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News analysis: How Sadiq Khan plans to boost ‘genuinely affordable’ housing

Housing graphs london 2
  • 1 Comment

The London mayor has published two new policy documents setting out his plans for increasing the supply of affordable housing. Colin Marrs looks at the implications for design quality and architects

During his victorious London mayoral election campaign earlier this year, Sadiq Khan promised to make 50 per cent of all new homes in London ‘genuinely affordable’. However, by June, Khan’s deputy mayor for housing had already adjusted that position, saying that this figure was, instead, a ‘long-term strategic target’. 

Some see that as a broken election promise, others a pragmatic side-step based on the realities of development in the capital. Either way, two recently released consultation documents shed new light on the new mayor’s approach to providing affordable housing in the capital.

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The first, Affordable Homes Programme 2016-21 Funding Guidance, sets out how Khan proposes to spend the £3.15 billion he has secured from central government to support at least 90,000 affordable housing starts between now and 2021 and puts forward changes aimed at bring these homes within easier reach of low-earners. The funding proposals are accompanied by a second document, the draft Affordable Housing and Viability Supplementary Planning Guidance, aimed at providing incentives for developers to provide at least 35 per cent affordable homes in their housing schemes.

The proposals, once in force, will undoubtedly alter the way housing is delivered in London over the coming years.  

Here is the AJ’s guide to what to expect and the key likely impacts of Khan’s new approach on architects. 

Housing graphs london

Tougher policing of affordable housing

Under the proposals, housing projects funded in any way from GLA affordable housing grants will be expected to meet design standards set out in the London Plan.

Although the plan already allows some flexibility and deviation from those standards – such as where schemes face exceptional costs, such as contamination – Khan is proposing to tighten up the monitoring of projects which do not comply.

The document says: ‘Providers will be required to specify the areas of non-compliance at both start-on-site and practical completion stage. Providers should ensure that a full assessment of final performance against the GLA’s design standards is kept on file for assessment at compliance audit stage.’

Although this may mean more hurdles to clear for those building micro-homes, more generally it could lead to improved design quality.

Colm Lacey, director of development at the London Borough of Croydon, says the new rule should encourage developers and contractors to ‘retain architectural continuity into the production process, whether this be via novation to the contractor or as a client-side design adviser’.

Gus Zogolovitch, founder and managing director of housing design practice Inhabit Homes, agrees, praising the idea of post-practical completion assessments. But he adds that there will be a devil in the detail of introducing the process. He says: ‘What if, as a result of construction issues on site, sizes drop below the standards. What will actually happen? A fine seems impractical, as this will imply that people will be able to “buy” themselves out of building below the standards.’

However, a spokesman for the mayor insists the new process will have real teeth. He says the action taken for non-compliance will ‘depend on the severity of the breach but could include repayment of grant paid, charging of interest on the grant, further audit work, or cancellation of future funding contracts or opportunities to bid.’ 

Redefinition of ‘affordable’

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It has often been pointed out that the word ‘affordable’ means different things to different people. The London Plan guidance defines affordable rent as 80 per cent of current market rent.

This still leaves many homes out of the reach of most Londoners. And Khan is clear that the existing policy, based on central government guidance, is not suitable for the capital. ‘The mayor does not consider 80 per cent of market rents to be genuinely affordable in most parts of London and he therefore expects most homes let for London Affordable Rent to be substantially below this level,’ says the funding document.

The mayor does not consider 80 per cent of market rents to be genuinely affordable in most parts of London

Hence three new affordable housing products are proposed. Firstly, at least 30 per cent of all new affordable housing should be provided as rented accommodation at London Affordable Rent – effectively a continuation of social rent levels, possibly similar to those enjoyed by council housing tenants.

A further 30 per cent should be provided through two new intermediate products: homes leased at London Living Rent (based on a third of the median gross household income for each borough); and shared ownership.

Local authorities will have control over the make-up of the remaining 40 per cent.

Former PRP chief Andy von Bradsky, chairman of the Housing Forum, says: ‘It is a question of what works where. The forum has been saying for a long time that we need more flexibility to address local housing need. Overall targets are fine, but they have to be applied to local circumstances.’

Mairead Carroll, London external affairs manager for the National Housing Federation, which represents housing associations, says architects working for these organisations might not notice a major change here. She says: ‘Our [housebuilder] members have always taken a pragmatic approach and currently rent properties at considerably less than 80 per cent so that people can afford to live there.’

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Build to rent

The new planning guidance, for the first time, introduces a definition of Build to Rent (BTR) schemes – a class of housing which is given its own guidance and benefits.

