Delivering Affordable Housing

Delivering Affordable Housing

Guidance for Developers

Purpose of the Guide
Background
The priority
What type of dwellings should be provided?
How should the layout be designed?
Who will provide the Affordable Housing?
How will the Affordable Housing be provided?
Who will live in the dwellings?
Exceptions to an on-site provision of affordable housing.
For how long muct affordable housing be made available?
Will any public subsidy be available?
Contacts

HoH

Delivering Affordable Housing Guidance for Developers

1. Purpose of the Guide

This guidance note provides details on how affordable housing should normally be delivered on sites where planning policies require an element of the housing to be affordable; and where applicants are seeking to deliver 100% affordable housing in rural communities. The requirements in this document should be taken into account when considering acquiring or developing a site. Landowners, developers and agents are strongly advised to discuss affordable housing issues with the Council at an early stage.

By following the guidance and discussing proposals with the Council the time it takes to determine a planning application will be minimised and the probability of success increased.

2. Background

Due to high property prices relative to local incomes the area has a severe shortage of affordable housing. Many households are unable to purchase or rent their own home on the open market. Further pressure is felt in the South West due to high levels of in-mirgration and an ageing population. Increasing the supply of affordable housing is one of the most imporatant local priorities. In view of the scale of the District’s affordable housing problem it is imporatant that all suitable housing sites privide on-site affordable housing.

Local planning policies require the provision of affordable housing in the following circumstances:

District Local Plan Polciy H6 / Camborne Pool Redruth and Helston
On sites of 15 or more dwellings or 1ha or more –
A minimum of 25% of houisng to be affordable
Smaller settlements and Villages
On sites of 10 or more dwellings or 0.5ha or more-
A minimum of 25%of housing to be affordable
District Local Plan Policy H20 / The development of affordable housing on small
exception sites in rural areas will be permitted where:

the site falls within or directly adjoins the existing

settlement boundary

where there is a proven need for affordable housing

for residents with a local connection to the Parish

Kerrier will expect a minimum of 25% affordable housing to be delivered on sites over the above thresholds and in many circumstances will seek to negotiate higher levels of affordable housing.

The use of the Kerrier Development Economics Toolkit

Whilst Local Authorities are able to seek affordable housing on suitable sites which exceed the relevant threshold, policy guidance requires local authorities to have regard for the economics of development and the costs of bringing sites to the market. It is also necessary to be aware of the level of public and or private subsidy which is required to develop a variety of affordable housing products and availability.

In the past, Kerrier has adopted a fairly unscientific approach and has relied on its own limited knowledge of market information and the willingness of developers to share their own calculations and costs and site appraisal. To improve Kerrier’s approach and to understand better development economics, Kerrier has worked with consultants to develop a development control toolkit. A similar model has been developed for London Boroughs and has been tested as part of the London Plan Enquiry in Public. The panel’s view was that the model provided a valuable tool for local authorities to employ in negotiating planning obligations.

The toolkit is a simple piece of software which uses a range of factors and assumptions to determine the full cost of building a residential development compared with the scheme revenue generated through house sales to arrive at a residual value for the land. This can then be compared against information about commercial values to determine whether an individual site where a specific range of planning obligations is required, including affordable housing, is viable. In simple terms will a new housing development generate enough revenue to enable the developer and the land owners to make a profit after the costs of building the housing, remediating the site, providing affordable housing and any other planning obligations have been taken into account. The toolkit is a decision making tool which allows Kerrier to test a number of assumptions:

Is the level and balance of planning obligations sought reasonable
How Kerrier can best utilise public subsidy and what level of public subsidy is required to deliver affordable housing
How does the input level of public subsidy vary with different types of affordable housing product
Do exceptional development costs relating to specific site characteristics make the provision of affordable housing and the imposition of plan policies reasonable

Kerrier proposes using the toolkit as an aid to decision making in the following circumstances:

In assessing the ability if identified sites to provide affordable housing prior to their allocation in the new Local Development Document.
Where there is a dispute with an applicant about the provision of affordable housing and other planning obligations on a site which is the subject of a planning application.

3. The priority

The Council assesses the District’s housing needs through regular housing requirements surveys, housing register data and Parish Plans. While a signifdicant proportion of households in housing need aspire to some form of ownership, because of house prices and local incomes this can only become a reality for the minority. A high proportion of households on the housing register can only realistically afford social rented housing. As a result the local authority will seek to secure both rented and low cost home ownership opportunities in proportions that reflect the needs of the local area. In the majority of cases the local authority will seek higher percentages of rented accommodation.

What is affordable housing?

