The Mayor of London is currently consulting on two new pieces of London Plan Guidance (LPG) – the Affordable Housing LPG and Development Viability LPG.

As part of the consultations, a series of events are being run, with the first, a general briefing webinar for stakeholders to find out more about the guidance, held yesterday.

The guidance will provide further steps to ensure that development proposals across London deliver a greater number of affordable homes, creating more sustainable, inclusive communities. 

These documents have been prepared by the Greater London Authority in consultation with local planning authorities, community groups and built environment professionals.

The “Threshold Approach”

The consultation documents essentially clarify London Plan Policy H4, and associated policies, which sets out the approach developers should take to affordable housing in the capital. Key to the affordable housing policies is the “threshold approach” to planning applications, through which proposals can qualify for the “Fast Track Route”, negating the requirement for a viability assessment. 

If proposals cannot meet these thresholds, applicants must follow the Viability Tested Route, requiring completion and early submission of a viability assessment to justify why this is the case. 

Each LPG provides further detail of this approach, and therefore must be read alongside each other. 

Affordable Housing LPG

The document provides further detail of:

• The threshold approach;
• Affordable housing tenures;
• Grant funding; 
• Build to Rent;
• Securing delivery through S106 agreements; and
• Monitoring and implementation. 

Development Viability LPG

This LPG provides further information specifically relating to the completion of viability assessments required within the Viability Tested Route, including: 

• The viability assessment process; 
• Principles to apply to assessments;
• Information, inputs and sense-checking; and 
• Review mechanisms.  

Summary

We work with developers and Registered Providers on a day-to-day basis providing development, planning and viability advice to ensure developments are best placed to deliver homes in the most appropriate and viable way.

If you would like to discuss the London Plan’s approach to affordable housing delivery within development proposals, and how it may affect you, please get in touch via the contact details at the bottom of this article.

The consultation runs from 3 May 2023 to 24 July 2023.

We have set out in more detail below the draft SPG from the Affordable Housing and Viability SPG (2017) and any additional points of note. 

AFFORDABLE HOUSING LPG

The Threshold Approach

• This remains at a minimum of 35% or 50% for public sector land and industrial sites.
• The 35% minimum no longer states that it has to be achieved without public subsidy.
• The list of developments which do not meet the requirements to follow the Fast Track Route (FTR) has been expanded to include co-living schemes (large-scale, purpose built, shared living accommodation).
• A Late Stage Review (LSR) will be required at the point at which 75% of units are sold or let. This conflicts with the Development Viability LPG LSR trigger of when 75% of units are occupied.
• Scheme amendments – for schemes approved under the FTR, any subsequent applications to vary the consent or S106 agreement will not be required to submit viability information, providing that the affordable housing maintains the threshold level, continues to meet the required tenure split and doesn’t result in a reduction in affordable housing or housing affordability. 

Tenure

• Social rent should be assumed as the main product for Low Cost Rented homes. LAR homes are no longer eligible for grant funding.
• Local authorities and housing providers are strongly encouraged to prioritise key workers when setting eligibility and prioritisation criteria.
• The LPG covers the new model for Shared Ownership homes introduced by the Government in 2021. This allows for the initial share to be a minimum of 10%. 

Grant

• RP, borough and developer-led schemes are eligible for grant under the Affordable Homes Programme 2021-26.
• The FTR is available where an applicant commits unconditionally to provide at least 40% affordable housing with grant (or 50% on public or industrial land).
• If the S106 will allow for a lower level of affordable housing than the relevant threshold if a grant is not available, the scheme must follow the VTR.

Build to Rent

• This section has been updated and reflects the London Plan 2021 Policy H11. 

Securing delivery through S106 agreements

• Affordable housing should be sold to an RP on a freehold or long (990 years) leasehold. 

Monitoring and implementation

• Applicants are required to submit information on the affordable housing proposed when the application is submitted and when the planning consent is granted. This data will be recorded, monitored and provided for the Planning London Datahub.
• LPAs are required under London Plan Policy H7 to have clear monitoring processes and this section explains the requirement under this policy.

