A High Court’s ruling in favour of a Council’s planning decision may have a significant impact for developers in respect of affordable housing calculations.
Developer, Parkhurst Road Ltd, applied to the London Borough of Islington (Islington) in 2014 and 2016 for planning permission for a major housing development. On both occasions permission was refused on the basis that it failed to provide the required level of affordable housing, but both decisions were appealed.
The focus of the recent appeal was the way in which the Benchmark Land Value had been calculated and Parkhurst’s position that provision of Affordable Housing in compliance with policy was not viable. Parkhurst had used the ‘Market Norm’ to calculate the Benchmark Land Value (i.e. the average land values of transactions within the district). However, Islington believed ‘Existing Use Value Plus’ (i.e. land use value with an added financial incentive for a seller) was the more appropriate way to calculate it because it was not a purely market based approach which failed to consider the policy requirement to maximise the provision of Affordable Housing.
The Inspector agreed with Islington, finding that Parkhurst’s approach was “a market valuation which does not, in my view, adequately demonstrate proper consideration of, or give adequate effect to, the guidance in PPG or the requirements of the development plan”
Another issue addressed within the case was that of ‘circularity’ - where Affordable Housing policies are undermined because “viability appraisals are conducted using market prices which are inflated by bidders ignoring or diminishing requirements in development plan policies to provide affordable housing”. This was flagged as an issue in the 2015 appeal and continued to be a factor in the recent decision.
What does this mean for developers?
This case has highlighted the level of uncertainty that exists around viability appraisals and the need for RICS to revise their 2012 Guidance Note to address both the viability and circularity issues. Until such clarification exists however, developers will need to be careful when using the purchase price of a site as a basis of their viability calculation as non-compliant Affordable Housing provision is only likely to be accepted where robust evidence can be presented that policies were considered at the time of purchase and are reflected in the purchase price.
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