Landlord News

Councils to Reveal Calculations that Avoid Developers Building Cheap Homes

Em Morley - July 15, 2015

Councils plan to expose guarded calculations that property developers use to avoid paying for affordable housing, hoping that they build cheaper homes.

The murky claims by developers about how much profit they need to make for a scheme to be viable, and therefore how much social housing they can build, has been highlighted as a key factor in the decline in construction of affordable housing.

The London Borough of Islington is taking a stand by changing its planning system and insisting that the calculations are published in full.

Additionally, it will stop developers paying incentives to consultants who create the viability assessments, which avoids them building more affordable homes.

Councils to Reveal Calculations that Avoid Developers Building Cheap Homes

Councils to Reveal Calculations that Avoid Developers Building Cheap Homes

Housing expert Dr Bob Colenutt says that the current system is essentially “a wholesale fraud on the public purse.”

He continues: “It has been very easy to do. The developer undervalues the scheme using these viability assessments so they don’t have to build the level of affordable housing in the planning policy.”1

Recently, there have been numerous high profile disputes over the amount of low-rent housing that private developers are willing to fund.

In 2014, the Royal Mail Group produced a viability assessment that claimed just 24% of the homes on the planned redevelopment of the Mount Pleasant sorting office site in London could be affordable.

However, Islington and nearby Camden Council stated that 42% was possible and at a lower rent than proposed by the developer. Disappointingly, the Mayor of London, Boris Johnson, approved the plan for 120 fewer affordable homes than the councils believed were achievable.

Executive Member for Housing at Islington Council, James Murray, says that the Labour constituency would resist developers’ claims of commercial confidentiality regarding viability assessments.

“Developers and landowners have benefitted at the expense of essential affordable housing thanks to a viability industry that has got out of control,” he explains. “People are being conned out of affordable housing in some of the biggest developments in London. It has become such a murky process, the pendulum has swung too far in favour of developers.”1 

One viability assessment was released last month, after a freedom of information fight. It revealed that a developer considered 25% profit acceptable, however, the criticising council said 15% was normal. The difference equated to £100m on the Elephant & Castle development.

Jerry Flynn, who obtained these figures, welcomes Islington’s plans.

Flynn, a former resident of the Heygate Estate in Elephant and Castle – which has been knocked down to make space for the new development – says: “The viability assessment is the most critical document now in the planning process and we are disabled if we can’t see it and share it among people who understand them better than we do.”1

MP for Tooting and a Labour candidate for the Mayor of London, Sadiq Khan, says that he would establish a “London-wide standard, which demands that all viability assessments are transparent, honest and fair.”

He continues: “It’s wrong that complicated and secretive viability assessments are being used to protect landowners’ and developers’ profits, and prevent the building of affordable homes.”1

Islington is demanding: “All viability evidence must be robustly justified and appraisal assumptions should be benchmarked against publicly available data sources.”

It also wants: “Supporting evidence from applicants and lenders to justify proposed rates of profit.”1 

Property experts warn that council officers have often struggled to analyse the viability calculations that they are presented with.

Chief Executive of the British Property Federation (BPF) – which represents developers – Melanie Leech, concludes: “Viability is clearly a matter of public interest and we support an open and transparent process so that everyone can have confidence in the outcomes of the planning process.”1

1 http://www.theguardian.com/business/2015/jul/14/councils-publish-developers-murky-viability-claims-increase-cheap-homes