Posted on September 10, 2020

The Government has published two consultations on proposed changes to the planning system in England:

• Changes to the Current Planning System sets out short-term measures to tweak the current planning system to enable the Prime Minister’s ‘build, build, build’ mantra; and  
• The Planning for the Future White Paper setting out longer term reforms requiring primary legislation. 

The Changes to the Current Planning System document sets out proposals for changes to the standard method for assessing housing numbers in strategic plans; delivering First Homes; and supporting SME developers.

The Planning for the Future White Paper describes far reaching proposals for: creating a system of zoning (growth areas; renewal areas; and protected areas); design codes aimed at improving design quality; and updating the S106/CIL regime for infrastructure contributions.

We welcome the government’s agenda to be more ambitious for the places we create, expecting new development to be beautiful and to create a ‘net gain’ not just ‘no net harm’; to move the democracy forward in the planning process through harnessing digital technology; and, to improve the user experience of the planning system.

However, as always, the devil is in the detail.  We set out below some of the possible (unintended) consequences of the proposals from a viability and delivery perspective.

MHCLG’s consultation deadline for the Changes to the Current Planning System consultation is 8 weeks from 6 August 2020 closing at on 1st October 2020.  The White Paper consultation is 12 weeks closing on 29^th October 2020.

We would welcome any feedback and debate on the following draft representations.

Part 1 - Changes to the Current Planning System 

Delivering First Homes 

The government’s proposal is that:

•  a minimum of 25% of all affordable housing units secured through developer contributions should be First Homes;
• this will be secured through S106 planning obligations as currently;
• in accordance with paragraph 62 of the National Planning Policy Framework (NPPF), this is expected to be delivered onsite;
• the minimum discount for First Homes should be 30% from market price;
• Local authorities will have discretion to increase the discount to 40% or 50% (to be evidenced in the Local Plan making process);
• where discounts of more than 30% are applied to First Homes, the requirement for a minimum of 25% of units onsite to be First Homes will remain in place;
• in line with other affordable housing tenures, First Homes would be exempt from CIL.

In order to make the transition it is necessary to define the criteria for policy compliance, under which a development is assumed to be viable.  The government proposes that, under the new system, a policy compliant planning application should seek to capture the same amount of value as would be captured under the Local Authority’s up-to-date published policy.

It is proposed that a policy compliant application will have a minimum of 25% of affordable housing units onsite as First Homes. For the remaining 75% of affordable housing, there are two broad options:

Option 1: Where a local authority has a policy on affordable housing tenure mix, that policy should be followed, but with First Homes delivering a minimum of 25% of the affordable housing products. First Homes should replace as a priority, other affordable home-ownership products, prioritising the replacement of those tenures which secure the smallest discount from market price.  Then:

1. Where this replaces all home ownership products - any rental products are then delivered in the same ratio as set out in the local plan policy. For instance, if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a compliant application would deliver an affordable housing tenure mix of 25% First Homes; 37.5% affordable rent and 37.5% social rent.
2. Where this does not replace all home ownership products - the remainder of the home ownership tenures are delivered, and the rental tenure mix is delivered in line with the proportions set out in the local authority plan policy. For instance, if a local plan policy requires 80% of units to be shared ownership and 20% to be social rent, a policy compliant application would deliver 25% First Homes units, 55% shared ownership and 20% social rent.

Option 2: A local authority and developer can negotiate the tenure mix for the remaining 75% of units. 

The consultation questions and our responses are set out below.

Q8: Which do you think is the most appropriate option for the remaining 75% of affordable housing secured through developer contributions? [Option 1, 2 or another].

Response - We concur with government that Option 1 is the preferred option as this would provide more early clarity for developers as to what constituted a policy compliant development, and would reduce negotiation, which can slow the development process.

Q9: Should the existing exemptions from the requirement for affordable home ownership products (e.g. for build to rent) also apply to this First Homes requirement?

