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The affordable housing that's unaffordable

Duration:
26 minutes
First broadcast:
Wednesday 08 January 2014

John Waite investigates why some new housing developments have been given planning permission without any affordable housing.

Councils set a target for what percentage of new build homes in their area should be affordable to people on lower incomes and will only grant planning permission for a scheme on condition that the developers include a proportion of low-cost homes. But following a change in the law in April 2013, some of Britain's biggest house-builders have told councils that they are no longer able to meet their obligation because it unfairly cuts their profit margins.

Face the Facts hears the allegation that some councils have been presented with out-of-date calculations that make a housing development appear less profitable than it actually is.

  • TRANSCRIPT

    THIS TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT.  BECAUSE OF THE RISK OF MISHEARING AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY

     

    FACE THE FACTS 

    The Affordable Housing That’s Unaffordable 

     

    Presenter:       John Waite

     

    TRANSMISSION: Wednesday 8th January 2014  1230-1300      BBC RADIO 4

     

     

    Actuality

    Okay Mr Page, here are your keys to your new flat, I hope you enjoy many years living in this property.

     

    Well this means a new life, new start.  I mean if I can move in tomorrow I would.

     

    Waite

    After spending years renting a third floor flat in which he struggled to manage the stairs, 63-year-old Roland Page has a new ground floor home in Norfolk and at £90 a week it’s one he can afford on his pension. There’s a chronic shortage of homes like this one – homes within the reach of people on low incomes. As Chancellor George Osborne said last week, it’s a long standing problem.

     

    Clip from 5 Live

    Osborne

    The number of social homes in this country shrank a lot over the last 15 years – around 400,000 fewer social homes at the end of the period of the previous government.  But what we’ve committed to is a big expansion over the next three or four years.  Aspiration is not just about wanting to own your own home it’s also wanting to have your own home as a social tenant.

     

    Waite

    To help increase the number of so-called “affordable homes,” this government and the last one, told house-builders to include some such properties within new housing schemes. Thus inclusion of affordable properties is generally made a condition of getting planning permission to build new homes.  Yet, today on Face the Facts, we reveal how developers are building whole estates without a single affordable home on them using a recent change in the law to tear up these long-standing agreements.

     

    Meanwhile, only one in five of the largest councils in England and Wales told us they were meeting their obligation to build new affordable social housing. In fact, just 43,000 new affordable homes were built in England and Wales in 2011-12, while the number of households priced out of the property market – either to rent or to buy - is around 1.75 million.  

    Rachel Fisher is Head of Policy at the National Housing Federation, the umbrella organisation for housing associations.

     

    Fisher

    They’re kind of older and vulnerable, it could be because they’ve got specific health needs and so you know having a particular property would be very expensive.  Or it could be because they’re just in a low wage job and they can’t afford to pay whatever the market rents are.  It’s a huge need and it’s not spread equally across the country.  In really expensive parts of the country, so say London or Cambridge or York, you’ve got very large waiting lists and people who are in quite desperate circumstances and being housed in insecure accommodation and B&Bs.  So we are seeing an increasing need for affordable housing as we’ve basically just seen the market just continue to go up.

     

    Waite

    In Norfolk, a couple of miles outside the seaside town of Cromer, work is underway on a new housing estate - what the developer Hopkins Homes calls "a beautiful collection of traditionally crafted homes". There will be 50 in all, some are already finished. "The Pensthorpe" - a four bedroom detached - can be yours for just shy of £350,000 or "The Banningham", a three bed semi for around the quarter million mark. What we've come to see though is marked in grey on the brochure's map, where it is discretely titled simply "Affordable Housing".

     

    Page

    Come in, welcome to my new flat.  Now this is going to be my living room, TV and me settee’s here, easy chair there for my back.

