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Affordable Housing and the 10 Unit Threshold U-Turn

Posted on August 21, 2015

In November 2014, following a brief consultation exercise, the government updated Planning Policy Guidance to introduce the ‘10 unit threshold’ for ‘affordable housing and tariff style planning obligations’. The guidance required that S106 affordable housing should not be sought from small scale and self-build development and specifically contributions should not be sought from residential developments of 10-units or less.  The intention was to increase certainty for small developers and boost housing supply.

In August 2015 this was quashed in the High Court and the guidance removed from the PPG website leaving developer and Local Authority clients ‘scratching their heads’ in amazement about the brevity of the policy.

In our view the government was always misguided with the policy……..

We act for various small developers and rural local authorities where the majority of their housing is developed on smaller schemes.

In many cases the issue is not about ‘viability’, but about on-site or commuted sums and the delays caused by the uncertainty.

Prior to the 10 unit threshold, many local authorities had a low threshold for small sites.   The issue was not that smaller schemes could not afford any affordable housing/CIL.  The issue was actually the delivery mechanism and divisibility of units on smaller sites e.g. in a three unit scheme you can only have 33% or 66% affordable housing – 1 or 2 units – and that may not ‘fit’ with the target policy requirement. Other reasons for not including on-site provision may have been the lack of suitability of the location (i.e. remote locations with little social infrastructure) and developers of ‘executive’ homes not wishing to see the marketability of their scheme compromised by on-site affordable housing.

It is this process of trying to agree on- or off-site delivery and commuted sums that causes the delay and frustration.  However, most developers and local authorities do recognise that there is a significant cumulative impact on infrastructure of all the smaller schemes combined.

Given that the price of development land is derived from a residual appraisal having regard to the size of the scheme, completed sales values and all development costs including planning obligations, there is no mathematical or market reason that all schemes should not bear some affordable housing and/or CIL.  Indeed it is entirely fair that all developers (and ultimately landowners) should bear an appropriate proportion of planning gain irrespective of the size of their site/scheme.

The solution is based in formulating detailed planning policy at the local level which –

  • Sets a clear threshold at which affordable housing will be delivered by way of off-site contributions and commuted sums. This could be 10 units or less, but it is important that land is used efficiently and developers are not incentivised to ‘threshold dodge’ i.e. building (say) four units on a site that could take 5
  • Sets out a clear formula for the assessment of the commuted sum e.g. a rate per square metre like CIL, and
  • Creates a mechanism working with Registered Providers (or by direct development) through which the sums collected can then be used to provide the affordable dwellings elsewhere. Public land could be used effectively in this way.

With such a policy developers will be able to appraise sites based on realistic planning contributions which would create greater certainty.

From the local authority perspective, having a comprehensive and clear policy in place (for example East Riding of Yorkshire Council’s Draft SPD) would free up officer time to concentrate on the big schemes – increasing the supply of houses.