Housing benefit

With a housing shortage, development has changed and the processes for the creation of infrastructure must modernise to keep up, say Stephen Ashworth and Janine Shaw

There is no question that there is a housing shortage in the South East. What is less clear is how it should be addressed and whether the emerging infrastructure arrangements will be undermined or supported by the ever-changing legal environment.

In 2003 the Government’s Sustainable Communities Plan advocated a step change in delivering housing to meet existing and projected need. Sites are now coming forward providing opportunities to build thousands of houses. The challenge is to facilitate these developments with minimal delay. This means providing all the associated infrastructure to support the developments at the right time – ideally before the homes are occupied. This is challenging policy-makers, planners, funders and lawyers, and new solutions are emerging virtually on a monthly basis.

Inventive solutions

At Barking Riverside, which will deliver around 10,800 homes, the stakeholders are working together closely to deliver the infrastructure. The site requires extensive and expensive remediation. This means the developer has a tight budget for securing the transport, schools, parks and other works that the development needs.

Inventive solutions are being explored by the council and the developer. The development is constrained by the need for infrastructure that is beyond the developer’s control to provide, such at the Docklands Light Railway extension and a major new junction on the A13 trunk road. Part of the legal battle involves dealing with the leap of faith that is required in believing that this will be delivered without any absolute public sector commitment. There is an increasing reliance on partnership and trust – not normally the principles underpinning development and investment.

There are also onsite and offsite infrastructures within the developer’s and council’s control that must also be provided. This requires detailed programming, planning and information sharing throughout the development. Open-book accounting is being used, again based on principles of partnership and trust, to help identify viable, affordable housing levels and the ability of the developer to make financial contributions.

A single developer bringing forward such a large development is rare; in most cases several developers would be bringing forward sites at the same time. And if the Government’s targets are to be met, large scale multi-party developments will increase in number. This is cumbersome and costly.

Where there are many potential sites in the same area, tariff approaches are emerging as a response. These are being set up through the innovative use of existing legislation. Developers sign up to planning obligations in the usual way, but the financial contributions are pooled. This means that large items of infrastructure can be provided.

The tariff approach

A tariff approach has been adopted in Horley, where developers will all contribute to a central fund to provide the roads, schools and transport facilities that the developments collectively need. The obligations catch both identified housing sites and windfall sites. Tariff contributions, calculated on the basis of the planned 2,000-plus dwellings, are paid under Section 106 of the Town and Country Planning Act 1990 (as amended) and the local authority provides the infrastructure.

The Sustainable Communities Plan identified four growth areas in which thousands of homes are to be provided. Each growth area has a delivery vehicle tasked with achieving the growth objectives. English Partnerships, the delivery vehicle in the Milton Keynes growth area, decided that a tariff would be the most successful way of achieving growth. The tariff system provides English Partnerships with sufficient certainty that infrastructure contributions will be paid as development comes forward.

There is a fallback option of developers electing to carry out works themselves and offsetting the cost against future tariff payments. Even though the main tariff payments are not made until occupation, this ensures that development sites are unlocked and infrastructure is provided to keep pace with the building taking place. Developers are assured of a level playing field between sites, with the tariff applying equally to all developers, plus an equalisation procedure to take account of any land contributions that one site makes for the benefit of another.

The Planning Gain Supplement

The Planning Gain Supplement (PGS) is on the horizon as a potential mechanism for addressing infrastructure needs. This is a development land tax by another name. The PGS payment will be calculated on the planning gain – the difference in the value of the land from immediately prior to the granting of full planning consent to immediately after. The percentage of the gain that will be the PGS payment is not yet decided. It is described as ‘modest’, but it will need to be enough to cover the costs of all the items outside the scope of Section 106 agreements. The money will be paid to central government and, at an unspecified point later, it will be given to deserving local authorities (not necessarily the ones that have the new developments).

The current PGS proposals suggest that + continued Section 106 obligations will be scaled back so that only certain items can be included in them. What will remain are mainly development site environment items, with more strategic items such as schools, health facilities and leisure facilities being the subject of future PGS funding.

The prospect of the PGS is vexing everyone as the possible implications of an additional charge are considered. Developers will not be prepared to pay twice. Already they are demanding that anything in an existing agreement that is no longer within the scope of Section 106 should be offset against the PGS payment made. While this may amount to a simple calculation for financial contributions, the position will be far more difficult where land, buildings or services are being made available under the existing agreement.

At Barking Riverside the contribution the developer is making is mainly through land and buildings. Taking schools as an example, clearly it will still be necessary to require land for schools from the developer. However, it would be unfair to constrain the development until these facilities are provided, when the developer will already have made the PGS payment for them. Careful calculations, with the ability to make revisions based on actual need as development progresses, govern the timing for schools. At a certain point no more occupations can take place until a school is provided. With PGS provision may not match need and there is a risk that temporary provision for young children will be required at existing schools several miles away. There remain very significant practical issues to be addressed by the Treasury before PGS will secure any real support from the housing and development industry. Until then PGS is primarily a blight and a conundrum.

How are lawyers reacting to these changes?

There are two law firm camps that, to some extent, have attitudes dictated by clients. There is a group that seems emotionally opposed to the proposals. Payments, tariffs and PGS are all seen as an interference in property rights. There is a lot of language relating to fairness, confiscation, taxation without representation and Socialism.

Mercifully there are more enlightened lawyers, acting for both developers and public bodies, who recognise that times have changed. The present scale of development means that infrastructure cannot be provided traditionally. The existing legal system can be used properly and abused to secure the funds required. After all, the original Planning Acts were based on a nationalisation of land values, so it is unsurprising that they remain capable of being used in this way. This second group of lawyers has been working outside existing policy and it has developed mechanisms that allow new homes to be built and, critically, for the homes to be supported by the infrastructure required to make them liveable. The real concern is that PGS will rob everyone of the opportunity to continue in the present practical way.