A High Court ruling last week has called into question the way developers use viability assessments to reduce the amount of affordable housing provided on new developments.
The judge presiding over the case said the Royal Institute of Chartered Surveyors needs to rethink its guidance on how viability assessments should be used to make sure they are not misused.
Mr Justice David Holgate found in favour of Islington Council after it twice refused planning permission for a 96-unit housing scheme proposed by First Base in the Parkhurst Road area of the borough because it said it did not provide enough affordable housing.
First Base had said it would provide 10% affordable housing, but Islington’s policy is that 50% of the homes in new schemes should be affordable. First Base appealed to the High Court but lost the case.
As part of the appeal, the judge looked in detail at the viability assessment submitted by First Base to back up its decision to offer 10% affordable housing, prepared by consultant Gerald Eve. These assessments state how much affordable housing the developer can provide and still make what is deemed a reasonable profit, a benchmark usually set at a return of 15% or more. They are usually kept out of the public domain.
In his judgement, Holgate said the proposal put forward did not provide the maximum amount of affordable housing possible when local land and house prices were taken into account.
He went on to say that viability assessments were being used to present a “circular” argument whereby developers paid too much for land, and then claimed they couldn't provide much affordable housing because if they did they wouldn't make a profit.
He said the RICS should look at its guidance on viability assessments to avoid protracted arguments like that between Islington and First Base.
He also shot down an argument common among developers when talking about affordable housing.
“I note the appellant's position that no affordable housing will come forward if the development is refused planning permission but this argument could be applied to any residential case and is not justification for allowing development that does not properly meet policy requirements and objectives,” he said.
“This decision reinforces Islington Council’s long standing position that developers should abide by the councils’ planning guidelines — rather than overpaying for land and then trying to bypass our affordable housing requirements,” the council said in a statement.
When recommending the proposal be rejected, the Planning Inspector had noted that First Base had not paid much more than other developers on other similar nearby schemes. But in general developers are paying so much for land it is making it uneconomical to provide much affordable housing.
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