     

    Waite

    When this estate got planning permission in 2011 the council insisted that alongside the grand Georgian style residences, it should include a block of affordable properties. And now it’s finished, one of the first social tenants to be moving in is 63-year-old Roland Page who’s spent the past two years on the council waiting list.

     

    Page

    Well the main thing about it it was a ground floor and the fact that it’s got a little space for the garden out there, I’m going to sit out there and have my cup of tea in the mornings.

     

    Waite

    It has to be ground floor because you’ve got big problems with osteoarthritis.

     

    Page

    Yes, I had to basically retire and I’m living on a pension.  Back, my knees and my hips I’ve got to have replaced.  I was a builder so a place like this is absolutely fantastic, it’s over the moon really.

     

    Waite

    And are you living in a housing association property at the moment?

     

    Page

    I am not, no, I’m living in private accommodation above the top of a hotel, three flights of stairs, I just can’t cope with that anymore.  So I’ve had to – I’m having to move.

     

    Waite

    It’s called an affordable home, what’s that mean for you, is the rent achievable for you?

     

    Page

    It’s called an affordable home because the private rents, especially round Cromer, are enormous really.  I’m paying just over £100 a week and this will be less with more facilities and better quality accommodation.

     

    Waite

    Roland Page owes his brand new home in Cromer to what's called a Section 106 agreement, signed by North Norfolk District Council and the developers. The contract stipulates that 16 of the 50 homes on the estate be sold at a discount to Victory Housing Trust whose chief executive is John Archibald.

     

    Archibald

    They’re built basically to the same standard across the whole scheme, it’s easier for the developer to do that.  So these are by no means cheaper alternatives.  The difference on this site is our houses here are semi-detached and of course we’ve got flats.

     

    Waite

    And what sort of demand is there for housing like this?

     

    Archibald

    Massive demand and if we could double the houses we could fill them ever so easily.  We’ve got 1700 people on the waiting list and about 250-300 vacancies each year, so if you do the maths you can see that you’ve got many years’ worth of pent up demand and that’s assuming that the waiting list doesn’t grow anymore.

     

    Waite

    So Section 106 is very important then as a means of housing associations like yours getting new properties?

     

    Archibald

    Absolutely, as it is we’re struggling to meet demand but if you took away the Section 106 agreements you’d take a third of our housing development programme away just like that.

     

    Waite

    In England and Wales, around 60% of all new affordable homes result from Section 106 agreements. Every council sets a figure for what percentage of new homes built in their area need to be affordable - typically it is around 20%. But inevitably being forced to sell one fifth of its new builds at a discount to a housing association is not particularly welcomed by Britain’s house builders especially in places where property prices seem to be constantly rising. Richard Jones is from the construction consultancy EC Harris.

     

    Jones

    In the worst case somewhere like Westminster where the average price of open market units is probably £1200, £1300, £1500 a square foot, the amount that they would get for the affordable housing would probably be somewhere around £200 per square foot.  The fundamental point is that a house builder or developer won’t develop unless he’s going to make money out of it.  Quite often he owns options on land, so he doesn’t actually own it but he owns options on that land with the landowner and therefore if he can’t create some viability out of the development he won’t develop, he’ll move away from that option.

     

    Waite

    And if a developer does threaten to walk away then the council can have little choice but to agree to a lower proportion of affordable housing because as the statutory bodies charged with providing housing, councils need more affordable homes and having some is better than having none. Indeed the house builders typically own or have options to develop an estimated five years’ worth of house building land, so they can credibly threaten to build somewhere else.  Also if by being forced to build affordable homes developers can show that their profit margin will fall below the industry benchmark of 20% the council is obliged to reduce its demands on affordable housing. All too often the negotiation between council and developer seems an unequal one.

     

    Mind your footing.

     

    Twenty miles inland from Cromer, the market town of North Walsham. On a prime piece of land next to its railway station and the main road into town is the now brick-strewn site of the former HP foods factory, derelict since 2002. Jacqueline Belson is the town's mayor.

