Negotiating affordable
housing in England
Dr Nicky Morrison
Department of Land Economy
University of Cambridge
14th March 2018
Drammen

Presentation outline
 The English context
 Why affordable housing crisis has occurred
 The English system – how it works
 Negotiating affordable housing provision with private house
builders
 The role of the not-for-profit Housing Association sector
 Innovative affordable housing solutions
 An example of joint venture working between a local authority
and a housing association
 Summary
 transferable lessons & cross-cultural exchange

The context

Housing completions in England

Affordability ratios in England
Average house prices: average
household income (2016)

English system:
how it works

Role of land use planning system in
securing affordable housing delivery
• Centralised state
• Government owns development rights to land
• Every development must obtain planning permission
• Local authorities little autonomy & must work within national
planning framework
• Discretionary planning system / case-by-case assessments
• Town & Country Planning Act 1990: Section 106 agreements
- List of requirements – essential versus desirable
- e.g. highways/ education facilities/ community facilities/ open space
- Require affordable housing on SAME site as market housing
 Subject to negotiation
 Subject to viability

Form of developer contributions
 Local authorities seek affordable housing on:
- Delivers mixed tenure scheme on the site (e.g. typical target: 30-40%)
- Or deliver the affordable housing component on an alternative site…
 Developers’ contributions
- build housing at lower costs – housing association purchase (with
grant?) at `existing use value’
- provide land at discounted price – housing association build (with
grant?)
- provide financial contribution/commuted sums
(e.g. Belvedere, Cambridge – 2m euros)
• OR Housing Association buys land directly
• Equally complies with S106 & delivers mixed tenure schemes
 N.B land transactions data – opaque…

Negotiation process
Section 106 tied to market conditions/predicated on
rising land values & market demand
In a property upturn/buoyant market
Developers achieve profits from open market housing
Large windfall gains/uplifted land values – cushions
developer profits
Developers prepared to accept affordable housing
quotas – willingness to pay/ few disputes
Up until 2008 – viability not undermined/no evidence of
downward pressure on housing supply
 Affordable housing £2.6bn of £4.9bn total value of planning
obligations in 2007/8 (Brownhill et al 2015)

Negotiation process cont.
In a property downturn (Morrison & Burgess 2014, Morrison 2016)
Reduced level of market activity – hampers delivery of
affordable housing
Depressed land values impact on expected residual
values/ reduce contributions
Hard to pass S106 costs on:
 consumer
 landowner if purchase price already agreed
Bought land at top of market
– cannot write off value from their books
- seek to renegotiate S106 agreements
 N.B Affordable housing reduced from 60,480 to 42,920 (2010-2014)

Avoiding S106 contributions

Delivery of affordable housing
across London (2009-15)
BPN Paribas 2017

Greenwich
•Original plan: 10,010 homes of which
35% affordable, on 170 acres south of O2
•June 2012: bought by new owner
•January 2013: developer argues 35% is
no longer ‘viable’
•February 2013: local authority drops
requirement to 21%
Freedom of Information Act 2000 gives
‘right of access’ to information held by
local authorities
‘Open book’ on viability assumptions
This case sets a precedence.

Greenwich Peninsula
– the plan..

Media outrage

The role of the not-for-profit
housing association sector

Housing Association sector
• 1500 not-for-profit organisations (336 own 95% of stock)
• Represents 10% of England’s total housing stock
- 2.5 million units for 5 million people
• Independent BUT regulated by Government
• Not-for-profit charitable status & governed by boards
• Alternative to local authority public housing
- Providing housing for lower income households
- Traditional versus large scale voluntary transfer associations
• Provide sub-market affordable rented housing
- Existing stock:35% below market value/ new build & relets: 20% below
- Approx. 60% eligible claimants still need government’s housing assistance to afford
rents..

Housing Associations’
performance record (2016)
• Surpluses (after tax) = £3 billion (25% increase from
2015)
• Book value of properties £138 billion
• Debt drawn from financial institutions £63.4
billion (£0.5billion from government grants)
• Delivered 46,500 affordable homes p.a. (1/5th of
total new builds)
> Could do more?

Turnover
£m
Non-social
housing
development
activity share
of total
turnover
Change in
%
compared
to 2015
L&Q 642 37 +3
Notting Hill 381 38 +9
Affinity Sutton 430 30 +18
Catalyst 212 43 +11
A2 Dominion 297 30 +3
Hyde 326 27 +6
Network 190 28 +10
East Thames 146 34 -7
Circle 412 10 +8
Family Mosaic 230 17 -8
Genesis 282 13 +5
Southern Housing 175 16 +4
Peabody 223 11 0
Large London
Housing
Associations
Diversify into
Market sales &
Private rental
(Morrison 2016a&b,
Manzi & Morrison
2017)

Innovative affordable housing
solution:
an example

Joint Ventures
Brighton & Hove Local authority with Hyde Housing
Association – first-of-its-kind (Morrison 2018 forthcoming)
 Limited Liability Partnership – 50:50 Board Ring fenced
 135.6m euros – Hyde uses reserves & LA provides land
 Pool resources, skills, expertise
 Share risks and rewards – index-linked revenue stream
 1000 units – subsidised rental housing & shared ownership
 Bespoke rent setting – linked to National Living wages
 Equity investor interest in future
 Can act counter-cyclically
 Greater London Authority and others are keen to learn how..

Summary
• UK Government’s Town & Country
Planning 1990 Act:
o Legitimised use of planning system in requiring
affordable housing on development sites
o S106 dependent on private sector market housing
output
o Affordable housing contributions affected in market
downturn
• Role of Housing Associations
• Role of joint venture arrangements
o working together to find innovative solutions

Cross-cultural exchange
Approaches to secure affordable housing & mixed tenure schemes
o Mandatory versus voluntary requirement
o Negotiation/bargaining versus fixed charge
o Inclusionary zoning – statute/ordinances
o Financial incentives – bonuses/inducements
• Dependent on nature of planning system and land & housing
market
• Different institutional contexts and different actors
• Dependent on ideological/political context
• Transferable lessons in finding innovative solutions…