Viability in planning is a matter that has been under increasing policy and practical scrutiny in recent months, with new guidance, policies and templates emerging across the country. Whilst it is a wide ranging debate, one key matter which is yet to be settled is just how to apply viability policies to products which deviate from the typical ‘build to sell’ model (including, for instance, build to rent, shared/co-living, extra care housing etc).
In the midst of this broader discussion, the Planning Inspectorate published the inspector’s decision in the Lifecare appeal (ref. 3198746).
This appeal decision related to a proposed extra care/retirement living development. The appeal decision raised a number of points, including the interlinked issues of use classes and affordable housing provision.
Lifecare has focused at least some minds on the issue of viability assessments in Section 106 agreements and planning matters when it comes to ‘non standard’ tenures and use classes, and in particular just how these ought properly to be approached.
We have witnessed in recent years a homogenisation of approach across London, with the Mayor’s intervention in providing standard form viability review drafting for inclusion in Section 106 agreements which are referable to the Mayor for review as part of the planning application process.
This standard form has provided a template for viability review mechanisms for large-scale development section 106 agreements, and in most quarters it is acknowledged that there is some benefit to standardisation.
That is not to say that there is not room for negotiation and bespoking, but the general framework has been provided for these elements to be dropped into.
That is, by and large, fine if you are providing a ‘traditional’ residential product. The variables in that are well known to most local planning authority officers and advisors, and a consensus reached (and in some aspects enforced by the Mayor’s drafting) in respect of relevant inputs, variables, and analysis methods.
However, what if you are offering something that is not a ‘standard’ residential product?
Lifecare
Lifecare focused on an extra care housing development, which incorporated a nursing home alongside more flexible extra care housing units in which the level of care provided was adjustable to respond to residents’ particular needs.
In the first instance the appellant sought to argue that its extra care housing product would fall within the C2, rather than C3, use class, on the basis that it included elements of care and communal facilities.
The effect of this would be to take the extra care element of the scheme out of the requirement to make provision for affordable housing, as that applied to only to C3 dwellings, and not to C2 units.
The Inspector rejected this position, a conclusion no doubt eased by the appellant’s recent application for a change of use to C3(b) from C2 for the extra care element of one of its already-occupied schemes.
Notwithstanding this, the Inspector’s report does underline the still blurry nature of the dividing lines between some forms of C2 and C3 housing, and the imprecise nature of the use classes provisions in determining which use class ought properly to be ascribed to a particular product – as ever, it is said to remain a matter of fact and degree.
With the matter of the use class settled, it fell to determine the viable amount of affordable housing that the scheme could afford to provide.
Of particular interest in this case was the matter of ‘deferred management fees’ (DMF – also known as ‘event fees’) for fees accrued during the term but payable on the vacation of the relevant unit.
In dispute was both their impact on sales values, and whether they amounted to long term revenue which ought to be accounted for in determining the suitable level of affordable housing provision made by a scheme.
The inspector considered that they should, on the basis that receipts in respect of the DMF amounted to medium to long term benefits which would improve the overall profitability of the scheme.
As a result the scheme needed to provide affordable housing, and at a higher level than the appellant’s evidence had offered, taking into account the increased profit the Inspector found the scheme would make once the medium to long term effect of the DMF was accounted for.
Unintended Consequences?
The complex and usually nuanced nature of viability arguments is such that the applicable planning policies can struggle to cover all eventualities.
In particular they are usually drafted with ‘traditional’ C3 products in mind, and are not structured in such a way as to allow a truly flexible, pragmatic, and commercially workable approach to alternative products.
Where to?
As alternative tenures and products proliferate through the market, a decision will have to be taken as to the appropriate policy approach, and whether there needs to be a change.
This can cut both ways, and it is often impossible to accurately assess the full implications of a change in policy before it comes into effect. The Mayor’s decision to seek to impose affordable housing contributions on shared living products (without any regard to the actual rent being charged for the product) is a perfect example of this. Whilst the approach has arguably provided some policy support for shared living tenures, it has the effect of precluding many operators from charging affordable rents, as they will not be able to afford to do that, and also pay the mandatory affordable housing contributions.
The current levels of uncertainty as to what operators and developers are expected to provide where their products deviate from traditional C3 housing is untenable in the long term, and government (at all levels) needs to formulate a response which does not rely on shoving a square peg into a round hole.
In turn, operators and providers need to be clear and fair in demonstrating what they can and cannot sustainably provide, if they are going to be suitably incentivised to bring forward innovative solutions to the housing crisis.