Marketisation of the UK Planning System: Viability Assessment, Tax Evasion and Affordable Housing

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1 Marketisation of the UK Planning System: Viability Assessment, Tax Evasion and Affordable Housing Dr Bob Colenutt School of the Built Environment, Oxford Brookes University

2 Housing markets, Viability, and Affordable housing There is a reason for secrecy in viability studies and that is house-building is a competitive market Andrew Whittaker HBF, Inside Housing We find it particularly hard to accept that the pricing and other assumptions embedded in a viability appraisal are none of the public s business Freedom of Information Tribunal Decision on the Greenwich Peninsula. February 5 th 2015

3 The scope of the presentation Marketisation of UK planning The introduction of viability into planning The viability assessment industry Example 1: Greenwich Peninsula Example 2: Elephant One, Southwark Conclusion: Challenging viability assessment

4 Marketisation of Planning; How it has happened Demand led planning not social planning Land value captured by the private sector not the community The decline of state provision; public housing; right to buy; affordable rents ; etc The rising power of the property lobby The attack on planning; diminishing of sustainability The recent twist: Viability Assessment

5 There are countervailing forces.. The planning profession Local government NIMBYism? The Green belt? The housing lobby and social providers Splits within the market? Soft versus hard companies Community action By 2012 not going well; then came the Coalition Government and NPPF

6 The Rise and Rise of Viability Assessment: the NPPF 2012 Plans should be deliverable. Therefore, the sites and scale of development should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. (NPPF 2012, para 173). Dagger in the heart of planning

7 Why the rise of viability? Long standing resistance from developers to paying planning gain to the local planning authority for infrastructure or community facilities Government seeking to reduce burdens on developers under the assumption that housing supply was limited by local authority policies and planning obligations

8 Why is it important? Viability testing has reduced the percentage of affordable housing especially of social rented homes (In the Mix; The Need for a Diverse Supply of New Homes, Shelter, 2014, p.21) And has undermined local plan policies for affordable housing contributions (Bureau of Investigative Journalism, in the Guardian, )

9 Financial Viability Assessment - the concept FVA measures how much of the land value of a site proposed for development can be allocated to planning obligations such as affordable housing, after taking out the competitive return to the landowner and developer The Residual Land Value is estimated by subtracting the Gross Development value from the Development Costs The problem is that once you take out landowner profit and developer profit there is no much land value left to distribute

10 Gaming Viability Assessment There is an incentive for developers and their agents to systematically undervalue their schemes and overestimate their costs There is a viability Industry of consultants with agents getting incentives for reducing planning obligations For example, Section 106 Management Ltd. Advertises their services in this way: Is your scheme stalled by difficult market conditions? Why not use the time, otherwise wasted reviewing your section 106 payments and unilateral undertakings, and improve the profitability of your scheme Some local authorities are alert to this. For example, LB Islington is cracking down on artificially pessimistic viability assessments (LBI Development Viability, 2015)

11 Viability Example 1: Greenwich Peninsula GLA owned 121 ha. on west side of the Peninsula. Land reclamation by EP 225M 2012 GLA sold site for 50m to Quintain Planning consent obtained for 10,000 housing units, 32,000sq m of commercial, plus a hotel, and obtained 50m of affordable housing grant! 2013 Quintain sold their interest to Knight Dragon (of Hong Kong) for 186m

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13 FVA for Greenwich Peninsula In 2014 Knight Dragon asked Greenwich Council for a variation in the planning consent (a) To reduce affordable housing requirement of 38% of units in Greenwich policy to 25% of habitable rooms (b) To change the mix of uses 4 plots on the riverfront would have no affordable units FVA for Knight Dragon (by BNP Paribas) argued policy compliant affordable housing would make the scheme unviable but refused to release to the public or most councillors an un-redacted copy of their FVA In spite of this, the Council accepted the variation in full Result: loss of 527 affordable units at a estimated cost of 150m Campaigners subsequently won an FOI Appeal which released the un-redacted VA. An undervaluation by BNP of approx 250m By then too late.. And it gets worse.

14 2017 Stop Press Knight Dragon now has permission for 15,000 homes of which 3,900 (26%) will be affordable Policy is 38% or 5700 homes, so loss of affordable homes is 1800 due to viability Yet no shortage of cash: Santiago Calatrava to design a 1Bn scheme for Knight Dragon for gateway buildings

15 Viability example 2 Elephant One Delancey and LB Southwark vs 35% Campaign

16 Elephant One Elephant One was the first major development to be granted planning permission at the Elephant and Castle, back in Delancey bought the site and proposed a mixed-use development including a cinema, shops, new Market Square, 272 student rooms and 374 private residences for market rent No affordable housing in spite of LB Southwark 35% policy

17 Elephant One: How Marketisation Works Delancey paid 8m for the site through off shore companies; and has paid no tax on the 200m development It avoided 58.7 m of planning obligations submitting an FVA which said the scheme was not viable for affordable housing Gained ½ acre of public land for a Market market now scrapped Flats are managed by Get Living London a division of Delancey, registered in BVI and Qatar which has paid no tax on 1.4B profits.

18 Tax avoidance is widespread in the property industry It is common place for developers big and small to avoid paying corporation and capital tax and stamp duty on property development and investments. Big builders use their own subsidiaries to transfer sites There is extensive advice on avoidance on the web.. Yet this is not enough, they also avoid paying planning obligations FVA is another form of tax avoidance

19 Developers are running rings round local authorities: What can be done? Persuade planning professions and local authorities to recognise the calamity of FVA and demand removal of viability assessment from planning and plug tax loopholes Up-skill Local authorities to challenge viability assessments., as LB Islington has done. London Mayor now has his own viability team led by John Wacher formerly of LB Islington. Viability and tax avoidance requires much more public scrutiny using FOI and political challenges. Important role of the Bureau of Investigative Journalism: Tax Justice Network; and individual journalists such as Oliver Wainwright Community groups need to pool skills to challenge FVA and other avoidance schemes as the 35% Campaign are doing