To qualify under the category, schemes must have at least 50 units, offer longer rental periods of three years or more, and be retained as BTR for at least 15 years – the latter an attempt to prevent developers achieving permission for a rental product and then flipping the units for sale. In addition, owners of the building will be required to provide management for all the units in a building – without the need to get a housing association involved.

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Build to Rent providers will now be expected to provide some units in their developments at below market rents. The document says these discounted market rent (DMR) units will be more suitable for BTR schemes than other products ‘because units can more easily be tenure-blind and “pepper-potted” through the development’.

Russell Pedley, director at Assael, which designed a BTR scheme of 249 units currently under construction by Essential Living at Creekside Wharf in Greenwich, says: ‘The negativity created by “poor doors” can be neutralised where DMR units can be pepper-potted within schemes to enhance operational efficiencies and create communities.’ 

Lacey adds: ‘In pure design terms, architects will face a more genuine requirement to focus on the interfaces between tenures.

‘Economically, while a more tenure-blind approach may put a squeeze on other cost inputs in the appraisal, such as fees, it may be that developers focus more on using design quality to maintain unit values. The need to pay for good architecture may become even greater.’ 

End of viability assessments

In an attempt to reduce the bureaucratic burden on developers, as well as increasing the amount of affordable housing provided by the private sector, Khan is proposing that schemes which include 35 per cent or more affordable homes should not be required to submit viability assessments.

Large schemes which do not meet the threshold (without public subsidy) will be assessed by the mayor. Developers which don’t meet the 35 per cent target will have to make public their viability information. 

Khan is proposing that schemes which include 35 per cent or more affordable homes should not be required to submit viability assessments

Although the move has been welcomed, there are also fears that developers will seek to deliver schemes more cheaply to ensure profits and duck under the 35 per cent bar.

Riëtte Oosthuizen, planning partner at HTA Design, warns that developers may feel ‘added pressure to value engineer’ schemes which are straining to meet the threshold.

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Build to rent schemes will be given their own, separate viability test, reflecting the difference in economics between for-sale and for-rent developments.

These clearer rules, which potentially remove lengthy negotiations with local authorities, mean that architects should gear up to be ready for a lot more work in the BTR sector, according to Robert Sheldon, affordable housing consultant at property consultant Knight Frank. He says: ‘We now have much greater clarity on how schemes will have to approach viability. Previously this was a point of negotiation between developers and councils. We will now see the sector as a whole will grow.’

However, Oosthuizen warns that the situation could remain complicated on larger developments. She says: ‘It might become a bit of a nightmare if a major scheme includes a component of Build to Rent. Effectively two separate viability mechanisms might be at play here, which, if the 35 per cent threshold is not met, could become very complex to assess and to administer.’ 

Strategic delivery partners

Architects also need to be aware of another major new proposal in the mayor’s proposed funding package.

Khan says he is ‘interested in working with a small number of major providers who will be delivering at scale through the programme period’. Such providers – which will be given preferential treatment – must be willing to commit to bringing forward at least 600 affordable homes as part of a wider delivery programme made up of at least 60 per cent affordable housing.

The funding document says these providers will benefit from higher levels of investment from the £3.15 billion funding pot, in return for agreements to return a proportion of profits. 

Combined with new incentives for early starts on site, the aim is clear – to help larger housebuilders deliver more homes on a bigger scale and more quickly.

But Zogolovitch says: ‘Unfortunately, I can’t see this working or being helpful. The reality is that volume homes have a natural take-up rate and building more won’t necessarily help. Demand outstrips supply, but 75 per cent of people say they would not want to live in a new build home. It would be better to help diversify supply, rather than just support more of the same.’

Lacey, meanwhile, says that perks for larger housebuilders are unlikely to lead to work drying up for smaller architectural practices. He says: ‘Even if “major provider” translates as “major developer/registered social landlord”, such actors are increasingly turning to small to medium-sized practices to help them design schemes, at least in the residential sector.’

Oosthuizen adds: ‘Many housing authorities are inclined to use smaller, niche architectural practices for their housebuilding programmes.’

Croydon and its Brick by Brick private development company, which is currently working with the likes of Stitch, Coffey Architects, Mikhail Riches, Mae Architects, vPPR, HTA and Pitman Tozer is evidence of that. 

Conclusion

While the GLA has full control over the conditions for its grant funding, there are still many hurdles to cross before Khan’s planning proposals can come into force. 

His vision could be altered during the consultation process, and local authorities will need to accept and adopt the new rules before they have any teeth.

