Affordable Housing: Policies into Practice

Louise Dwelly Housing Strategy & Enabling Manager

October 2004

Why Training Now?

• Policy in place for a year• Need for better understanding of

how officers are using and developing the policy in practice

• An understanding of how we look at scheme viability and how the negotiation process works is becoming more critical

Training Objectives

• Understand the policy context for negotiating community benefits

• Review the policy provisions• Achieve a better understanding of

how the negotiation procedure works in practice

• Understand the importance of development economics

We are losing homes....

• Gabbons Nursery 50-75 affordable• Block A maritime centre 4 • Stary Dom 4• Poltair Road Penryn 15• Sandy Cove Porthtowan 10

Total 83-108 affordable homes notapproved

National Policy Context

• Main mechanism is section 106 of the Town & Country Planning Act 1990 (section 106 agreements)

• Rules about what benefits can be negotiated (reasonable and directly related)

• Circular 6/98 deals with affordable housing. Must “seek to negotiate” and must have regard to financial viability

• Fundamental review of policy guidance taking place

Carrick Policy (recap)

• Thresholds (15 urban and 2 rural)• Targets

– 35% Truro (20% rent, 15% intermediate)– 40% Falmouth-Penryn (20% rent and

intermediate)– 50% rural (20% rent and 30% intermediate)

• Intermediate includes low cost for sale, shared equity and key worker housing

BUT there is more flexibility than you

think......

• Provision can also be off site or a financial contribution in some circumstances

• The targets can be varied if more than 50% is affordable

• Provisions will most often be affected by whether there is any public subsidy

The Money Question

• Affordable housing without grant• The local context• Grant free but not everywhere all of the

time • Public subsidy is needed to deliver the

Council’s 60 homes target and to deliver all the s106 opportunities

• Subsidy must come from somewhere (Gvnmt, Carrick, developer)

Sources of Funding

• Housing Corporation (£2-3 million over 2 years) 50 homes

• Carrick £500,000 (CTSH) 8-10 annually

• Commuted sums £1.6 million negotiated (26 homes but no money yet)

• Subsidy of £60,000-75,000 each

Options

• Seek additional developer subsidy• Seek commuted sums on some

developments to increase funding• Only target grant at strategic sites• RSLs can pay something towards

homes where there is no grant but it means fewer homes......

What is Grant Free?

• The payment reflects what a housing association can pay by way of a mortgage secured against future rental income

• Rents are restricted by Gvnmt so....

Grant Free Values

1 bed 2 person flat 46m ££27,358

2 bed 3 person flat 62m £33,302

2 bed 4 person house 76m £34,557

3 bed 5 person house 86m £37,437

4 bed 6 person house 101m £41,397

How we work

• Pre-application contact• DC involve relevant officers for

community benefits• Joint discussions, full policy requirement

is starting point• Agree a final negotiating postion• Affordable housing unit gives formal

response and works with legal services to draft / modify any s106 obligation

What can affect what we ask for?

• Economic viability• Abnormal costs (infrastructure,

contamination)• Not a strategic site and limited grant• Area not suitable or already a

concentration of affordable homes• High density flatted scheme which does

not meet need• Other costly community benefits• Limited evidence of need

Understanding the cost of development (development

economics)We can use a range of tools:• Developers’ financial appraisals• Secondary data (house prices/land

values)• External technical expertise• The Development Economics

Toolkit

The Development Economics Toolkit

• Developed by 3 Dragons and Nottingham Trent University for GLA

• Carrick (supported by Cornwall partners) developing first rural version

• Under development for a year and now in use• Consultation with developers and housing

associations complete

Purpose of Toolkit

• Provides information about the economics of residential development proposals

• Shows impact of affordable housing requirement • Site area/number of dwellings is the only ‘MUST

HAVE’ information• Aid to decision making - does not make

decisions!

Basis of Toolkit

• Residual value approach• Residual is value less costs• Takes account of availability of public

subsidy• Land value is not an ‘input’

Carrick TCI Band

REVENUE COSTS

Gross residual valueLessPlanning gainSite abnormals(decontamination etc)

FINAL RESIDUAL VALUE

Compare withcommercial

value

PlusOther capitalcontribution

SCHEMECHARACTERISTICS

Density House pricesDevelopment costs TCIAmount/type affordable housing

Revenue and costs

COSTS • Build costs• Infrastructure costs• Professional fees• Overheads/finance costs• Marketing costs • Contribution to developer

REVENUE• Market units X market value• Affordable element

TCI (less on costs) for social rent and shared ownership% of value for Equity Share and Low Cost SaleCapitalised rental value for sub-market rent

What ifs……...

Can test for…...• % different types and tenures affordable housing• +/- Density• +/- Market value• Alternative planning obligations

More what ifs……...

Can test for• Exceptional development costs • Alternative %TCI and with/without grant (and

different % share for SO)• Alternatives for Equity Share, Low Cost Sale

and Sub-Market Rent • Range of assumptions about costs

Lessons Learnt• Community benefits is a process of

negotiation• Robust policies help but there is always

that rogue appeal decision• Flexibility is most often needed around

difficult sites and grant availability • The involvement of members and the

community in understanding specific sites is crucial to develop consensus and support