Viabilty Assessments - the legal loophole?

Viability Assessments – the legal loophole?

n the late part of last week you may have noticed many references in the media to the so called ‘Legal Loophole’ that developers are allegedly exploiting in order to build less affordable homes. This article will provide a brief insight into the ‘loophole’ that these articles have been referring to.

Property developers drop plans to build many affordable homes each year and do so due to ‘viability assessments’. Viability assessments are used to evaluate the economic viability of any proposed development. The current Planning Practice Guidance says that a site will be viable ‘if the value generated by its development exceeds the costs of developing it and also provides sufficient incentive for the land to come forward and the development to be undertaken’.

 The National Planning Policy Framework dictates that in order to ensure viability the costs of any requirements likely to be applied to development (such as requirements for affordable housing, standards or infrastructure contributions) should, when taking account of the normal cost of development and mitigation, provide competitive returns to a land owner and developer to enable the development to be deliverable. Should a Developer be able to prove by way of their viability assessment that the proposed amount of affordable housing at their site would make the development economically unviable, then they can apply for an exception or reduction in the required amount of affordable units on their site in order to make such development viable.

 Viability Assessments are therefore often used to request a reduction in the amount of affordable housing that a Local Planning Authority has requested at the development.

 Whether considered a loophole or not it would seem that the viability assessments are crucial in order to ensure that developments remain profitable and new homes are continually built.

London Mayor publishes strategy on affordable housing

London Mayor publishes strategy on affordable housing

London Mayor, Sadiq Khan, in his recently published draft housing strategy explained that he intended to directly intervene to increase housing delivery and set out how he intends to invest the £3.15 billion pounds secured from the government in affordable housing.

This week he has shown this to be the case when he used his planning powers to the full extent, for the second time, to increase the number of affordable homes in a development. Sadiq Khan managed to ensure 35% of units were affordable housing at a development in Wandsworth which was only intended to have 23% affordable housing units.

55% of these Affordable units will be delivered in the first phase and there is review in place which may mean that 50% of the properties at the development could be affordable housing units if the agreed level of progress is not made within 2 years.

Sadiq Khan previously used his powers to approve plans for 185 affordable homes in Barnet after intervening to double the amount of affordable units to 40%.

As well as the above, the Mayor has published the Affordable Housing and Viability Supplementary Planning Guidance, this offers a faster route through the planning process for developers offering at least 35% of units as affordable housing.

These recent moves suggest the Mayor is committed to increasing the delivery of affordable housing in London and as promised has used his full range of planning powers to achieve this.

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Mergers and politicians

Mergers and politicians

This item provides a brief snapshot of some recent announcements from the current Government and the current state of play on mergers in the sector.

Strictly come Merging? 

Scores on the doors.  L & Q and Hyde (although the East Thames element is very much still on); Sanctuary and Housing & Care 21; Genesis and Thames Valley are all not proceeding.  Those mergers which we understand are progressing, or are on the table, include Affinity and Circle, Derwent and Places for People, Viridian and AmicusHorizon, to name a few.

The former are often referred to as ‘failed’ mergers.  However, as the decision not to go ahead would ultimately have been taken with the good of the parties’ respective futures in mind, badging up such proposals in terms of ‘success or failure’ may not always be helpful. 

There is some interesting commentary in the housing press, which no doubt echoes discussions that many are having across the sector, about how one might view such developments in the context of the wider housing movement.  Steve Douglas’ article for Inside Housing of Tuesday 4th October 2016 (A Tale of Three Mergers) reminds us that the trends to be found in the merger proposals offer further evidence that the housing sector is now as diverse as ever. 

Organisations might be best encouraged to take comfort from the range of options which diversity brings with it, and to be confident in their strategic decisions regarding formal merger potential and (continued) opportunities for less formal/all-encompassing collaborative working practices.  As with many things, the ‘and’ may be a more useful word than the ‘or’ in assessing important decisions and unlocking full potential.   

To buy or not to buy? 

The current Government appears determined to answer this question for its voting public, and may be that is inevitable.  In recent times we have seen a categorical bias towards home ownership, including within ‘affordable’ tenures, with incentives and funding geared in that direction, in particular with regard to shared ownership.  In this, the traditional season of announcements, recent proclamations have however pointed towards another change in emphasis.  As ever, it remains to be seen what, in reality, becomes of the political rhetoric, summarised below.

Sub-market rent funding

The Housing Minister, Gavin Barwell, has signified that the current Shared Ownership and Affordable Homes Programme (SOAHP) will be made more flexible to allow for homes for sub-market rent.  This follows lobbying by registered providers of social housing, on the basis that the increased flexibility will enable RPs to up their bids for the new funding.