     

    Belson

    It was a very busy employment area of the town and it was a huge loss to lose it. 

     

    Waite

    And now as we look across well it’s just a wasteland isn’t it?

     

    Belson

    As you enter North Walsham this is one of the first things you see and it’s atrocious – there’s rubble everywhere, it’s overgrown, the fences are kicked down – it’s a complete eyesore and looks like a bomb’s hit it quite frankly.

     

    Waite

    But grand regeneration plans are now afoot. The owners of the land are Hopkins Homes, the same firm behind that development in Cromer where Roland Page has set up home. And six weeks ago Hopkins’ proposal for another of their housing estates came before the council.

     

     

    Read

    North Norfolk District Council, Development Committee meeting 21st November 2013.

    Agenda item 5:  Planning permission application for 176 dwellings, open space and car park

     

    Waite

    A hundred and seventy six dwellings with a mixture of flats, terraced houses and larger detached homes. Under North Norfolk Council’s affordable home quota of 20% that would mean a welcome 35 properties offered at below market prices for people on low incomes via a local housing association.

     

    But Hopkins Homes application came with a caveat:

     

    Read

    Based upon current revenues and costs the development of this land is economically unviable and therefore a relaxation is sought with regard to the provision of affordable housing.

     

    Well more than a “relaxation” really, Hopkins Homes didn’t intend to include any affordable housing at all.

     

    Belson

    Well I was at the meeting where it was discussed and everybody that came from North Walsham – the district councillors and the town council – all spoke against the application.  People deserve to have that chance to have an affordable house and a big firm like this, putting up this many houses, should offer some.

     

    Waite

    As is standard practice Hopkins Homes submitted to the council what is called a “viability assessment” which in this case showed the development would be insufficiently profitable with the low cost homes included. Within these assessments, according to consultant Richard Jones, there are a series of forecasts and assumptions which affect the conclusion.

     

    Jones

    Within a viability equation you have an input which is all about value, so someone has to assess what the value of those properties are.  Well you could create a realistic range with plus or minus 5% and no one could argue with that.  The same with costs, certainly a variation of plus or minus 2½% say, so if I took a view that I was going to be at the minus 5% value and the plus 2½% on cost it has quite an impact on the amount of affordable housing that I’m saying is viable to provide on that site.

     

    Waite

    In other words if you minimise what you’re likely to be able to sell the properties for and maximise what your likely costs are going to be that can distort things quite dramatically?

     

    Jones

    It can yes.  Fiddle’s probably to starker a word but people certainly can play with the figures to maximise their position if you like.

     

    Waite

    And that was a concern North Norfolk District Council had with the figures supplied by Hopkins Homes. The council officer responsible for assessing the submission reported quote:  ".. concern that some of the costs in the report are too high" and indeed the council made the firm supply more information. Nevertheless the development was agreed by the council with no affordable housing provision.  And that’s angered some locals not least because the case for its exclusion was made in a document – that viability assessment – which few are allowed to see due to an obligation of commercial confidentiality to Hopkins Homes. David Robertson of North Walsham Town Council believes the District Council should have employed an independent expert to assess Hopkins’ figures.

     

    Robertson

    I would have thought that anybody would turn round and say okay we’ve got your figures, we’re going to have them professionally looked at so that we know that the decision we’re making is right.  How can we be expected to make a reasonable decision when we don’t have all of the facts and figures? 

     

    Waite

    But what about the point of view which is better to have a development of 176 new homes on this eyesore site, that’s something that you’ve got?

     

    Robertson

    We’re between a rock and a hard place, purely because we want to see it developed but not at the cost whether we’re going to get nothing.

     

    Waite

    Construction consultant Richard Jones believes councils can be outwitted in such negotiations.

     

    Jones

    In order to be able to negotiate around viability you need to have experts on both sides that really understand it.  I would question in a lot of instances whether the local authorities have that expertise to be able to really understand and to be able to negotiate around that appraisal.