Response – Yes. First Homes are just another affordable home ownership tenure type and therefore impact the relevant build for sale schemes.  First Homes and any home ownership-based tenure is incompatible with built to rent which is a completely different development typology with a different set of scheme economics.  This is already reflected in the PPG and there are rental based affordable housing tenure types which are applicable to build to rent schemes e.g. Affordable Private Rent.

Level of Discount

In terms of the level of discount for First Homes, the proposal is that the minimum discount should be 30% from market price. Local authorities will have discretion to increase the discount to 40% or 50%. This would need to be evidenced in the local plan making process. Furthermore, where discounts of more than 30% are applied to First Homes, the requirement for a minimum of 25% of units onsite to be First Homes will remain in place.

Q13: Do you agree with the proposed approach to different levels of discount?

Response – No.  The uplift in land value from a development scheme is finite. Therefore, if you increase the discount, all things being equal, there should be less units.  The percentage of units and the percentage of discount should be set locally by local authorities having regard to their evidence base.

Exception Sites

Government intends to introduce a First Homes exception sites policy, to replace the existing entry-level exception sites policy.  The proposal is to introduce some flexibility in the policy to allow a small proportion of other affordable homes to be delivered on these sites where there is significant identified local need as well as a small proportion of market homes where this would be necessary to ensure the viability of the site overall. Also, there is to be no site area threshold for exception sites which should be proportionate in size to the existing settlement.

Q14: Do you agree with the approach of allowing a small proportion of market housing on First Homes exception sites, in order to ensure site viability? 

Response – No.  This just blurs the boundaries between normal site allocations and exceptions sites.  Introducing market housing could lead to the landowners’ value expectations being raised so the value flows to the landowner and not to the affordable housing cross-subsidy. It would be necessary to emphasise the existing use value (EUV) in these circumstances and no premium.

Q15: Do you agree with the removal of the site size threshold set out in the National Planning Policy Framework? 

Response – Yes.  However, the question of what is proportionate may need to be more adequately defined. 

Supporting SME Developers

As part of the Covid-19 recovery plan, Government is proposing to reduce the burden of S106 contributions on SMEs for more sites for a time-limited period.

Currently, national policy is that affordable housing contributions should not be sought for developments of fewer than 10 units (small sites).

Government is proposing to increase this threshold to 50 units. Government itself recognises that this could inflate land prices in the longer term, and are proposing that the higher threshold is implemented for a time-limited period of 18 months only. 

Q17: Do you agree with the proposed approach to raise the small sites threshold for a time-limited period?

Response – No.  This is a sledgehammer to crack the wrong nut. The problem with small sites is not that they are less viable than large sites (all sites are appraised by the residual land value methodology). 

The problem with small sites is that it is harder to implement S106 affordable housing due to smaller numbers and the divisibility of units.  For example, in a scheme of 10 units, 20% affordable housing is 2 units.  A Registered Provider (RP) may not be found to take only 2 units in the particular location.  For example, in a scheme of 7 units and 20% affordable housing, the requirement is 1.4 units. This leads to further complication about the 0.4 unit.

Q20: Do you agree with linking the time-limited period to economic recovery and raising the threshold for an initial period of 18 months? 

Response – No.  We are concerned that the policy will just lead to problems when it is removed and are concerned that the time period will therefore be extended and the affordable housing lost.

Q23: Are there any other ways in which the Government can support SME builders to deliver new homes during the economic recovery period?

Response - The solution is not to exempt all small sites below a particular threshold from S106.  The solution is to allow a more efficient mechanism for delivery.  We recommend that S106 affordable housing (and other contributions) on small sites is via commuted sum and/or (the new) infrastructure levy.  This creates certainty for the SME developer who can make his/her contributions off-site and deliver 100% market housing on small sites.

