Councils to expose developers' 'murky' viability claims to increase cheap homes

London’s Islington council to publish developers’ own assessments and demand evidence for profit claims to raise portion of affordable housing in new schemes

Secretive calculations used by property developers to avoid paying for affordable housing are to be exposed in a bid to increase the supply of cheap homes.

The opacity of developers’ claims about how much profit they need to make if a scheme is to be viable, and therefore how much social housing they can afford to build, has been identified as a key reason for the fall in construction of affordable housing.

In a response that will be closely observed by town halls across the country, the London borough of Islington is to change its planning system and insist the calculations are published in full.

It will also stop developers paying incentives to consultants who draw up the viability assessments based on how much affordable housing they manage to avoid building.

One housing expert, Dr Bob Colenutt, has claimed the current system constitutes “a wholesale fraud on the public purse”.

“It has been very easy to do,” he said. “The developer undervalues the scheme using these viability assessments so they don’t have to build the level of affordable housing in the planning policy.”

There have been several high-profile disputes over the amount of low-rent housing that private developers are willing to pay for.

Last year, the Royal Mail Group produced a viability assessment saying only 24% of the homes on the planned redevelopment of the Mount Pleasant sorting office site in London could be affordable. Islington and neighbouring Camden council complained that 42% was possible and at a lower rent than proposed by the developer. But the London mayor, Boris Johnson, gave the go-ahead for 120 fewer affordable homes than the councils believed were possible.

“Developers and landowners have benefited at the expense of essential affordable housing thanks to a viability industry that has got out of control,” said James Murray, executive member for housing at Islington, the Labour council that said it would resist developers’ claims of commercial confidentiality about viability assessments.

“People are being conned out of affordable housing in some of the biggest developments in London. It has become such a murky process the pendulum has swung too far in favour of developers.”

One viability assessment was released last month following a freedom of information battle. It showed a developer considered 25% profit acceptable when the council scrutinising it said 15% was more normal. The difference on the scheme at the Elephant & Castle in south London equated to £100m.

Jerry Flynn, who obtained the figures, welcomed Islington’s move. “The viability assessment is the most critical document now in the planning process and we are disabled if we can’t see it and share it among people who understand them better than we do,” said Flynn, a former resident of the Heygate estate at Elephant & Castle, which has been knocked down to make way for a new development.

Sadiq Khan, the MP for Tooting and a Labour candidate for London mayor, has said he would establish “a London-wide standard, which demands that all viability assessments are transparent, honest, and fair”.

He added: “It’s wrong that complicated and secretive viability assessments are being used to protect landowners’ and developers’ profits, and prevent the building of affordable homes.”

Property experts have warned that council officers have often struggled to analyse the viability calculations presented to them. Islington is demanding “all viability evidence must be robustly justified and appraisal assumptions should be benchmarked against publicly available data sources” and wants “supporting evidence from applicants and lenders to justify proposed rates of profit”.

Melanie Leech, chief executive of the British Property Federation, which represents developers, said: “Viability is clearly a matter of public interest and we support an open and transparent process so that everyone can have confidence in the outcomes of the planning process.”

http://www.theguardian.com/business/2015/jul/14/councils-publish-developers-murky-viability-claims-increase-cheap-homes

About time, the rules governing how much social housing they have to include in development are circumvented all the time.