DECEMBER 2016

Greater London Authority Affordable Housing and

Viability SPG

OVERVIEW
The Mayor of London, Sadiq Kahn, has released his highly anticipated Homes for All Londoners Draft Affordable
Housing and Viability Supplementary Planning Guidance (SPG). This document sets out the Mayors approach to viability in
planning applications, setting out a threshold approach to viability, detailed guidance on viability assessments and further
detail on Build to Rent schemes. The document sets out the Mayors commitment to a long-term strategic aim of achieving
50% affordable homes across London. However, an SPG document cannot introduce new policy and its purpose therefore
is to provide a framework for delivering the maximum reasonable amount of affordable housing in the context of the
existing London Plan. Its main aim is to accelerate overall housing delivery and to increase the amount of affordable
housing delivered through the planning system. It also sets the scene for a comprehensive review of the London Plan, where
the approach to affordable housing will be a key consideration. The document is divided into four sections which are
summarised below.
The SPG will supersede section 3.3 (Build to Rent) and Part 5 (Viability) of the existing Housing SPG (March 2016). It is
available for comment until 28 February 2017.

Part 1: Background and Approach

The current London Plan seeks to deliver on average 17,000 new affordable homes a year. However, the current need for
affordable homes has been assessed as 25,600 homes annually. In 2015-2016, only 5,299 affordable homes were
delivered. To increase the delivery of new affordable housing, the Mayor has released the SPG with the aim of providing a
clearer and more consistent approach to assessing development proposals to establish the potential level of affordable
housing that can be provided.

Part 2: Threshold Approach to Viability

Despite initial suggestions from the Mayor, the SPG confirms that no fixed affordable housing target can be introduced.
Rather, the SPG intends to introduce a threshold approach: broadly schemes meeting or exceeding 35% affordable housing
without public subsidy are not required to submit viability information (Route B). This means schemes which cannot deliver
the threshold can still achieve planning permission where the lower level is fully justified through site specific viability
appraisals (Route A). Appraisals shall be treated transparently, with such information publically available alongside other
planning documents.
Key points regarding the 35% threshold include:
The Mayor recommends that this apply to schemes of 10 units or more;
To be fully compliant, the 35% affordable scheme must also meet the Mayors tenure requirements for 30% low cost
rent, 30% intermediate products (including the London Living Rent) and 40% determined by the Local Planning
Authority. This is a shift from current London Plan guidance on tenure (60%/40% social rent / intermediate products)
and will require more detailed negotiations and modelling options for Local Planning Authorities. Once agreed
amongst Boroughs, the remaining 40% breakdown will be published in later versions of the SPG.

Disclaimer 2016 CBRE

Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.
It does not constitute professional advice on any matter. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions,
assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information
is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

#housingspg
 The 35% target will be measured on habitable rooms with the intention of delivering a range of different size homes;
Where the level of affordable housing offered is 35% this will normally be considered as the maximum reasonable
amount that can be delivered;
Unless an agreed level of progress on implementation has been made within two years of planning permission having
been granted, an early review mechanism will be triggered. This will be negotiated on a scheme by scheme basis
through the section 106 legal agreement. The maximum amount of affordable housing to be provided will be capped
at 50%.

The following applications will still have to undergo full viability testing regardless of whether they achieve 35% affordable:
Applications proposing affordable housing off-site or as a payment in lieu;
Applications which involve demolition of existing affordable housing (including estate regeneration schemes);
Applications where the applicant claims the vacant building credit applies.

For applications that are not fully policy compliant, two fully evidenced viability reviews will be required; albeit they will only
apply if a surplus is generated over and above the returns necessary for a scheme to be deemed viable. How this will be
implemented is unclear, but the SPG intends the following reviews on ALL Route A schemes and for each phase of phased
schemes:
An early review where an agreed level of progress on implementing the permission is not made within two years of the
permission being granted. Where a surplus above the initial agreed profit level is identified, this should be split 60/40
between the LPA and the developer. It is expected that any uplift in affordable accommodation at this early stage would
be accommodated on-site requiring plans to identify units that would switch to affordable accommodation.
A near end review of development which would be applied once 75% of units are sold. Where surplus profit is
identified this should be split 60/40 between the LPA and developer. This would typically be expected as a financial
contribution towards off-site affordable provision.

