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

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

3. 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

4. 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.

5. 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

6. 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

7. 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.

8. 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

9. 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

10. 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

11. 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