     

    Waite

    So they’re at a disadvantage?

     

    Jones

    In some instances that’s very true.

     

    Waite

    Hopkins Homes declined to appear on the programme today but in a statement told us:

     

    Read

    We believe the granting of our application was the right decision. It delivers much needed homes to the area and regenerates a brownfield site. Furthermore, the new homes are specifically targeted at the starter end of the market and hence are more “affordable” in other ways.

     

    Also to make up for the absence of any social housing, the company has proposed an “uplift clause” which means it will share 50/50 – with the council - any profit over 20% that it makes on the development.

     

    And it’s not just new building schemes where there is controversy over affordable home provision. It’s also happening on sites, like this one, where agreements between council and developer were signed long ago. Indeed a new law was introduced last April which allows builders to renegotiate what they’ve already negotiated if they believe circumstances have changed. Like here in the suburbs of Cambridge where a prime piece of land owned by the giant house builder Persimmon has been under lock and key since 2006.

     

    Crabtree

    I’m Roger Crabtree, I chair the Rustat Neighbourhood Association.  We’re now standing at the site of the old Water Board, which was a very attractive 1930s building.  It’s been knocked down and this is where the new development is due to take place.  You’ll see in the background and maybe hear the noise that there’s a mass of development going on around this particular area of Cambridge, it’s a massive development in this area, Cambridge is a boom city – employment is growing apace, housing hasn’t followed suit, desperately, I think, we need many more family houses and affordable houses.

     

    Waite

    And this site was going to help. When planning permission was granted back in 2006 Persimmon was committed to making 43 of the 143 homes affordable. Still an achievable figure you might think, when you consider that house prices in Cambridge last year rose by 10%. But last September – just a few months after that new law was introduced allowing renegotiation of old agreements - Persimmon wrote to the city council with a change of plan.

     

    Read

    Please take this letter as our formal application under the Growth and Infrastructure Act for an amendment of the affordable housing level. We look forward to the application being validated as soon as possible.

     

    The new percentage of affordable housing Persimmon now proposed for the site was wait for it…. zero. Otherwise, they argued, they would struggle to make any sort of profit at all. A claim met with disbelief by locals.

     

    Crabtree

    We think that the figures are very doubtful just on the basis of common sense.  If you look at what’s happening with Cambridge house prices, going up by a massive amount today and the site’s not going to built on for another two or three years, it is very difficult for us to comprehend that Persimmon can actually say the site is non-viable with the 43 houses.

     

    Waite

    Well Cambridge City Council did commission independent advice to assess the figures in Persimmon’s viability assessment. The result? A report which raised questions, for example, over Persimmons estimates of building costs, and of the prices the builder reckoned the properties would command, which were, and I quote, “significantly below market expectations”.

     

    The upshot was that the council returned to Persimmon suggesting a revised figure of eight affordable homes for the site – less than the original 43 – but better than Persimmon’s most recent proposal of zero. 

     

    The scheme will now go ahead but it’s still a matter of regret to Councillor Lewis Herbert, who attended the planning meeting, that the new legislation requires a decision on the developer’s request for fewer affordable homes within 28 days - meaning, he believes, the council was “bounced” into making a decision.

     

    Herbert

    We just thought that it should have been renegotiated a lot harder.  If on the basis of a couple of weeks they’d gone from nought percent to six percent affordable housing, who knows what might have happened with a couple of months hard work?

     

    Waite

    We did ask Persimmon to take part in an interview. Instead in a statement they told us:

     

    Read

    We operate at all times within the government’s planning policy and build affordable homes for hundreds of communities each year.  The viability test was overseen by independent agents appointed by the Homes and Communities Agency. All aspects have been checked by the council’s own agents.