Starter Homes and rent to buy

DCLG may be ready to adopt a rent conversion product – whereby rental payments are put aside towards a deposit on a home.  This is in response to wholesale criticism of the starter homes initiative.

£3bn home building fund

Ministers Philip Hammond and Sajid Javid have pledged a £5billion fund to solve the housing crisis, along with flagging up changes in planning rules to encourage more building on brownfield sites and derelict shopping centres.  The proposals include the £3bn Home Building Fund – £1.5bn of which will comprise new loans.  £2bn will be provided to fund the Accelerated Construction scheme, encouraging alternative models of construction including on surplus public sector land.  Behind the smoke and mirrors, some of this is ‘old money’ being re-packaged.  But it is nevertheless a significant announcement from the new team.

And finally…

Watch this space for the housing white paper which is due to be published before the end of 2016.   

Sales Team Update

We are pleased to confirm that Kate Anderson joined our plot sales team in September.  Kate is a Chartered Legal Executive with more than 10 years’ experience in plot sales site set up and related matters.  Kate was previously with Cripps LLP acting both for private developers and RPs and before that gained a wealth of experience working in-house for an East Sussex based developer. 

We are also very pleased to confirm that Amy Loomes, Licenced Conveyancer, has been promoted to deal with plot sale site set up.   Amy has a great deal of experience of acting for both buyers and sellers of new build plots and during her 5 years with Sharratts has handled plots sales, DIYSOs, Shared Ownership resales and staircasing transactions. 

Due to an increase in resale and staircasing transactions we are please to welcome Matthew Williams to the team.  Matt has expeience of all aspects of residential conveyancing from working for a London based firm since leaving school and is part way through his training to become a Licenced Conveyancer.

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Sharratts raise funds for local foodbank

In April 2017 The Trussell Trust, a UK anti-poverty charity, released new foodband statistics revealing that over 1,182,000 three day emergency food supplies were given to people in crisis in past year, with over 436,000 being given to children. This shows just how many people in the UK are in need.

In February this year the Joseph Rowntree Foundation published findings showing that Four million more people are living below an adequate standard of living and are just about managing. Just managing families are on the tipping point of falling into poverty as prices rise in the shops. Forecasts show that the cost of living could be 10 per cent higher by 2020 meaning that the need for foodbanks is set to increase.

Following an impressive effort in a festive foodbank collection last year at Sharratts,  Sharratts staff are intending to raise awareness of this issue and support their local food bank again this month. The World Bank defines extreme poverty as living on roughly the equivalent of £1 per day. Staff are therefore challenging themselves to live on £1 a day for all of their food and drink for 5 consecutive days between 18 and 22 September 2017.

Those taking part will be donating food to the equivalent value of their usual weekly shop to the food bank and will be asking those wishing to donate to do so with food items rather than financial contributions, in doing so we hope to stock up our local food bank for the months leading to Christmas when Sharratts will take part in their second annual festive food bank collection.

Could you live on £1 a day? Why not take up the challenge with your company or friends to support your local food bank or chosen charity.

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HCA Disposal Consents

Spring Clearance – Up to 100% off HCA Disposal Consents

29th March 2017 saw the UK formally trigger Brexit, but for those in the affordable housing sector another important ‘independence’ event will occur on 6th April 2017.  This is the date when a new notifications procedure will come into force, replacing the existing requirement for disposal consents from the social housing regulator (the HCA). 

This news is admittedly unlikely to divert readers’ attention away from more important matters for too long – you could instead be choosing what size and shape of confectionery to indulge in later in the month.  This is also partly because the changes form part of a package of housing de-regulation measures which are well known.  

However, with the big day just around the corner, significant information has recently been made available, and which provides the detail of how this aspect of the deregulation measures will be implemented.  So please ‘bear with’ for just a few moments for an edited highlights of the key points going forward.

Section 9 consent, Section 172 consent, consent for disposing of land……whatever, it’s gone (*for most of us)

For development and disposals (including shared ownership) teams, the big news is that from 6th April (Independence Day?!), registered providers of social housing will not need HCA consent for disposals of land.  In certain situations, a new requirement to notify the HCA will arise. 

The new rules also removethe need for s133 consent, which stock transfer RPs will be familiar with.  Note however that whilst the statutory consent requirement has been removed, restrictive covenants on disposal, use and other matters contained in the original stock transfer agreement and/or land transfer will continue to apply.

