Affordable Supplementary Planning Guidance & Build to Rent Jennifer Peters Greater London Authority

Overview Supplementary Planning Guidance Definition and covenant Flexible pathway Affordable housing Design Viability Management standards

Affordable Housing and Viability SPG Background and approach Threshold approach to viability (35%) Detailed guidance on viability assessments Build to Rent Consultation November 2016-Feburary 2017 Team analysing consultation responses and considering the White Paper/ Government’s consultation - this presentation is based on the draft SPG. Final SPG expected summer 2017

Why the focus Build to Rent? Attracts investment into London’s housing market that otherwise would not be there Accelerates 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 Provides a more consistent and at scale demand for offsite manufacture Offers longer term tenancies/ more certainty over long term availability Ensures a commitment to, and investment in, place making through single ownership Provides better management standards and higher quality homes than much of the mainstream private rented sector.

Definition A development of at least 50 units All homes held as B2R with a covenant of 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, with defined in tenancy reviews In Ombudsman Scheme and recognised professional body

The covenant Covenant to retain homes in Build to Rent for at least 15 years Clawback if units sold out of Build to Rent Submit ‘for sale’ viability appraisal alongside B2R appraisal or base clawback on 35% affordable. Covenants should ensure units are VAT zero-rated and disposal not totally prohibited Separate to covenant, all affordable housing must be secured in perpetuity

Approach to affordable housing Providers have the ability to choose whether to take the B2R pathway or build for sale route where this is better for the specific development Likely to be the case on tenure blind schemes incorporating B2R alongside other tenures   It is important that providers should have the ability to choose whether to negotiate a Build to Rent development on the basis of the 35% threshold approach discussed above which applies to a traditional build for sale development or whether they wish to take the Build to Rent Pathway. Although most Build to Rent providers are likely to choose to utilise the Pathway set out below, the ability not to do so should be on the table for all Build to Rent developers as in some cases it would be the more appropriate option for the specific development. This is likely to be the case for those organisations, particularly Housing Associations, whose model is not primarily based on 100% Build to Rent developments. Instead they may develop tenure blind schemes which incorporate an element of Build to Rent alongside other tenures – all of which they manage – maintaining the option to flip the Build to Rent product into market sale or affordable at any time; as the market or funding environment changes.

Affordable housing Where it meets definition, affordable can be all DMR Managed by B2R provider and delivered without grant Preference for London Living Rent: has a London-wide electoral mandate can be consistently understood and applied across London is genuinely affordable and is backed and uprated annually by the GLA LLR usually deeper discount than 80% of B2R full value Impact on quantum of affordable/viability assessment All affordable housing must be secured in perpetuity

Mix and design Highlights flexibilities in existing London Plan policies Encourage LPAs to be more flexible on range of unit sizes SPG cannot vary nationally described space standards, but not prescriptive in regard to the layout of dwellings. Encourage LPAs to take account of on-site management and purpose built design in dealing with design challenges Degree of flexibility linked to the length of covenant

Viability 35% threshold approach used for build for sale not appropriate Too few B2R schemes yet to set another threshold Schemes assessed on viability to maximise supply of DMR Viability based on long term revenue income not short term capital receipts , taking account of B2R costs, eg lettings, whole life build costs and stamp duty Like build for sale, review mechanisms should be applied A number of different B2R methodologies currently used

Management standards Longer tenancies with a break clause for renters Formula-linked rent increases within tenancies - rents reset on new tenancy No lettings or other associated fees On-site management Membership of recognised ombudsman scheme and professional management body