DEVELOPMENT VIABILITY LPG

Principles for undertaking viability assessments 

Deliverability

• There is a much greater focus on deliverability of schemes. Applicants should demonstrate that their proposal is deliverable and their approach to viability is realistic.
• Assessors are required to provide evidence to show how the scheme is likely to be delivered. There is also a requirement to sense check the outcome of viability assessments, which the GLA refer to as a ‘stand back and check’.
• If the scheme is in deficit, the GLA’s view is that the value and cost assumptions may not be realistic, or the scheme might not be optimally designed. Any assessment which reports a deficit will be scrutinised in detail by the GLA.

Growth

• Growth in development values and costs should be modelled and taken into consideration when assessing the maximum amount of affordable housing and other policy requirements that the scheme can provide. This is a departure from the current day approach to inputs including sales values and build costs.
• Viability review mechanisms will be required even when the assessment is based on growth testing. This removes any benefit of using growth in the assessment as review mechanisms are upwards only. The affordable housing contribution cannot be reduced if the growth assumed doesn’t materialise at the point at which a review is triggered.

Information, inputs and sense checking 

• BTR - OPEX costs – these should be supported by detailed information including an itemised list of cost headings based on comparable completed and occupied schemes.
• Affordable housing – values for Shared Ownership should include staircasing and RP cross subsidies. The issue with staircasing receipts is that there is a lack of data on this.
• London Living Rent - should be assumed to be sold on a Shared Ownership basis within 10 years for market sale schemes. This is problematic for RPs as determining the value of a home in 10 years is impossible.
• Finance costs – the GLA propose that these assumptions should consider the likely type of developer of the site. For example, a lower finance rate should be adopted for RP or Council led development or for a large developer who will have access to preferential rates of finance. This is an applicant specific assumption which is not an objective assumption. The Section 106 agreement remains with the land, not the developer.
• Other Construction Costs – Rights of Light costs or potential asbestos removal are no longer to be included as development costs.
• EUV & Premium
  • Where the existing buildings are in poor condition or do not meet current standards, or where there is limited demand, the EUV is expected to be nil or very low.
  • Any value of an existing building needs to be fully justified. A detailed assessment of any likely major maintenance works required over at least a 30 year period should be provided alongside the costs of routine maintenance. This should include a year by year projection of the major repairs/refurbishment costs required by block.
  • Where existing housing does not meet housing need in terms of unit sites, an EUV approach may not be acceptable and an AUV approach should be adopted.
  • When considering the premium, the RLV of the proposed scheme should be assessed based on a policy compliant scheme. If the RLV is lower than the EUV, a premium is unlikely to be justified as any premium needs to take into account a return to the landowner and a sufficient contribution to fully comply with policy requirements.
  • When an existing use and its value to a landowner is to be retained in a development, no premium should be applied.
  • A premium should not be applied in the case of estate-regeneration schemes. 

Review mechanisms

Early Stage Reviews

• Provisions that seek to delay the trigger date should not be included in the S106 agreement. This means that force majeure clauses which had sometimes been agreed to in light of the disruption caused by the pandemic will no longer be accepted.
• Schemes assessed under the FTR will be assumed to be viable and any viability information submitted will not be assessed by the GLA.
• If the applicant considers that an application is unviable and wishes this to be reflected in the ESR, it will be assessed under the VTR and will be subject to Late Stage and a Mid-term review if applicable.

Late stage review

• A key change is that the SPG states that the LSR will usually take place once 75% of homes are occupied. Previously this was 75% of homes sold. We intend to clarify this with the GLA as the Affordable Housing LPG does state the review is triggered when 75% of homes are sold.
• Phased or larger schemes – should take place on 75% of homes in the final phase or plot. 

Mid-term reviews 

• These are required for schemes which provide 500 or more residential units, where construction is 5 years or longer or for estate regeneration schemes. 

Viability Deficits

• These will not normally be accounted for in viability reviews. These will only be allowed in exceptional circumstances agreed by the LPA and the GLA.
• No deficit to be included in schemes under the FTR.