Boris Johnson managed to beat his predecessor Ken Livingstone’s record of delivering affordable housing by about 1,600 homes each year. This success was greatly aided by central government’s redefinition of affordable housing to include rents of up to 80 per cent of market rates. Although some authorities – notably Islington – continued to demand rents at lower levels, Khan’s approach is set to once again raise the bar across the whole of the capital.

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Some worry that insisting on lower rents, although it is a laudable aim, could reduce the overall numbers of affordable houses being delivered. Will the GLA cash-pot be used to make a smaller number of homes more affordable, they ask, rather than to build more houses?

Oosthuizen says: ‘Common sense suggests it would be a lot harder to deliver even the small numbers of affordable rented units delivered at present, as it would represent an increase in the cost of delivery. Making homes available at London Living Rent, ie 30 per cent of the median gross household income of a borough, will certainly be a challenge and an added cost to scheme delivery.’

In addition, the new documents have been criticised for prioritising financial details over build quality. Brian Waters, principal of The Boisot Waters Cohen Partnership and president of the Architectural Consultants Association, says: ‘My main concern about the proposals is the lack of clear commitment to good design.’ 

In 2014/15 only 13 per cent of the homes approved in London were classified as affordable, a drop of nearly a third from 2007/8. The mayor, the development world and the citizens of London need this latest new homes drive to work.

Comment

Steve Sanham, managing director of HUB Group 

The announcement that Build to Rent providers are expected to provide some units in their developments for sub-market rents is actually a useful clarification for [those]. Prior to this there were lots of awkward conversations with local authorities going on about how to incorporate Shared Ownership and RSL managed affordable rented apartments into Build to Rent blocks – this clearly doesn’t work if an institutional investor needs an ‘unbroken’ block of apartments to manage as a single asset. Having some units in a block sold off on shared ownership schemes or to housing associations just doesn’t work.

This clarification gives direction to local authorities that they should be considering Discount Market Rent units within any scheme where the private element is covenanted as rented for a significant period of time. The actual amount will be subject to viability discussions anyway.

Seth Rutt of Hawkins\Brown

[In terms of the new affordable rent requirements] with fairly tough value engineering on every single project we’re delivering, we can see that both developers and registered providers are on the margins of being able to fund new projects.

Cross-subsidy via market sale homes will go so far - but future rental income is heavily relied upon. There does seem to be a mismatch between proposed governmental rent control and government capital funding for new homes- so yes, good design may have to suffer.

We’re regenerating estates that were cheaply built less than half a century ago and cheaply maintained since. With the upheaval and construction related carbon emissions that come from estate regeneration, we should be rebuilding with a much longer term view. But where does the money come from?

[And on the proposals for BTR landlords to be able to manage all units in a scheme] the interesting opportunity here is the potential for London Living Rent apartments to be pepperpotted with market rent apartments, with equal access to amenity, services and social events. Presumably one helps cross subsidise some of the costs of the other. A true social condenser model. Altruistic perhaps?

As an aside, it’s worth mentioning that the leading BTR landlords are offering superior tenancy agreements to residents when compared to the assured shorthold agreement in the wider private rent sector- such as three year lease agreements, with two months’ notice on the tenants’ side.

  • 1 Comment

Readers' comments (1)

  • MacKenzie Architects

    Wrong solutions, wrong questions.
    London can only operate as a free-market international capital.
    The financial sector has partly caused this overheating, with successive governments starting with Tony Blair, who gave up trying to push inward investment out into the regions and instead opened their gates to overheat London.

    The recent international rush to park foreign money safely in London's Real Estate is a temporary thing, and is probably past it's peak. The warning signs in NYC -where none of the multi-million dollar skyline apartments are selling, is a serious warning. Plus, the Euro currency break-up will mean Italian, French, Spanish, Irish money will repatriate to grab bargains at home.
    Sterling will go back to €1:40 soon and new money will slow.
    So you have to let London's property market be as volatile as it always has been.

    You actually need to reduce the population of South-East.
    Get 1 million people out of London and that will drop the rents and the sales prices, and the land values. You need to offer industry and commerce incentives to move out to the regions.

    I hate the idea of Government interfering in anything, but sometimes a stick and a carrot is required, because the people don't really have any leverage on their own.
    You would think that local councils could be bullied by the voters into looking after their residential needs, but nowhere is that working.

    In 20 years time, everyone living and working in London will have a min. 1 hour commute. That isn't living, that's jail. More housing at artificially controlled prices, will only work for the rental market, you can't make it work on private housing. And why should we all rent.

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