House Builder Challenging Affordable Housing Quotas

Barratt Developments plc recently lost a challenge against Wakefield council. The developer claimed that the council’s requirement for 30% affordable housing did not adhere to national and regional legislation, which required the council to take into account changing economic circumstances and provide flexibility when determining housing policy quotas. Despite losing their challenge, the case raises some interesting points and the ruling could open the floodgates for more developers that believe the quotas they are having to meet do not adhere to legislation.

The term “Affordable Housing” is never popular with developers. In times of economic hardship and recession it is particularly unpopular. Limited finance to undertake projects and reduced revenue streams through reduced demand has  led to developers being particularly uncomfortable with levels of housing quotas. In Wakefield there is a requirement for developers to have elements of affordable housing where more than 15 units are being developed.

Recently Barratt Developments plc challenged Wakefield’s affordable housing policy. With conditions being tough and the likely prospect of them remaining so in 2010, Barratt’s challenge could open the floodgates to many more from developers.

The case was largely based around The Planning and Compulsory Purchase Act 2004.

Under section 19 the council, in preparing its strategy for affordable housing, must have regard to matters such as national policies and advice contained in guidance issued by The Secretary of State. Section 24 stated it should be in general conformity with the regional special strategy. Also, section 20 requires the council to submit the core strategy for independent examination by the secretary of state to determine whether it has complied with sections 19 and 24 and to establish whether the core strategy is sound.

Barratt’s Arguments

In Barratt’s case, the council had formulated the affordable housing policy when market conditions were more favourable to developers. Previously Wakefield council had required a 30% affordable housing quota. The secretary of state’s inspector recommended that the council should specify size thresholds above 30%, unless otherwise agreed with the applicant.

However, the policy envisaged that the amount of affordable housing would be negotiated at the time of the planning application, having regard to abnormal costs, economic viability and any other requirements associated with the development

Under section 113 of the 2004 Act, the developer applied to quash the policy on the basis that the council had failed to comply with sections 19 and 24.

It argued that the policy:

  1. Conflicted with guidance contained in PPS (planning policy statement) 3. The housing policy did not reflect an assessment of the likely economic viability of land for housing within the council’s area.
  2. Was not justified or founded on robust and credible evidence. The developer also said the policy was neither flexible nor deliverable, contrary to the requirements of PPS12: Local and Spatial planning.
  3. It contended that the inspector had not given reasons for dismissing concerns by the developer with regard to the expert viability appraisal.

 The Outcome

 The judge dismissed the developer’s challenge.

 The judge did acknowledge that an affordable housing policy which imposes a target of 30% across the council’s area for the lifetime of the plan would not have met the requirements of PP3 and PP12. PP12 requires that for a strategy to be effective, it should be capable of dealing with changing circumstances over a period of time. Also, the expert viability appraisal showed that even on the most optimistic view a 30% requirement could not be achieved across the council’s area during that time. Therefore, any such requirement would have been irrational and unlawful.

However, the judge said, that read as a whole, the affordable housing policy did not have this effect. The policy applied the 30% target to sites that passed the specified thresholds, but it was subject to a site by site negotiation to take account of abnormal costs, economic viability and other requirements associated with the development. The policy had due regard to national policy and regional strategy. Also, the necessary flexibility was provided by making the target subject to negotiation.

He also held that the inspector’s decision was not flawed by a failure to give reasons regarding the viability appraisal. It was not her task to adjudicate on differences of opinion between developers regarding the viability modelling exercise. She only had to decide

  1. Whether the expert in producing a report, had taken proper account of the available evidence and the views of the stakeholders generally.
  2. Whether the appraisal provided a robust and credible evidence base. She has been entitled to reach her decision and had given adequate and intelligible reasons.

 Whilst Barratt failed in their challenge against Wakefield Metropolitan Council, the case raises some interesting points.

 The downturn in the economy has led to  a near freeze in development finance and a heavy break being put on development. Under PP12 the council are obliged to look at the economic circumstances in which the developer is making their application. It seems affordable housing quotas will have to come down to reflect the tough economic climate. Therefore, developers may have grounds for optimism and if they feel they have been treated unfairly, could also bring challenge against their council.

 Also, the slowdown in development over the last two years means that there is likely to be a shortage of housing in the future. As an employee of Barratt put it “A number of sites cannot be developed commercially because of a social housing quota, which was designed for the very different market conditions which existed pre-credit crunch. The need to for more housing is likely to strengthen the bargaining position of developers when it comes to negotiating the quota.

 It also seems likely that there will be a gap between what developers envisage to be a flexible and deliverable policy and what councils think.

However, with development being historically low, it seems that what is economically viable, flexible and deliverable may have to re-assessed by some councils or what is a noticeable shortfall in housing may turn into a catastrophe in the future.