The amount of money accepted by councils in lieu of new affordable homes on private developments has almost trebled in two years. Carl Brown investigates the cause of the surge and its impact on communities
It means there is one part of Westminster for the rich and another for everybody else, it leads to the creation of inequality,’ warns Paul Dimoldenberg, leader of the Labour group at Westminster Council.
Mr Dimoldenberg is criticising the authority’s policy of accepting ‘commuted sums’ from private developers instead of insisting they include affordable homes in their schemes. The council has agreed sums worth almost £37 million in the past few years (see box: Adding it up). Now it is waiting to receive a staggering single payment of £78 million from developer Qatari Diar in return for reducing affordable housing in its £3 billion Chelsea Barracks residential scheme.
The council argues that as a dense, central London borough with high construction costs it has an ‘atypical’ market, which means developers can prove easily that it is unviable for them to include affordable housing in their schemes. Westminster believes it can ensure more homes are built by accepting cash to spend in the parts of the borough which have lower construction costs. Jonathan Glanz, cabinet member for housing and property at the council, says: ‘We have earned and stand to earn significant amounts from commuted payments that allow us to build affordable housing throughout the borough.’
Westminster may feel it is ‘atypical’ but it is certainly not alone. An exclusive freedom of information survey of 161 English councils by Inside Housing reveals a surge in commuted sums over the past two years. The total value of cash accepted in lieu of affordable homes being built onsite has nearly trebled from £23.4 million in 2009/10 to £67 million last year. The number of authorities accepting commuted sums has almost doubled from 39 in 2009/10 and 74 in 2011/12. In total £161.5 million has been accepted over the past four years.
The survey results have ignited fears that the policy of accepting cash instead of onsite affordable housing will promote single tenure developments and will lead to fewer affordable homes being built overall.
So why is this happening and is all this money - which must be ring-fenced by councils - re-invested in affordable housing as promised or left sitting in the bank?
The National Housing Federation is concerned about the increase in commuted sums because of its implications for mixed-tenure communities, but it is also convinced commuted sums deliver fewer homes than onsite provision. Cameron Watt, head of neighbourhoods at the NHF, says commuted sums are technically worth less than onsite provision because land is not provided in the scheme.
Mr Watt also says land availability in London means councils may even struggle to find sites on which to build affordable housing using commuted sums. ‘The options for local authorities to secure sites are very limited.’ He is adamant that where a developer is building a scheme, it should include affordable homes on site. ‘There is a strong bird in the hand argument here, we would prefer to get homes built onsite along with the private homes even if it is at a reduced level,’ he says.
Chad Sutton, senior associate at law firm Trowers & Hamlins, echoes the point about commuted sums providing fewer homes. He says it costs less for affordable housing to be added into a development which is being built anyway, and which has planning permission, rather than finding new plots of land and building housing separately.
Steve Douglas, partner at consultancy Altair is more concerned about the impact commuted sums have on mixed communities and warns the practice could accelerate the ‘transfer of people’ from more expensive to less costly areas.
The bigger question is whether money ring-fenced for affordable housing is actually being spent on just that. Under the Town and Country Planning Act 1990, commuted sums must be spent on the original purpose they were collected for, in this case, affordable housing.
However, Mr Sutton says there is no set time period for spending the money, meaning councils can sit on the cash ‘as long as they like’. Like many lawyers, in most cases he advises developers to write refund clauses into agreements that allow them to claw the money back if the council has not spent it within a specified time. While this might incentivise councils to build homes, if councils do not locate sites in time it could lead to no homes being built at all.
Mr Watt says the state of the economy is the main cause of the rise in commuted sums and that many developments are struggling for viability if they include affordable homes.
In addition to this the government has made it clear councils can be more flexible over section 106 deals, the planning conditions which stipulate how much affordable housing developments should include. Greg Clark, decentralisation minister, said last year that local authorities should revisit section 106 deals where there are viability concerns.
Despite these words, the national planning policy framework, published in March, says commuted sums should only be considered where they can be ‘robustly justified’ (for example, to improve or make more effective use of existing housing) and the agreed approach contributes to the objective of creating mixed and balanced communities.
There is one additional possibility for the rise.
Previous guidance restricted affordable housing requirements to sites of 50 units or more, but this has gradually been reduced. Robin Tetlow, managing director of consultancy Tetlow King Planning, points out that there is no threshold at all in the NPPF. This means councils are increasingly asking developers to include affordable housing in smaller schemes, where viability is more likely to be an issue.
Councils may also be using commuted sums as part of a strategy to encourage certain kinds of development. Slough Council, which agreed the third highest amount of commuted sums in our survey (see table: Ten highest commuted sums by council) agreed a £4.7 million sum last year from a developer of a block of flats so it could use the money to build larger homes.
‘The most pressing need was for larger family homes,’ explains Helen Scullard, head of strategic housing at Slough Council.
In the face of more vociferous arguments over viability and increased flexibility on section 106 agreements, it seems likely commuted sums will only become more popular.
The NHF has called on councils to ‘wait for the market to improve’ before accepting sums, but on current evidence, this advice is falling on deaf ears.
Ten highest communted sums by council
|Local authority||Value of commuted sums agreed (2011/12)|
|City of London||£12.1 million|
Adding it up (2008 to 2012)
City of London
Source: Inside Housing freedom of information requests