Affordable housing is housing designed to meet the needs of households whose incomes are not sufficient to allow them to access decent and suitable housing in the local private sector market.

Current national policy guidance states that under this broad definition of affordable housing may be included both low cost market and subsidised housing products. But in addition, local authorities are required to undertake regular and robust assessments of housing need and to relate the need for and definition of affordable housing to local income levels and circumstances. Planning Policy Statement 3 defines affordable housing as:

Affordable Housing includes social rented and intermediate housing, provided to specified households whose needs are not met by the market. Affordable housing should: Meet the needs of eligible households including availability at a cost low enough for them to afford, determined with regard to local incomes and local house prices; and Include provisions for: The home to be retained for future eligible households; or if these restrictions are lifted, for any subsidy to be recycled for alternative affordable housing provision.

Social rented housing is rented housing owned and managed by local authorities and RSLs, for which guideline target rents are determined through the national rent regime. It may also include rented housing owned or managed by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Housing Corporation as a condition of grant.

Intermediate affordable housing is housing at prices and rents above those of social rent but below market price or rents, and which meets the criteria set out above. These can include shared equity (HomeBuy) and other low cost homes for sale and intermediate rent.

Intermediate rented homes are provided at rent levels above those of social rented but below private rented. For intermediate rented housing to be affordable, weekly rent levels must not exceed average local reference rent levels for the specific property type. This will ensure that an occupant on the lowest income will be able to received assistance with their housing costs through housing benefit. The relevant rent levels will be reviewed and published regularly but as at 2007 they are:

1 bed £356 per calendar month

2 bed £407 per calendar month

3 bed £498 per calendar month

4 bed £521 per calendar month

Discounted sale homes have a simple discount for the purchaser on its market price, so the purchaser buys the whole home at a reduced rate. The initial sale price of the homes must not exceed the Council’s maximum price thresholds for the relevant property size. There are linked to multiples of local earnings. The price thresholds vary for each relevant household type and property size. The relevant initial maximum sale prices will be reviewed and published annually but as at 2007 are:

1 bed£59,116 (less than 42sqm)

1 bed£72,660 (minimum of 42sqm)

2 bed £102,572 (minimum of 66 sqm)

3 bed +£131,776 (minimum of 80sqm)

On subsequent resales, such properties may only be sold at an equivalent discounted rate of open market value. To further ensure that the properties meet local housing need and remain affordable for future occupiers, the Council would reserve the right to make nominations for the occupation of the homes.

4. What type of dwellings should be provided?

A range of dwelling types, sizes and tenure is required. The mix will be determined taking account of local housing needs and the character of the remainder of the development. The affordable housing element will normally be of similar size and character to the market dwellings, unless identified housing needs indicate an alternative dwelling type of required. The precise mix must be agreed with the Council.

5. How should the layout be designed?

Large groupings of single tenure dwellings or dwelling types should be avoided. Affordable housing should be well intergrated with market housing, in a way which results in different kinds of housing being in close proximity to each other. As a guide there should normally be no more than 5 affordable dwellings grouped together, except where they are provided in flats, when a high number may be appropriate. Further guidance can be obtained from the Development Control Service and the Major Projects Team.

Affordable housing should be indistinguishable from market housing in terms of appearance. Dwellings will be expected to meet Level 3 of the Code for Sustainable Homes. Developers should work with Registered Social Landlords (RSLs) when designing the scheme to ensure that these requirements can be met.

6. Who will provide the affordable housing?

The Council’s preferred method of provision is the a partner RSL. The Affordable Housing Team will advise on one that is best placed to become involved in a scheme.

Alternative providers (for instance non-partner RSLs or developers/affordable housing providers) will be considered if they agree to nominations requiremenrs determined by the Council, can demonstrate to the Council’s satisfaction suitable longterm mangement, communiuty development and involvement arrangements; they will also need to sign a S106 agreement to ensure that the homes remain affordable in perpetuity. The preferred provider should be identified at an early stage so that they can be involved in the design process.

The Council will only support bids for Housing Corporation subsidy by partners RSLs or other providers it has agreed to work with, and provided it is satisfied with their proposals.

7. How will the affordable housing be provided?

The Council’s preferred method of provision is where the developer sells completed units to a partner RSL. In some circumstances free, serviced land transferred from the developer to an RSL is acceptable. Further guidance should be sought from the Affordable Housing Team.

Provision of off the shelf social rented or shared ownership housing without public subsidy.