Part 2 - Planning for the Future 

The Planning for the Future White Paper is based around five propositions:

1. Streamlining the planning process with more democracy taking place more effectively at the plan-making stage;
2. Take a radical, digital-first approach to modernise the planning process - moving from a process based on documents to a process driven by data;
3. To bring a new focus on design and sustainability – planning for beautiful and sustainable places;
4. To improve infrastructure delivery and ensure developers play their part, through reform of developer contributions.
5. To ensure more land is available for the homes and development people and communities need, and to support renewal of our town and city centres. 

This paper is focussed on the reform of developer contributions, as this has major consequence for viability and delivery.

Governments proposals are to:

• reform the Community Infrastructure Levy (CIL) and the current system of planning obligation as a nationally set, value-based flat rate charge (the ‘Infrastructure Levy’). The aim is for the new Levy to raise more revenue than under the current system of developer contributions, and deliver at least as much – if not more – on-site affordable housing as at present.  The reform is to capture a greater share of the uplift in land value that comes with development.
• be more ambitious for affordable housing provided through planning gain, and ensure that the new Infrastructure Levy allows local planning authorities to secure more on-site housing provision.
• give local authorities greater powers to determine how developer contributions are used, including by expanding the scope of the Levy to cover affordable housing provision.  Ensuring that S106 affordable housing is kept at least at current levels, and that it is still delivered on-site to ensure that new development continues to support mixed communities. Local authorities will have the flexibility to use this funding to support both existing communities as well as new communities.
• seek to extend the scope of the consolidated Infrastructure Levy and remove exemptions from it to capture changes of use through permitted development rights, so that additional homes delivered through this route bring with them support for new infrastructure.

Government states that it wants to bring forward reforms to make sure that developer contributions are: fair, transparent and consistent/simplified – which are consistent themes from previous reforms.  Interestingly, this time Government also says that they want contributions to be ‘buoyant’.  This is ‘so that when prices go up, the benefits are shared fairly between developers and the local community, and when prices go down there is no need to re-negotiate agreements’.  Does this mean that there is a mechanism in the Agreement to reduce contributions?

Q21. When new development happens in your area, what is your priority for what comes with it?

Response – a balance between affordable housing, employment opportunities, green space and infrastructure.  These are all equally important and it therefore makes sense to have one regime for land value capture.

Proposal 19 (of the White Paper) is that: The Community Infrastructure Levy should be reformed to be charged as a fixed proportion of the development value above a threshold, with a mandatory nationally-set rate or rates and the current system of planning obligations abolished.

Q22(a). Should the Government replace the Community Infrastructure Levy and Section 106 planning obligations with a new consolidated Infrastructure Levy, which is charged as a fixed proportion of development value above a set threshold?

Response – Yes. The dual approach of S106 contributions and CIL is overly complex.  The CIL Review in October 2016 set out the weaknesses including:

• whether the neighbourhood share had any impact on a community’s likelihood of accepting development and that allocating a substantial portion of their CIL receipts to neighbourhoods reduced their ability to fund some of the larger infrastructure, such as roads and schools.
• the CIL regulations are too complex. They have been amended multiple times since they were first introduced in 2010 to deal with technical issues and never consolidated.
• the examination process is inefficient and dominated by a small number of development typologies, with arguments over benchmark land values and little public benefit.
• exemptions require a considerable amount of paperwork for both the applicant and the local authority. For the local authority this is particularly burdensome as they receive no CIL revenue in compensation.

Q22(b). Should the Infrastructure Levy rates be set nationally at a single rate, set nationally at an area-specific rate, or set locally?

Response – Locally.  The Infrastructure Levy rate should be set locally.  A one-size-fits-all approach across the country will not lead to more land value capture – but less land value capture.  This is because:

• there is a significant difference in the potential for land value capture between greenfield sites and brownfield sites.  Brownfield sites have much tighter margins due to the higher starting EUV and greater risks.
• not all brownfield sites are the same.  E.g. the redevelopment of prime real estate in central London is very different to the regeneration of contaminated land in the Black Country.
• The values are vastly different across the country.  You cannot compare the values in Oxfordshire to the North East.

