the SPG also influenced the calculations of those with land to sell. Knowing that developers had an incentive to meet the Mayor’s 35 per cent “affordable” threshold gave them an incentive to lower their asking prices to levels developers could realistically afford.
Thus, the SPG sought to create a virtuous, self-perpetuating circle of downward pressure on land prices, making it easier for developers to meet the 35 per cent threshold, leading to greater percentages of “affordable” homes within larger residential schemes than would otherwise have been the case.
Of course, the SPG’s value has long been debated and contested, notably from the free-market Right, whose proponents have argued that it is a form of over-regulation that has hampered the overall supply of homes, “affordable” ones included.
For them, a lower threshold, though resulting in smaller affordable percentages, would have yielded a higher number for Londoners unable to afford full market rents or buying prices. As the mantra goes, 35 per cent of nothing is nothing. But 20 per cent of something is something. And if overall supply accelerates, so will the 20 per cent portions and the number of “affordable” homes.
Planning lawyer Simon Ricketts has pointed out that the press has portrayed such a threshold cut as a “spectre” that would amount to “an actual reduction in the amount of affordable (and particularly socially rented) housing that will be developed”. In fact, he continues, “very few schemes are currently proceeding with 35% or more affordable housing”. Far from it.
The reasoned sort of counter argument – as distinct from the ideological, junior common room variety – has been that market forces in this area do not operate as beneficially as their advocates claim, because developers will continue to build homes only at a speed and of a type that maximises profits. In other words, mindful of “absorption rates”, they can, depending on other factors, often have an interest in limiting supply, because that increases prices.
Whatever view you take, “affordable” homes delivered through Section 106 agreements with private developers have, until very recently, been accounting for between 41 and 52 per cent of “affordable” homes completed every year since Khan’s election (see page six of the London Assembly housing committee’s most recent affordable housing monitor).
Now, the whole economic terrain has changed – and with it the complex and sometimes fragile algebra of development finance. Construction costs – for energy, materials and labour – have soared. The high cost of living and general economic anxiety have dampened demand, further inhibiting supply. By the time of the general election, planning consents existed for around 300,000 homes of various kinds to be built across Greater London. The problem was, they weren’t being turned into homes.
Why? Because developers had concluded that the finances of these projects simply did not stack up; that if they started them, they might end up going bust. Funding these schemes often depended on the backing of investors who, seeing no prospect of a return, looked at other options elsewhere in the world. With the painful slowness of the new, post-Grenfell, building safety regulations process making matters even worse, the private sector has been building next to nothing. The latest report from analysts Molior says construction numbers are set to slump to just one quarter of their normal levels.
Populist Left narratives perpetually proclaim there is a choice between enabling the delivery of market priced homes – what they habitually and mostly inaccurately deride as “luxury flats” – and providing “affordable” homes, the most important being for social rent. They demand that politicians “get tough with developers”, as if caning them as profiteers will send them simpering back to their corporate abacuses to re-do their maths.
Real life doesn’t work that way. In fact, the amount of affordability in a housing scheme is increased, not decreased, by potential profitability of the private market homes. Also in real life, a vital stream of “affordable” supply – one that has provided a large proportion of the new homes built for low and middle-income Londoners for at least ten years – has come close to drying up.
Such is the intensity of the supply crisis, that no one believes lowering the threshold to 20 per cent will solve the problem on its own. But the hope is that it will least help prepare the ground for some sort of recovery, some sort of progress towards the government’s already-heroic target of 88,000 new homes in London a year and, most importantly, the alleviation of the plight of more Londoners of limited financial means stuck in unsatisfactory or downright desperate housing situations than is currently the case.
Maybe it will. Maybe it won’t. One thing, though, is clear – the politicians and policy makers who count have concluded that things can no longer stay as they are.
Follow Dave Hill on Bluesky. Photo from London Assembly/GLA.
OnLondon.co.uk provides unique coverage of the capital’s politics, development and culture with no paywall and no ads. Nearly all its income comes from individual supporters. For £5 a month or £50 a year they receive in-depth newsletters and London event offers. Pay via any Support link on the website or by becoming a paying subscriber to publisher and editor Dave Hill’s Substack.