    We’ve discovered that Persimmon has attempted to reduce its affordable housing commitments using the new legislation elsewhere. Ashfield District Council in Nottingham considered an application in July to remove all 12 affordable homes from an estate being built on an old colliery. Persimmon said that otherwise they would achieve an "unacceptable" profit margin of 15%. They said houses in the development were not selling as hoped. But the council rejected the application: council tax records showed that homes on the estate were steadily being occupied, there was nothing stalled about the development at all. Indeed, when we called the sales office two weeks ago, we were told that it was now sold out.

     

    Persimmon told us they had been unable to find a housing association prepared to take on the affordable houses. A claim Ashfield District Council says it is currently investigating.

     

    For the first half of last year Persimmon reported a 40% increase in pre-tax profits to £135 million.  And the fact that such apparently buoyant companies have been seeking to renegotiate their affordable housing agreements dismays Rachel Fisher from the National Housing Federation,

     

    Fisher

    What the government was trying to do was in good faith, it was basically saying we recognise that there are stalled sites and that in some instances these stalled sites would be able to go forward were you to reduce the amount of affordable housing contribution.  But actually local authorities don’t just make the figures up in terms of how much affordable housing is needed in their area, so the idea that then you can just kind of come in and say we think that actually this scheme isn’t going to be viable and the thing that’s negotiable is affordable housing, despite the fact that this is an objectively assessed need in your area, that’s really problematic for us.  And when you look at developer profits, which we’re now seeing – all the major house builders are reporting profit margins back to where they were.  So it’s an easy target.

     

    Waite

    Such an easy target that there are wheelbarrows of cash to be made by avoiding building affordable housing if the website of one company – called Section 106 Management – is to be believed.

     

    Read

    Do I really have to pay for affordable housing?

     

    You explain your development project to us. We analyse your project and tell you how much you can save.

     

    At this point there’s a cartoon illustration of a customer standing by a palm tree in a loud Hawaiian shirt, doffing his builders hard hat.

     

     

    Read

    You go on a nice holiday with the money you’ve saved.

     

    In the next cartoon, a builder is bent double trying to push the wheelbarrow of cash he’s saved.

     

    Read

    We conclude the negotiations and you save thousands on your Section 106 contributions.

     

     

    Robin Furbey is the man who runs the company which he says advises some of the smaller house builders in the country.

     

    Furbey

    I believe that I offer an honest and straightforward service where we look at the data that’s available and advise people honestly whether we can help them or not.

     

    Waite

    But I’m talking about their intentions – do they come to you because they really want to know what their responsibilities are or because they’d like to save a lot of money and not build so many affordable homes, thank you very much?

     

    Furbey

    Most of them are coming to me because they’re frankly struggling.  People have a very fond idea that property developers are all rich and run around in Porches and the reality is very different.

     

    Waite

    To quantify viability you say, we use specialist spreadsheets that give a more realistic vision of profitability, I mean do you really mean to say that the developers who contact you need your spreadsheets to show them their costs, don’t they already know what these are and how viable their projects are going to be?

     

    Furbey

    Well you have to remember that most of my developer clients are doing one project at a time, they’re not terribly financially literate…

     

    Waite

    But they wouldn’t have even bought the land Mr Furbey surely if they hadn’t done some basic calculations?

     

    Furbey

    Well I find that they’re perhaps not as literate as you might think in this regard, some of them haven’t even bought the land yet, they’re looking at their alternatives.

     

    Waite

    And they’re not spreadsheets, dare one say, that sort of emphasise their costs and minimise their profits?

     

    Furbey

    No, no quite the reverse, I mean these – the one I use is called the Housing Corporation Economic Appraisal tool and that was developed by the Housing Corporation to show what is and isn’t viable.  So we’re using the tools that the affordable housing business uses to show what or isn’t viable.

     

    Waite

    Can I ask you about these – I mean the word has to be blatant images that you use on the website – a satisfied customer, you show, standing under a palm tree? They will save, using your services, on avoiding section 106 contributions.

