Small is affordable

Latest figures show the lowest house starts since the end of the war in 1945. Housing completions this year are likely to fall 30% to 35% below the five year annual average of 160,000 in England and a far cry from the long term target of 240,000.

In London alone, in January 2008, 1,000 units were completed and available with a further 4,500 units under construction and due to be completed during the year. This equates to two thirds of the development pipeline for the year. In comparison, the 2009 pipeline reports only 2,900 units currently under construction, just 27% of the potential pipeline for next year.

Whilst this is depressing news, what does it mean for the affordable housing sector? Currently for any new private scheme over 15 units, between 30% and 50% of the units, depending on the local council, must be for affordable housing. This applies to the whole scheme not just the element over the threshold.

Has it taken a depressed property market to bring out the weaknesses of this legislation if its success depends on a booming property market? Certainly, whilst market conditions prevail, with many developments mothballed until the market recovers, developers who can go ahead must be doing their best to avoid schemes that must provide the affordable element, if they are to produce a feasible scheme.

Average prices for new build units increased by 52% in central London during the three years between 2004 and 2007, so whilst developers may have complained about the affordable housing requirement, they were obviously still making a reasonable margin by introducing innovative design solutions to make the figures stack up. What is virtually impossible to establish is just how many schemes have been designed and built with 15 or fewer units specifically to avoid inclusion of the affordable element. Perhaps it has taken a serious downturn in the property market to encourage the wider property industry to question the legislation, which seemed a good idea at the time for central and local government because it was painlessly delivering more homes. Should the industry be lobbying government about how best to resolve this situation?

It would wrong to suggest that any development be anything less than socially inclusive. However, a more effective and fairer system might be a series of thresholds, similar to that in the tax system, so the bigger the scheme, the bigger the percentage of affordable housing. Finances aside, this would probably be preferable also from a management and design point of view.

Developers who can go ahead must be doing their best to avoid schemes that must provide the affordable element if they are to produce a feasible scheme.

Smaller schemes are often brown field developments in cities and towns where a mix of private and affordable housing would be beneficial in the wider social and economic regeneration of the area. This is even more reason to encourage schemes without penalising them with planning requirements which are at times difficult to deliver, particularly in a tough market. What we have now are targets which were meant to ensure the provision of more affordable homes but which could be contributing to the very slowdown of the housing supply.

The legislation needs to be reviewed not only so it works in different market conditions, but also in different parts of the country, in rural areas as well as in our towns and cities, not to mention the specific location of the site.

In London we saw housing thresholds for inclusion of affordable housing dropped to 10 units and the percentage targets increased to 50%. In March 2003, then-mayor Ken Livingstone even supported reducing or abolishing the affordable housing thresholds to help increase the supply of affordable homes in the capital. A report commissioned at the time by the mayor and the Government Office for London estimated that if thresholds were abolished, around 2,900 extra affordable homes could potentially be provided each year on small sites. Neale Coleman, the then mayor’s policy director of housing, suggested that reducing thresholds would help boroughs achieve the mayor’s minimum target of 10,000 new affordable homes for London each year.

Nearly five years later in February 2008, mayor Livingstone reported that more than 33,000 new homes had been built in London in the previous year, the largest annual figure since 1977. A total of 11,980 affordable homes were provided, an increase of more than 70% since 2000. But it is almost impossible to get any reliable data for what has happened in the last 12 months since the sub-prime fiasco began.

The planning system needs to respond to change and do what it can to avert any further slow-down in housing supply. We need a far more flexible approach so that we can respond sensibly to the shifts of world economics beyond our control and lessen the blow to UK Housing plc.