Q22(c). Should the Infrastructure Levy aim to capture the same amount of value overall, or more value, to support greater investment in infrastructure, affordable housing and local communities? 

Response – more value and less value.  There is more scope for land value capture on greenfield sites than brownfield sites.   Greenfield sites (particularly green belt release) have a very low EUV and therefore there is more potential to share in the uplift in land value.  Brownfield sites, for the reasons set out above, have much smaller margins and therefore the land value capture should be less to incentivise redevelopment and regeneration.

Q22(d). Should we allow local authorities to borrow against the Infrastructure Levy, to support infrastructure delivery in their area?

Response – Yes.  If the Infrastructure Levy achieves it's stated aims and provides certainty, there is no reason why a local authority should not be allowed to borrow against it. 

Proposal 20: The scope of the Infrastructure Levy could be extended to capture changes of use through permitted development rights.

Q23. Do you agree that the scope of the reformed Infrastructure Levy should capture changes of use through permitted development rights?

Response – Yes.  It is not equitable for permitted development schemes to be excluded from planning gain.  This leads to a differential regime and incentivises poor quality development.

Proposal 21: The reformed Infrastructure Levy should deliver affordable housing provision.

Q24(a). Do you agree that we should aim to secure at least the same amount of affordable housing under the Infrastructure Levy, and as much on-site affordable provision, as at present?

Response – Yes.

Q24(b). Should affordable housing be secured as in-kind payment towards the Infrastructure Levy, or as a ‘right to purchase’ at discounted rates for local authorities?

Response – Yes. This is effectively what happens now with S106 affordable housing which is delivered onsite ‘in-kind’ rather than via a commuted sum.

It is important that the affordable housing is continued to be appraised in the Plan Viability assessment as being on-site.  However, the local authority has the option to receive Infrastructure Levy in lieu e.g. see small sites above.

Q24(c). If an in-kind delivery approach is taken, should we mitigate against local authority overpayment risk?

Response – No.  This an over-complication.  Currently the on-site S106 affordable housing is specified and delivered for and agreed transfer price to an RP or local authority. This is for value (no over or under payment).  This is what should happen in the future except it would be called ‘Infrastructure Levy- affordable housing’ rather than ‘S106-affordable housing’. 

Q24(d). If an in-kind delivery approach is taken, are there additional steps that would need to be taken to support affordable housing quality?

Response – Yes.  The Infrastructure Levy affordable housing would need to be specified and delivered for the agreed transfer price as currently takes place for S106 affordable housing.

Proposal 22: More freedom could be given to local authorities over how they spend the Infrastructure Levy.

The government is proposing to keep the Neighbourhood Share which is a sop to local communities, but can undermine the funding required for the ‘big-ticket’ infrastructure requirement (roads and schools etc.) 

Rather alarmingly the government is proposing that they may increase local authority flexibility to allow them to spend Infrastructure Levy receipts on their policy priorities, once core infrastructure obligations have been met. The suggestion is that, in addition to the provision of local infrastructure, including parks, open spaces, street trees and delivery or enhancement of community facilities, this could include improving services or reducing council tax.  When has there ever been a surplus of funding for infrastructure and affordable housing?  The Infrastructure Levy should be ring fenced for these purposes, otherwise it is just another tax grab.

Q25. Should local authorities have fewer restrictions over how they spend the Infrastructure Levy?

Response No - The Infrastructure Levy should be ring fenced for affordable housing and infrastructure to mitigate the harm/externalities caused by the development.

Whilst the Government is rightfully seeking to ‘build back better’ after Covid-19, some of these proposed changes could lead to delays as plan-makers transition to the new regime and landowners wait for policy to crystallise.  

For those actively involved in setting policy and negotiation of S106 agreements, careful consideration will need to be given to the implications on land value, profit and planning gain.