The reviews would need to assess changes to gross development value and build costs. The review and on-site provision
would again be capped to 50% affordable housing. The mechanism may also be used to contribute to other policy
contributions which may not have been viable according to the initial assessment. Whilst in practice these reviews are
increasingly common and standard practice on large scale development, the development industry may react to the
requirement for smaller schemes where the onus of the requirement shall be higher.

35% vs 50%?
It is the Mayors strategic aim for 50% of new homes to be affordable. The approach to viability outlined above is the first
step to increasing delivery. In order to increase the delivery of affordable housing the Mayor will use his funding powers to
increase affordable housing and expects high proportions of affordable housing to be delivered by Registered Providers
and on public land (to include forgoing land value). RPs generally provide greater than policy compliant affordable
housing on sites, but they may want to maintain flexibility to only provide the threshold amount on certain sites.

On a case-by-case basis it may also be appropriate to increase densities to make the delivery of affordable homes more
viable. Where a grant or other public subsidy is available, this should be utilised. Grants shall be made available to all
private sector-led schemes, including those not referable to the Mayor, to increase the proportion of affordable homes
above that which is viable on a nil-grant basis.

Part 3: Guidance on Viability Assessments

For referable schemes that do not meet the 35% threshold, the Mayor will review both the viability information submitted by
the applicant and any review carried out by the Local Planning Authority and will consider whether the approach taken is
sufficiently justified by evidence. Overall, the Mayor aims to establish whether the proposed level of affordable housing are
the maximum that can be reasonably supported.

Disclaimer 2016 CBRE

Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.
It does not constitute professional advice on any matter. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions,
assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information
is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

#housingspg
The SPG is very clear that the preferred approach to valuing land should be to use the Existing Use Value Plus as a
Benchmark Land Value, with appropriate supporting evidence to support inputs and assumptions. The Mayor will use
residual land value methodology to determine the underlying land value once the costs of the development (including
profit) are deducted from the gross development value.

To determine affordable housing values, applicants are encouraged to engage with Registered Providers at the earliest
opportunity and the values should reflect these discussions. For viability purposes, London Living Rent homes in mixed
tenure schemes should be assumed to be sold on a shared ownership basis after 10 years with the relevant subsidy
recycled.

The SPG supports contingent obligations and review mechanisms to maximise affordable housing delivery in the long run.
These provide a reappraisal mechanism to ensure public benefit throughout the development, addressing the economic
uncertainties that may arise. Crucially, they allow the review of s106 contributions to reflect the changes in the value of the
development. The Review Mechanism should be capped so that the on-site affordable housing and financial contribution
are equivalent to 50% affordable housing. Although additional affordable housing to 50% will generally be a priority, the
review mechanism may also be used to contribute towards other policy contributions which may not have been viable in the
initial assessment. The relevant triggers for a review must be set out in the s106 agreement.

Approach to Opportunity Areas and Housing Zones

The SPG encourages Local Planning Authorities to consider a more bespoke approach to affordable housing in Opportunity
Areas and Housing Zones, including applying a fixed percentage affordable housing target. This approach could help to
deliver certainty to developers on sites which are usually complex and require significant infrastructure investment.

Approach to Strategic Industrial Locations

Strategic Industrial Locations (SILs) are protected by the Mayor. Such locations usually have a lower existing use value and a
change of use can significantly improve the land value, thereby allowing higher levels of affordable housing and new social
infrastructure to be provided. The SPG therefore sets out that the release of SILs should be carefully managed through Local
Plans. Following a plan-led process should ensure that when the release of SIL land is deemed appropriate, that it fully
contributes to other planning objectives, in particular new affordable housing.

Part 4: Build to Rent

The Build to Rent Sector, also known as the Private Rented Sector (PRS) is the fastest growing housing tenure in London with
28% of Londoners living in PRS in 2016 compared to 15% in 2004. The existing London Plan recognises that the planning
system should take a more positive approach to enabling this sector. The Mayor believes that such developments can make
a contribution to increasing the housing supply and are beneficial in a number of ways as they can:
Attract investment into Londons housing market that would otherwise not be there
Accelerate delivery on individual sites as they are less prone to absorption constraints on build-out rates
More easily deliver across the housing market cycle as they are less impacted by house price downturns
Provide a more consistent and at scale demand for off-site manufacture
Offer longer term tenancies
Ensure a commitment to place making through single ownership; and,
Provide a better management standard than the majority of the mainstream PRS sector.

