Blog: Developers helped by fall in affordable housing requirement

You may have heard recently about a reduction in the number of affordable homes being provided on new housing developments in Shropshire.  Here we explain the background to this and the reasons why:

The domestic house building industry is crucial to economic growth and recovery, both locally and nationally, and Shropshire Council is proactively seeking to help mitigate the profound impact of the economic downtown on new housing development sites in the county. 

The council has taken a pragmatic and proactive approach to this issue by helping developers to continue to deliver much-needed housing, with the wider economic stimulus this provides to the local economy. 

Under previous policies, housing developers could be required to provide up to 50% of their development as ‘affordable homes’ as a condition of their planning permission. 

These requirements were deliverable within Shropshire’s local housing markets of pre-October 2007, when the housing market was buoyant, and this helped determine the council’s aspirations published within the Core Strategy – produced in 2006 – to deliver 9,000 affordable homes throughout the plan period. 

Since the housing market collapse, the cost of providing this level of affordable housing is no longer financially viable to the developer, and new planning permissions are now subject to a 13% affordable housing target rate.  Shropshire Council uniquely adjusts this figure on an annual basis to reflect current construction-related indices. 

This reduction from up to 50% to 13% exemplifies the economic differences between now and recent years. 

Historic land acquisition values and planning permissions granted at the height of the market boom, combined with a continuing fall in open market house values and a reluctance by the financial institutions to offer mortgages, means that the developers are left with land that has halved in value, and planning permissions with planning obligations that the site value cannot sustain or deliver.  

The realities for a council are stark: either leave the site undeveloped, half-built and stalled; or respond by renegotiating with the developer (on an ‘open book’ basis), the planning obligation that currently has most impact on viability and delivery ie the provision of affordable housing. 

These ‘open book’ renegotiations are a full analysis of a site’s current significantly reduced development value, and all attributable costs including the planning obligations such as affordable housing. 

A decision is made by the council as to what the site and developer can now deliver in order to begin or keep the site developing.  Although these renegotiations ‘reduce’ the number of affordable homes on that site, the historical higher numbers of affordable homes originally required are now unachievable and undeliverable.