My Lords, I declare my interests as president of the Local Government Association, whose officers have, as always, done brilliant work in preparing amendments for the Bill, and as chair of the Hanover Housing Association, which is a relevant interest for the amendments that now follow and relate to affordable housing. These amendments begin with Amendment 55ZA, in my name and that of the noble Lord, Lord Tope, and continue with those in the next six groupings. All of them address concerns about the provisions in Clause 6, which allow developers to appeal to the Secretary of State—that means to the Planning Inspectorate—for a reduction in the level of affordable housing, which the developer previously agreed to provide. This new right for house developers would be activated if the local authority does not accede to a developer’s demands for such a reduction in affordable housing provision.
As we launch into debates on this new right for developers, I think it is necessary for me to spell out why I believe this clause needs serious modification. If I do this now, the Committee will be spared my making these points under each of the six amendments in my name in the following groupings.
First, developers have freely entered into legal agreements with local authorities pledging that they will allocate a specified proportion of the new homes that they build—perhaps 25% or 35%—to be let or sold on a shared-ownership basis to those who cannot afford the full market price. The developer has signed a deal which he believed would deliver a good profit. In normal circumstances, the agreement, under Section 106 of the Town and Country Planning Act 1990, would have to be honoured if property prices turned out to be lower than the developer had predicted. Equally, the local authority could not amend the agreement if prices went up by more than expected and the developer made a larger profit. For central government, using the Planning Inspectorate to overrule the agreement
between the two parties in order to improve the profits for the housebuilder would represent a retrospective intervention to change a legal agreement freely entered into by two competent parties. I do not think it has ever been suggested that Machiavellian local authorities have hoodwinked innocent developers unfairly into signing Section 106 agreements. No, the developers thought they had a good deal and the retrospective tearing up of a private contract by central Government diktat would seem to set a sinister precedent.
Secondly, there is the question of fairness. To say the least, this clause is galling for those would-be buyers of a site who were outbid by a developer who, it now transpires, paid over the odds. The reason housebuilders are now seeking to renegotiate the agreements they signed is that they speculated on property prices rising inexorably, but now find that their profit margins will be less than they hoped. In outbidding others, including the many housing associations which have been prevented from buying land by the exorbitant prices these developers paid, they have taken a gamble which has not paid off. If their rash behaviour means that with hindsight they should have paid less for the land, is it fair on other more prudent housebuilders and housing associations for the Government to bail them out? Is it fair that Clause 6 should reward speculative developers by letting them off their obligations to ensure that they can make a handsome profit from the development?
Thirdly, I can see the argument that it is important to save a developer, even if he has acted foolishly, from going out of business because we need to maintain the capacity of the housebuilding industry through these difficult economic times. However, while property prices have fallen in real terms in some areas, particularly in Northern Ireland although it is not covered by this measure, prices have seldom dropped dramatically, and in parts of the London and the south-east, they have even continued to rise. Far from going to the wall, a number of major housebuilders have recently reported substantial annual profits and their share prices have risen significantly. That does not suggest a need to make concessions to prevent bankruptcies in the sector.
Finally, and most importantly, we should scrutinise Clause 6 with great care because it is likely to lead to a reduction in the amount of affordable housing at a time when there are desperate shortages, fewer and fewer households can afford to buy, and market rents are absorbing disproportionate percentages of average incomes. Local authorities are already making concessions in order to be helpful to developers, and if they have got to the point of saying, “This far but no further”, they have good reasons so to do. Section 106 agreements have been hugely important in securing a high proportion of all the affordable housing built over the past decade. These agreements have meant that the bulk of social, subsidised housing, has no longer been built in separate, segregated estates exclusively for the poorest and on the cheapest sites. Rather, it has been integrated into mixed-income communities of tenants, shared owners and owners. Backtracking on the gains for local communities that have been achieved by planners through this route is really bad news.
Moreover, inclusion of this element in a development was a key component in the planning consent being granted in the first place. A block of flats in east London with little or no affordable housing may be sold virtually in its entirety to overseas investors and occupiers and will make little contribution to supporting Londoners who need somewhere to live. In rural areas it is likely that local opposition to development was considerably moderated because housebuilders signed up to some affordable housing on the site so that local people who had been priced out of the housing market could stay in the locality. I know that the rural case has been addressed in relation to the special case of exception sites in the government amendment we will consider with the Minister shortly, but I am making the more general case about all developments in more rural communities: take out the affordable housing ingredient and a significant reason for both local authority and community approval for housebuilding will be removed.
