Affordable Housing in Cornwall 1) Introduction to affordable housing 2) Viability and affordable housing 08 October 2014

Sam Irving – Principal Development Officer; and Laura Deverill – Development Officer Affordable Housing Team, Cornwall Council

Section 1 Introduction to Affordable Housing in Cornwall

What does the Affordable Housing Team do?

• Provide advice • Analyse need • Community engagement • Negotiate on and off site provision • Assess viability • Legal agreements s.106 • Liaise with Registered Providers • Enabling activity – proactive work; rural priority parish work;

find sites; call for land; assess sites; achieve planning permission; ensure delivery

What is Affordable Housing?

• Intended to help local people and meet the needs of Cornwall’s communities

• Provides homes for those unable to access or afford market housing

• High quality, sustainable housing

Affordable Rented Housing • Predominant affordable tenure in Cornwall

• Delivered by Registered Providers

• Historically known as social rented housing

• In 2011, govt. updated model to ‘Affordable

Rent’: • - up to 80% of market rent; • - must not exceed the Local Housing

Allowance

Intermediate Housing • Shared equity housing

• Low cost housing for sale at a discount

from open market values

• Private intermediate homes to rent

• Self build

• Equity loan arrangements

Intermediate Housing for Sale • There are two main types:

• Shared Ownership –Typically, 25-40%

initial sale; purchaser rents the remainder

• Intermediate Sale – discounted sale. Discount ranges from 20-55%, depending on local values

• Affordable homes for sale applicants registered with Help to Buy SW

• Affordable rented dwellings applicants registered with HomeChoice

• Cornwall HomeChoice –Choice-Based Lettings BUT – Allocations based on need (Bands A-E)

• Section 106 – controls initial and future occupancy and affordability

• Local connection restrictions

Allocations and sales of affordable housing

Homechoice Allocations Consultation

• In Cornwall the demand for social housing is very high. Demand outstrips supply.

• New legislation means that LA’s can now decide who can qualify to join the Housing Register and other changes.

• Consultation on: • Who can join the Housing Register • How applicants are banded • How housing will be advertised and let • Applicant responsibilities

• Affordable housing generally costs more to build than it is worth

• Subsidy is required - 2 sources: 1. Grant subsidy 2. Developer subsidy

1) Grant subsidy- 2 main sources: a. The Homes and Communities Agency - £19.8m

for Cornwall 2012–2016 Was £100m in 2008-2011

b. Cornwall Council - £20m for 2012–2016 But - decreasing CC budget

How is affordable housing funded?

2) Developer subsidy / cross subsidy / 106 • Developers usually required to deliver a

proportion of new homes as affordable • Return from the sales of market housing used to

‘cross-subsidise’ affordable homes - planning gain.

• Increasingly important

• Must be maximised, but must consider economic viability

Funding contd.

How affordable housing is delivered in Cornwall

What does the Affordable Housing Team do?

• Analyse need • Liaise with stakeholders, including Town and Parish

Councils • Set Affordable Housing requirements • Negotiate and assess viability • Legal agreements • Liaise with Registered Providers • Negotiate off site financial contributions • Proactive work: find and assess sites; achieve planning

permission; ensure delivery; Cornwall Land Initiative • Other: S106 deeds of modification; policy making;

seeking funding opportunities; innovative ways of delivering housing.

The Housing Investment Plan

• Project to deliver minimum of 4,000 new affordable homes by March 2016

• Ambitious, but achievable – average of 1,000 units p.a. – 741 (delivered) 2012/13 – 824 (projected) 2013/14 – 1,274 (projected) 2014/15 – 1,239 (projected) 2015/16 – Current total of 4,078 units

Planning Policy

• Emerging Cornwall Local Plan

• On ‘Policy 8’ sites in CPR - 40% target • ‘Policy 9’ sites - affordable housing led • Dependent on viability

• Affordable Housing SPD

• Tools to implement above policies; • Out for consultation now

Section 2 – Viability in Affordable Housing

Why is this a concern?

• National and local policy requires consideration of viability;

• Obligations must not render development undeliverable;

• Therefore key consideration; • Where applicants claim not viable to provide

policy, we require an EVA to evidence this; • EVAs are scrutinised by the AHT – we will

work to maximise the % of affordable housing providing its is deliverable;

• Section 106 BA – review and appeal.

To be viable:

The sales value must (at least) cover the costs associated with development

Sale

s Va

lue

Build Costs

Profit

Professional Fees & Finance

Elements in a balanced scheme

Land 0%

100%

Section 106/ Abnormals

For illustrative purposes only

Typical Scheme – costs Build Cost (Based on medium sized scheme and inc. fees, construction,

externals etc.) 75m2 x 1,000m2 £75,000

Abnormals (such as mining, contamination, infrastructure etc.) £ 0

Land (Based on Valuation Office £420 per m2 average) £ 31,500

Fees (Based on 10% of costs) £7,500

Interest (Based on 7% of costs) £4,250

S.106/CIL Costs (estimated) £4,000

Profit (17.5% of Sale Price) £30,625

Total Cost (Typical 2-bedroom house 75m²) £ 152,875

Total costs for 10 dwelling scheme (approx) £1,528,750

Typical Scheme – incomes

6 x open market units (@ 175k) £1,050,000

@ 40% affordable housing requirement

3 affordable rent dwellings

Income (80% of £600 for 2bh) £ 480 pcm

- 25% for management, maintenance, finance and on-costs £ 120 pcm

Total remaining £ 360 pcm

Capitalised value £ 99,869

X 3 £299,607

1 intermediate sale dwelling @ 20% discount from OMV £140,600

Total income (approx) £1,489,607

Total costs (approx) £1,528,750

Surplus / Deficit £ 39,143

Sale

s Va

lue

(GD

V)

Build Costs

Profit

Professional Fees & Finance

Elements in un-balanced schemes

Land 0%

100%

Section 106/ Abnormals

For illustrative purposes only

Why the imbalance?

• Every scheme is different, although likely to fall in to three main categories:

1. Sales values/income return is low; or,

2. Abnormal costs/s106 implications place un-manageable ‘burden’ on the scheme.

3.Land Value is too high

Development in Cornwall

• Affordable requirements are high, aspirational in some places

• Land values (aspirational) remain high • High ‘abnormals’ costs common –

remediation, mining etc. • Reduced public funding – investment that

historically assisted growth

The deficit • Deficit is common in Cornwall • To make schemes viable, deficits have to

be ‘plugged’

• Options: – Reduce quality/build costs (reduces

value) – Reduce amount of affordable housing – Additional public subsidy (burden on the

public purse) – Cross-subsidy (can enable development

to proceed)

Rural cross subsidy

• Exception sites were historically 100% affordable housing

• However, this was reliant on public subsidy

• Government is encouraging greater reliance on delivery through market growth

• This provides affordable housing through cross-subsidy from market sales

Viability summary

• Scheme viability obviously has big impact on housing delivery

• All schemes are different. However, where viability is challenged, evidence must be provided

• Viability Appraisals are rigorously tested • If we are not satisfied, we seek a higher % of

affordable housing • Our aim is to deliver affordable housing for

Cornwall’s communities • Limited public subsidy means that market

housing often essential to delivery

Cornwall Council Affordable Housing Team Circuit House Truro TR1 1DT Tel: 01872 326353 affordablehousing@cornwall.gov.uk

Questions?

Affordable Housing SPD www.cornwall.gov.uk/affordablehousingspd

affordablehousingspd@cornwall.gov.uk