The Land Registry has confirmed that, following 6th April 2017, the restrictions which are entered on the title registers of all land owned by RPs (and which prevent an RP from dealing with the property without satisfying the restriction) will no longer need to be complied with.  This applies to restrictions that refer to either section 172 consent or its statutory predecessor, section 9 consent.  The Land Registry has been given powers to remove the existing restrictions from RPs’ registers of title, and it will be doing this following 6th April this year.

Can you just notify me of that when it’s actually happened……

The new notification circumstances and procedures are specified in a formal Direction which the HCA has issued and which can be found at:

https://www.gov.uk/government/publications/notifications-about-disposals

Notification just applies to disposals of social housing dwellings, and even then only in certain prescribed circumstances, which differ depending on whether or not you are deemed to be a large or small RP for the purpose of the HCA Direction. 

The prescribed circumstances include certain disposals made:

  • within and outside of the social housing sector
  • between a non-profit and a for-profit RP
  • in respect of more than 5% of an RP’s overall housing stock
  • in connection with finance transactions (split into ‘standard’ finance, usually bank or bond finance secured by a charge, and ‘non-standard’ finance) and certain guarantees. 

Generally, notification will be on a quarterly basis unless the disposal requires a ‘priority notification’ within 3 weeks of the disposal. 

So this is actually quite big news then?

Yes and no.  Thought leaders within the sector have highlighted the potential impacts of deregulation, including within the realm of lending and valuation and also in the context of stock rationalisation work.  Don’t necessarily expect fireworks however – the remaining structure of the regulatory framework, grant funding and private finance requirements, and the need to take business decisions in line with (where relevant) charitable objects, and in a generally robust manner, will all remain relevant in a newly de-regulated sector.    

Thirsty?

As an expert provider of advice to the affordable and wider housing sectors, Sharratts’ lawyers can discuss with you the more detailed nuances of the new rules and their effect on your day to day activity.  For further advice, please contact:

Ben Halsey, telephone 01959 568014 or email: benh@sharratts-london.co.uk

or your usual Sharratts contact.

The small print

This article does not constitute formal legal advice.  The relevant legal frameworks referred to in this note are to be found in the Housing and Regeneration Act 2008 – for a few more days only, sections 172 – 175, and the new section 176, along with the Housing and Planning Act 2016.  The changes apply in England, but not Wales.

* Most RPs are exempt charities and the new rules apply to those entities.  However, if you are a non-exempt charity then your ability to dispose of land will (continue to) be restricted under the Charities Act 2011 (albeit that day-to day disposals to tenants, for example will hopefully not trigger these restrictions).  You will also have to notify the HCA, where relevant, under the new rules.  The Peabody Trust is a non-exempt RP.  Other examples tend to be RPs who are incorporated as companies rather than registered societies (formerly known as Industrial and Provident Societies).  We can walk you through these requirements if your status is non-exempt, and/or if you are exempt RP transacting with a non-exempt RP.     

Chancellor's Briefcase

Autumn Statement

The extension of the Right to Buy (RTB) to 1.3 million housing association tenants, was seen as the main selling point to the electorate for the Conservative vote. The government have now stated that the national application of this scheme will not be prior to April 2018.

Instead, in the Autumn Statement, Philip Hammond announced that the initial pilot scheme for the Voluntary Right to Buy will be extended to a further 3,000 tenants. The government has set aside £250m to fund the scheme from now until 2021. The initial pilot scheme has been relatively small scale, with figures released in the summer, stating that only 1.6% of households in the Right to Buy pilot schemes have made an application to buy their social home.

The much anticipated national Right to Buy extension was expected as soon as this autumn, however, the government seem to be delaying this in order to “test key features of the main scheme.” The new pilot scheme is likely to test portability of discount and one for one replacement.

The delay of the national roll out of the RTB was first hinted at with a statement from the Treasury and has now been further confirmed by Housing Minister, Gavin Barwell MP, in which the minister referred any questions regarding the national roll-out to the Autumn Statement. He further added, “…when it comes to the full roll-out the mechanism for paying for that is through high-value asset sales and I’ve written to local authorities today to say that we will not be requiring any high-value asset payments in 2017/18.”

In response to the notice of delay and lack of clarity from the government, NHF chief executive David Orr wrote: “I know that you and your tenants are awaiting further details, including a start date, for the national scheme and that the uncertainty makes business planning more challenging, so we will also be seeking clarity on this as soon as possible.”

House Building Increase

House Building Increase

As of 15th November 2016, the number of new homes has risen 11% in a year (189,650 net additions), which is the highest annual total in 8 years. This increase is the third consecutive year on year increase.