The SPG seeks to encourage the delivery of these schemes, proposing a Built to Rent pathway through the planning system
of which the key principles are set out below. Clarity on how affordable housing will be delivered on Build to Rent schemes
within London is welcomed in the absence of such from Central Government (with the Housing White Paper still awaited)
and the draft guidance addresses a lot of the sectors concerns around scheme management and investor requirements.

Disclaimer 2016 CBRE

Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.
It does not constitute professional advice on any matter. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions,
assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information
is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

#housingspg
Definition The Mayor wishes to establish a clear definition for Build to Rent products. The definition used for the purposes
of the SPG is:
A development, or block/phase within a development, of at least 50 units
The homes to be held as Build to Rent under a covenant for at least 15 years
All units to be self-contained and let separately
Unified ownership and unified management of the development
Professional and on-site management
Longer tenancies offered, ideally three years or more; and,
Property manager to be part of an accredited Ombudsman Scheme and a member of a recognised professional body.

Affordable Housing Tenure Where a developer is proposing a Build to Rent development, the affordable housing offer
can be entirely discounted market rent, delivered without a grant. The Mayor would prefer this discounted market rent to be
at the London Living Rent levels, to ensure a city-wide, consistent approach. The London Living Rent is designed to deliver
genuinely affordable homes and is therefore intended to limit eligibility to households on incomes of 60,000 a year or
less together with other intermediate rent products in the forthcoming annual monitoring report (2017); this is a step
change from the current income thresholds on intermediate products topped at 90,000 It is recognised that this will
usually represent a deeper discount on rents for Build to Rent homes than the common metric of 80% of the full market
value.

Design The SPG sets out that Build to Rent development can be particularly suitable to higher density development within
or on the edge of town centres or near transport nodes.

Viability In approaching viability within Build to Rent schemes, the Mayor is keen to recognise the distinct economies of
the sector and will tailor viability appraisals accordingly. Build to Rent schemes will not be required to follow the threshold
approach to viability and will instead be assessed on their own viability with the intention of maximising the supply of
intermediate rent, preferably and London Living Rent levels. The review mechanisms will be the same as those set out in
Route A above.

Management Standards The SPG requires the best management standards to be upheld, including longer tenancies
(three years or more), formula-linked rent increases, on-site management and a complaints procedure. Properties must
also be advertised on the GLAs London wide portal which can be in addition to any further advertising.

Next Steps
The Mayor will provide an update on Starter Homes requirements once the Governments position has been made clear
through the Housing White Paper
The approach to viability set out in this SPG sets a precedent for the London Plan Review
Consultation on the SPG closes 28 February 2016.

Disclaimer 2016 CBRE

Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.
It does not constitute professional advice on any matter. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions,
assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information
is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

#housingspg
For further information please contact:
The Planning Team

Emma Davies Gary Cardin Neeraj Dixit

Managing Director of Planning Senior Director Senior Director

t: 020 7182 2700 t: 0121 616 5233 t: 020 7182 3702
e: emma.davies@cbre.com e: gary.cardin@cbre.com e: neeraj.dixit@cbre.com

Lorraine Hughes Iain Jenkinson Elizabeth Mason

Senior Director Senior Director Senior Director

t: 020 7182 3302 t: 0161 233 5469 t: 020 7182 2136
e: lorraine.hughes@cbre.com e: iain.jenkinson@cbre.com e: elizabeth.mason@cbre.com

Jonathan Stoddart Alison Tero Paul Willmott

Senior Director Senior Director Senior Director

t: 020 7182 2752 t: 020 7182 2130 t: 020 7182 2779
e: jonathan.stoddart@cbre.com e: alison.tero@cbre.com e: paul.willmott@cbre.com

The Affordable Housing Team

Isabella Rossi

Associate Director

t: 020 7182 2346

e: isabella.rossi@cbre.com

Disclaimer 2016 CBRE

Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.
It does not constitute professional advice on any matter. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions,
assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information
is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

#housingspg