CIL could be a spanner in the works

With Funding for Lending and Help to Buy, the government is looking to the housing industry to increase supply. However for developers, increased sales can only lead to supply increases if we can replace outlets which are selling faster than anticipated with new consented outlets.

All developers hold short-term land banks, and Crest Nicholson is no exception. However, in my experience every viable consented site is started as soon as the ever growing number of pre-commencement conditions are cleared. The only way to increase supply is therefore to secure additional consented land quickly and efficiently.

One of the greatest threats is the Community Infrastructure Levy (CIL). Conceived with the intention to simplify and increase transparency, and designed to supersede all but the affordable housing provisions of Section 106 Agreements, CIL – if not amended and implemented more thoughtfully – threatens to deliver the worst for everyone.

Conceptually, a defined per dwelling tariff which discharges the obligations of a development to mitigate its impact on infrastructure, education and the community is appealing. But, add in payment holidays for affordable housing and offsetting arrangements where existing floor space already exists on a site and unintended consequences can quickly arise.  

Remove linkages between the development and what the CIL money is actually spent on, and all concept of a responsive and timely mitigation package is lost.

Paying 15% of CIL to the local community is reasonable on smaller sites. However on a 2,000 dwelling site where CIL could amount to £60m, a £9m payment could be considered to be out of proportion and problematic for the Local Authority ultimately charged with delivering services. The LA might reasonably expect this money to go into its budget instead of being diverted to local residents.

Bespoke development costs more than a volumetric approach and values can vary significantly even within one town. Is it really feasible to capture this into a small number of CIL charging bands?

For developers looking to bring forward larger sites, the fact that rates don’t get fixed with Outline Planning Consent makes investment decisions uncertain. Equally with most CIL payments required early on, cash flows are stretched, making it unworkable for all but the larger, better-financed developers.

Above all it is the rate setting process, and the resulting charging levels, which could significantly undermine an increase in supply.

No two developments are alike and infrastructure costs can easily vary from £2k to £40k per dwelling. Bespoke development costs more than a volumetric approach and values can vary significantly even within one town. Is it really feasible to capture this into a small number of CIL charging bands?

The overhead and profit levels of a developer, which should have regard to risk and ROCE, are too frequently over-simplified. Land values, which vary significantly from small to large, and urban to rural sites, are also set with little regard to the net-to-gross efficiency from public open spaces and infrastructure land.

For those charged with setting and testing the charging rate there is much to consider. The Local Authority, its advisors and the PINS inspector must also pay attention to the Affordable Housing policy of the relevant authority; if CIL is set too high the proportion of affordable housing which can be cross subsidised will be reduced.

With over 350 Local Authorities trying to set CIL levels before March 2015 it is impossible for anyone to make detailed and reasoned representations. On behalf of its members, the HBF has therefore instructed Savills to represent the industry in charge setting enquiries where either unsustainable CIL rates are proposed or where significant matters of principle are being tested. These represent a fraction of all enquiries and yet the process can still cost millions.

Against this backdrop the government recently carried out a consultation on amendments designed to address many of the shortcomings. The outcome is awaited.

Nevertheless, unless there is more realism within the charge setting process, and an acceptance that CIL should not be set at a level which threatens viability and affordable housing delivery, then far from seeing an increase in supply we could see a huge number of unviable and undeliverable sites with no effective means of redress or renegotiation.

Chris Tinker is executive board director and regeneration chairman at Crest Nicholson