These are the reasons why Clause 6 needs to be amended, and the first amendment for consideration seeks to address the key argument against my list of criticisms. This is the counter-argument that despite the disadvantages I have set out, unless the developers in question are let off all or part of their affordable housing obligation, they will simply sit on their hands, do nothing and leave sites undeveloped. How much better, runs this counter argument, for development to get started, and for at least some affordable housing to be built, rather than for the land to lie idle.
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I fully recognise the value in getting the open-market houses constructed, as that contributes to easing acute overall shortages as well as providing jobs in the construction industry and helping the country out of recession. It is said that it is worth sacrificing some affordable housing in order to get housebuilders on site now but would the easing of planning obligations for affordable housing have this effect? Are housebuilders holding back because a minority of the homes are earmarked for affordable housing on which they will make little or no profit? If builders could sell all the houses without having any obligations of this kind, they would make bigger profits than they had previously expected.
Often the reason they are not proceeding with the development is that they are pretty sure they will not be able to sell all the market homes when they are built. The market is sticky and if builders know that weekly sales of new homes in the locality are at a low ebb, they will not want to build so quickly that they can sell only by reducing the price. Mostly, it is the market conditions that are being addressed by other policy measures, not the fact that a proportion of the homes need to be passed to a housing association without a profit being made on them, that is causing housebuilders to sit on the land and wait for better times.
This amendment seeks to avoid the worst of all outcomes. This would put in place measures that would allow housebuilders or developers to renege on their obligations in relation to affordable housing, but with
no requirement on them to start building anything. Under that scenario, the builder who is not minded to do much with a site until market conditions are more favourable could wait up to three years, after their appeal to the Planning Inspectorate has been concluded, to switch homes from affordable housing to market sales, which would be many months from now.
The builder could then dig a ditch to keep the planning alive and wait for a rise in house prices. At some point in the future, he would not only make a bigger profit on the original quota of his for-sale properties, but would add extra profits from the sale of the homes that he has been allowed to transfer from the affordable category to open market sale. That would be a double benefit for doing nothing now and would completely defeat the objective of Clause 6 of kick-starting stalled developments.
Amendment 55ZA couples with a significant one in the next group, Amendment 55F, in my name and the names of the noble Lords, Lord Shipley and Lord McKenzie. It states:
“Where a planning obligation is modified under this section following an appeal, the applicant must commence development within 6 months of the final appeal decision”.
That would mean that, although the community loses some of the affordable housing it had expected, at least construction would get going and some accommodation will be built. The housebuilder will not be allowed simply to negotiate an increase in the land in his land bank, thereby increasing the value of the company, without actually building anything.
However, Amendment 55 on its own, requiring a start on site in six months, would be flawed without Amendment 55ZA. This enables the local authority and the developer to agree on what a “start on site” should mean in this context. At present, planning permission does not expire provided the developer begins a “material operation”, which can mean simply starting to lay out a road or just digging a trench for foundations. We have all seen those desolate sites with a few feeble trenches full of rain water and nothing happening. Case law is clear, unfortunately, that it does not matter that the developer has carried out these minimal works simply to keep the planning permission alive, rather than with any genuine intention to complete the development.
We know there is a backlog of 400,000 new homes with planning permission yet to be built. If Clause 6 does not get developments with planning consent moving swiftly forward to completion, but only removes vital affordable housing requirements permanently, it will have failed miserably. This amendment, coupled with Amendment 55F, would mean that if the appeal process leads to fewer affordable homes, at least there is some tit-for-tat or some recompense for the concession; namely that the housebuilder must get going, must start on site within six months, and must do so in an agreed, meaningful way. That might mean the laying of all the necessary underground mains or pipes to the foundations, the construction of a road or whatever other definition of “material operation” is agreed between the two parties.
These two amendments, taken together, would mean salvaging at least something where central government overrules local authorities and allows developers to break the agreements that they have signed and reduce the levels of affordable housing. These are the first of a formidable list of amendments that aim to modify Clause 6, and perhaps they may be the most significant. I beg to move.