     

    Furbey

    Well it’s – shall we see – as with all forms of advertising we’re using an info graphic that is designed to tolerably convey a simple approach to a complicated problem.  These developments simply wouldn’t happen at all if I wasn’t able to help these clients because they wouldn’t be economically viable.  I’m really swimming with the tide of what is needed in this country to get the economy moving.

     

    Waite

    There is a sunset clause built in to the new legislation which means it will only run for three years. But during that time, by the government’s own estimate, 10,000 affordable homes will be lost – the price to be paid, it says, for unlocking 75,000 open-market homes. We invited the local government minister Brandon Lewis to take part today but in a statement we were told:

     

    Read

    Too much development has been stalled because of economically unrealistic agreements negotiated at the height of the housing boom under the last administration. This results in no development, no regeneration and no community benefits at all. By renegotiating such agreements more market housing and more affordable housing will be built than would otherwise be the case.

     

    Waite

    Using the Freedom of Information Act Face the Facts set out to assess how widespread is the renegotiation of Section 106 agreements. Of the 50 largest councils almost half of those who responded told us that they’d had to agree to a reduction in affordable home provision in Section 106 agreements with developers in the past five years. And more than a quarter have received applications to reduce social housing since that change to the law in April 2013.  

     

    But there are sound business reasons for that, says John Stewart of the Home Builders Federation, which represents most of Britain’s major house builders.

     

    Stewart

    This is a long term very high risk business that house building is.  If you’re a small developer and you have to raise development finance the bank will say to you, okay I want a 25% margin on that site or I won’t lend you the money.

     

    Waite

    I mean a lot of people listening might ask why does a developer have to take 20% or 25%, why not 15% and build some affordable homes?

     

    Stewart

    Because let’s say the city demanded 20% margin for house building and consistently a company performed with 15%, well that company would be pretty lowly rated wouldn’t it and eventually would probably be taken over by somebody.  So you have to meet the expectations of your investors.

     

    Waite

    So you think the act refers to sites that were stalled and where the cost of section 106 agreement was holding back development but why should the viability information be kept confidential?

     

    Stewart

    In some cases house builders I understand do go completely open book but it’s not – the idea that a house builder should sit down with a councillor, who’s not part of the company, and reveal all their commercial data is unrealistic, why should any company have to do that, this is extremely sensitive, extremely confidential information?  There may be examples of people who have tried it on, I’m sure there are, there is in any walk of life…

     

    Waite

    What’s your view of that – you’re the trade body, what kind of behaviour is that?

     

    Stewart

    Well we can’t be responsible for the behaviour of…

     

    Waite

    But you don’t condone it, this is what I’m trying to get at?

     

    Stewart

    Well it’s not for me to condone it or not, it’s irrelevant what I think.  The point about it surely is that the local authority is there to protect its own interests and the interests of the voters in its local area and the local district and it is incumbent on the local authority to be professionally advised that they are negotiating on a pretty equal footing and that they’re not having the wool pulled over their eyes and if they have the wool pulled over their eyes in a sense you haven’t got anyone to blame but themselves.

     

    Waite

    I wonder if there is a degree of resentment there, that maybe some of your members feel affordable housing is something that councils ought to do or housing associations should be building?

     

    Stewart

    There is almost a philosophical issue about whether house builders should have to provide subsidised affordable housing and the analogy that’s often used is you don’t expect Sainsbury to give away food to people who have very low incomes or BMW to give away every fourth car…

     

    Waite

    Do developers think of it sometimes a bit like that?

     

    Stewart

    They do sometimes think of it a bit like that but I think that in truth I think the industry’s just got used to it.  But there is a bigger issue – there is a question of whether we’re providing enough affordable housing in this country and I think most people in the affordable housing sector would say we’re not providing nearly enough, we need to figure some other way of adding to that number that comes through the private sector.  The private sector will carry on doing that we need even more and that’s not really something that we can solve.

     

     

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