The breakdown in the additional homes is as follows:-

  • 163,940 New Build Homes
  • 30,600 were change of use (non-domestic to residential)
  • 4,760 from conversions between houses and flats
  • 780 Miscellaneous gains

The government has announced a £3 billion Home Building Fund[i] which has the target to help build more than 25,000 new homes this Parliament and up to 225,000 in the longer term.  In addition to the Home Building Fund, an additional £2 billion is also in the pipeline to speed up delivery of homes on public sector land.

The Homes building Fund has the backing of the Homes and Communities Agency (HCA) with its CEO, Mark Hodgkinson, voicing his support, “We’re determined to speed up delivery and promote new approaches to housebuilding. The new Home Building Fund offers the industry flexible development and infrastructure finance and we’re open for business right away. From today, builders and investors just need to give us a call to start discussing funding for new homes. Our dedicated team will also provide expert ongoing support to new entrants to the sector and those companies proposing innovative solutions to speed up house building.”

Going through Parliament at the moment is the Neighbourhood Planning Bill, which will:-

  • give more power to local people with regard to neighbourhood planning;
  • loosen the requirements as to use and discharge of planning conditions, especially at pre-commencement stage;
  • further move the compulsory purchase process forward to make it clearer and faster for all involved;
  • implement more stringent monitoring of the impact of permitted development rights on the supply of housing.

[i]https://www.gov.uk/government/news/sajid-javid-and-philip-hammond-lets-get-britain-building

Brexit and the implications for affordable housing

Brexit and the implications for affordable housing

Brexit: The implications on Social Housing

As we are all now fully aware, the UK voted to leave the European Union in a referendum on the 23 June 2016. This decision will have an impact on a wide range of policy areas and industries, including the house building industry.

Following the referendum the National Housing Federation (NHF), the representative body for Housing Association, warned Associations against a potential fall in property prices and tighter lending conditions. Development by associations would also be impacted by wider market conditions, particularly the loss of skilled migrant labour in the construction industry. The latter being a concern for the government as they have their “1,000,000 homes target” by the end of the current Parliament.

The NHF has put forward their case for the relaxation of how Associations use government investment and what the Associations can build with the view to building 300,000 new homes, nearly a third of the government’s target.

We can only wait in anticipation of the Autumn Statement to see if the NHF and Associations will get their wish.

Will the European Investment Bank (EIB) abandon the UK?

Currently, whilst being a member of the European Union, the UK is in a fortunate position of being able to benefit from funding from the EIB. Latest figures show that the UK Social Housing Market has seen at least £5.5 billion worth of investment.

Having been asked the question, the EIB made the following statement:

“At present the UK shareholding in the EIB remains and the EIB’s engagement in the UK is unchanged. Any change to the EIB’s shareholder structure or lending activity is a decision for the member states.

We expect that the EIB’s shareholders, the 28 EU member states, will discuss the EIB’s engagement in the UK as part of broader discussions to define the future relationship of the UK with Europe and European bodies. At present, the EIB’s shareholders have not requested the Bank to change its approach to operations in the UK.”

 It seems that not much will change whilst we are a member, however, the future does not look bright. If we look at Switzerland as an example they only receive funding in the areas of energy and transport. Their housing market is left to “go it alone.”

 Let’s hope the Autumn Statement provides the assistance the Social Housing Sector needs.

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Housing Association Deregulation

The Housing Minister, Brandon Lewis, has discussed government plans regarding a deregulation package for Housing Associations. Details of the proposed deregulation package were discussed at the Communities and Local Government committee on 15th December 2015. 

The proposed deregulation package would mean that Housing Associations would no longer need permission from the regulator to make changes including mergers, restructuring, winding up and dissolution.

This would also mean that Associations would also no longer require the permission of the regulator for sales, charging for security and changes of ownership. Housing Associations will, however, still have to notify the regulator when they make changes so the register of social housing providers can be maintained.

The new plans would also mean that the proceeds disposal fund would be abolished and Associations could have complete discretion over how they use funds from sales, including through the Right to Buy scheme.

The proposal also means changes would be made to the ‘’Pay to Stay Scheme’’, this is currently compulsory but the proposed deregulation means that this will no longer be the case. Associations would not have to enforce Pay to Stay however they will have the opportunity to set higher rent levels for tenants with high income. To ensure fairness to tenants the government will encourage consistency between Housing associations and Local Authorities.

A special administration regime will be introduced for use in the unlikely event a housing association becomes insolvent. The special administration regime will protect service to tenants and the governments grant invested in the sector. It will also ensure creditors can recover their security.

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