Social rented housing without public funding

Public funding to provide social rented housing through housing associations is unlikely to be available for every site on which Kerrier negotiates with a developer. In these circumstances, Kerrier may ask the developer to provide completed social rented homes without any public subsidy. In practice, what this means is that housing associations can only pay the developer what they can generate by way of a mortgage, borrowing against their future rental income. But housing associations’ rents are controlled by Government who want rents to remain affordable for people on low incomes. Rent levels, are therefore, mainly set according to local earnings, with some weighting to reflect property values. As incomes in Kerrier are very low, the rents which housing associations are permitted to charge and which will support a mortgage are also very low.

So what can housing associations pay?

The table below shows our calculated values for what a typical housing association can afford for a typical rented home in Kerrier where there is no other public funding available. These purchase prices can be used as a guideline only. They can vary between towns and rural areas. They can also vary between different sizes and property types. It is important that developers liaise with the planning authority, the Council’s Affordable Housing Team and any nominated housing association to establish at a very early stage what the likely values will be on a specific scheme.

Estimated guideline purchase prices for social rented properties in Kerrier
1 bed 2 person flat / 46m2 / £25,000
2 bed 3 person flat / 62m2 / £30,000
2 bed 4 person house / 76m2 / £32,000
3 bed 5 person house / 86m2 / £37,000
4 bed 6 person house / 101m2 / £40,000

Housing associations can pay more for new build HomeBuy (shared ownership) properties without grant. However, the overall price they can pay is still restricted by affordability considerations and the need to set the rental element at 2.75% of retained equity. Indicative values are between 60% and 65% of open market value. For example:

Estimated guideline purchase prices for HomeBuy properties in Kerrier
Unit Type / Open Market Value / RSL off the shelf payment for shared ownership without grant
1 bed flat / £125,000 / £83,000
2 bed flat / £145,000 / £93,000
3 bed house / £200,000 / £120,000

Additional Public Funding

In some circumstances public funds (from Kerrier or the government body called the Housing Corporation) are available to housing associations to provide social rented homes within new developments. The availability of grant is dependent upon a number of factors – the views of both Kerrier and the Housing Corporation as to whether grant is necessary, the timing of the scheme and the type of housing delivered. Grant is more likely to be available for strategic developments which most closely meet Kerrier’s requirements in terms of mix, tenure, location and size of homes.

Where grant through public subsidy is available, this is provided direct to the housing association to purchase completed units and will be in addition to the prices set out above.

8. Who will live in the dwellings?

Nominations of eligible households will be made to all dwellings from the Council’s housing register, or with agreement, registers held by RSLs. This provides an objective, open and accountable way of allocating properties. The RSL/affordable housing provider will be required to accept nominations that have been made in accordance with the allocations policy.

9. Exceptions to on-site provision of affordable housing?

The Council aims to ensure that new development contributes to mixed and balanced communities, wherever possible. Kerrier is of the view that in the majority of circumstances, a site which is suitable for residential development is also suitable for affordable housing provision – although the mix and tenure may be varied. In addition, there is a finite level of development sites and opportunities in both the urban and rural areas making the identification of alternative sites to support off-site provision difficult. For these reasons, Kerrier’s foremost preference is for on-site provision (including mixed use developments) and affordable housing which is well integrated and indistinguishable as far as is reasonable from neighbouring general market housing.

It is certainly unlikely that Kerrier will accept any assertion (in the absence of good reason) that a development is too exclusive or not sufficiently sustainable for affordable housing development or that it is only suited to executive homes as sufficient justification for off-site contribution. However, Kerrier does accept that there will be some circumstances where on-site provision is neither suitable nor possible and either off-site provision of a financial contribution may be considered acceptable. This will be a matter for negotiation and, ultimately Kerrier will determine whether an off-site contribution is acceptable. Where a financial contribution is justified in policy terms, Kerrier will adopt the following approach:

The financial contribution will be broadly equivalent to the cost to the developer of on site provision
The financial contribution will reflect any public subsidy which would have been available for on site provision but only where an assessment shows subsidy to have been necessary and very likely to have become available

Kerrier will make use of the residual valuation method calculation to assess the level of contribution sought. This approach ensures that on and off site contributions can be calculated in a broadly equivalent way. Kerrier will make use of the specific data provided by the applicant – or in absence of such data – will make standard assumptions. The data will be used to determine the full cost of building a residential development compared with the scheme revenue generated through house sales to arrive as the residual value for the land. Residual calculations will compare the residual for a scheme which delivers 100% open market housing and the same scheme with the target number of affordable homes provided on site. The financial contribution payable will be the difference between the two residuals, reflecting the level of subsidy provided by the developer to deliver the affordable housing on site.