The Council says meeting its affordable housing target ‘will necessitate a three-fold increase in the average rate of affordable homes delivered’. How can they achieve it?

‘Affordable housing – achievement to date and where in the city we are providing family housing’ is the title of a report to the Council’s Economy and Skills Oversight and Scrutiny Committee on 29 January 2020.

(Note: this is not about council housing, another crucial issue. ‘Affordable’ means below market value for sale or rent, perhaps by 20%. Shelter has a much better definition: it shouldn’t exceed 35% of your net household income.)

In the period 2011/12 to 2018/19 a total of 18,324 new dwellings were completed, which was 1,374 above target. The Council’s policy is that 35% of new homes on residential developments of 15 dwellings or more should be ‘affordable’.  The target was 6,441 affordable dwellings but only 3,775 were completed. This is only 59% of the target, an under-delivery of 2,666 dwellings.

To meet the affordable housing target for the Birmingham Development Plan 20-year period of 2011 to 2031 a further 15,625 dwellings are required. That means an average of 1,302 new affordable dwellings a year for the next 12 years. As the report says,

‘This presents a significant challenge and will necessitate a three-fold increase in the average rate of affordable homes delivered over the last 8 years. This requirement indicates that a change in approach will be necessary if the target is to be met.’

The affordability policy only applies to sites of 15 or more dwellings. According to the report there are 153 such sites in the city with a total capacity of 18,982 dwellings. If the 35% policy were applied this would provide 6,644 affordable homes by 2031. This is a long way short of the 15,625 target. In fact it would be an under-delivery of 42.5%, which is far worse even than the 59% shortfall from 2011/12 to 2018/19.

The shortage of land for building homes is a fundamental problem facing the Council. How does the Council propose to solve it to meet the ‘significant challenge’ of tripling the number of affordable homes built each year until 2031?

The Council’s proposals for a ‘change in approach’

The Council’s report makes four proposals to achieve ‘a change in approach’.

  1. More land for the Birmingham Municipal Housing Trust

In May last year, ‘Cabinet approved the Birmingham Municipal Housing Trust Delivery Plan 2019-2029 which will deliver around 3,000 new homes for rent and sale over the next 10 years’. This would represent about 19% of the 15,625 affordable homes required. The report says ‘opportunities to secure further land for BMHT development should be taken’, but it doesn’t say how many more homes might be built if the BMHT secures more land, or how it might be acquired, and it acknowledges that there is a problem of public opposition to the acquisition of some sites for building on.

  1. Work in closer partnership with Registered Providers of affordable housing

‘Opportunities should also be sought for the Council to work in closer partnership with Registered Providers of affordable housing in the city, so that they can apply their investment capacity and house-building expertise to support delivery of a greater number of new homes.’

(Registered Providers, also known as Housing Associations, are non-profit organisations independent of the Council. They are part-funded by the government through the Homes and Communities Agency and raise the rest of the money they need for developing homes from banks and private finance institutions.)

This raises four questions:

  • What does ‘work in closer partnership mean’?
  • If that would mean ‘delivery of a greater number of new homes’ why has the Council waited until now?
  • How many additional new affordable homes are estimated to be generated by this ‘closer partnership’?
  • Where will the Registered Providers find the land?

The report offers no answers.

  1. Continue to work effectively with the private sector

‘We will also need to continue to work effectively with the private sector to help unlock potential housing sites; remove barriers to development; and make efficient use of land by increasing densities where appropriate.’

Does this represent ‘a change in approach’ or just more of the same? What is the Council’s estimate of how many additional affordable homes this will contribute to meeting the ‘significant challenge’ of tripling the number of affordable homes built each year until 2031? Again, the report is silent.

  1. Maximise the provision of affordable housing through the planning process/ Section 106 agreements

‘Opportunities to maximise the provision of affordable housing through the planning process/ Section 106 agreements, should also be taken. Where development proposals do not provide for 35% affordable housing, the City Council requires planning applications to be accompanied by a viability assessment. The Council undertakes an independent assessment of the developer’s assessment, paid for by the applicant. In the last two years, the City has negotiated in excess of £4million of extra s106 contributions from that which was initially offered by applicants.

However, there is a limit to the amount that can be extracted from Section 106 agreements where other competing planning obligations are triggered e.g. provision of public open space, education infrastructure, highways infrastructure works etc. If affordable housing is the planning obligation priority, it could be at the expense of other types of obligations.’

If these are the obstacles, what does ‘maximise the provision of affordable housing through the planning process/ Section 106 agreements’ actually mean? Are there concrete measures which the Council plans to take that it hasn’t already taken? If so, what are they?

Why are there hardly any affordable homes in the new city centre apartment blocks?

The problem of developers being unwilling to provide for 35% affordable housing is most acute in the case of applications to build apartment blocks in the city centre. The report says that between 2011/12 and 2018/19 17,414 dwellings were completed in Birmingham. Of these a significant number were in the city centre: 4164 homes, about 24%. What the report doesn’t say is how many of these were affordable homes. If the 35% criteria had been met, 1,457 would have been affordable. But we know that although the city centre is seeing a huge increase in housing development in the form of apartment blocks, they include only a token percentage of affordable apartments.

The explanation is that the property developers refuse to provide 35% affordable new homes in their city centre planning applications because they say it eats into their profits, and the Planning Committee allows them to get away with at most 10% and often 5% or even none, as Birmingham Against the Cuts has demonstrated in recent articles (January 17 and 28, February 6. See also 31 July 2019). In fact we would bet that there is not one single example of a developer providing 35% affordable in the city centre, or any figure close to it.

The crucial question is how much profit is built into property developers’ applications and accepted without question by the viability assessors and then by the Council. But on this the Council report is silent. The word profit (or one of the usual euphemisms) does not even appear.

Previous articles in BATC reveal the huge profits made by these big property developers in Birmingham. It is confirmed by a publication by Savills, one of the world’s leading property agents: ‘Residential Development Margin. Competitive Return to a Willing Developer’ (March 2017):

‘Our analysis indicates that Operating Margin targets for housebuilders across the economic cycle are 15-20% on Gross Development Value (GDV). …after adjusting for site specific finance the resultant suggests a Site Level Net Margin target of 20 – 25% of GDV.

Also, in most cases, Return on Capital Employed (ROCE) is considered to be an equally important indicator, particularly on large capital intensive schemes. A target ROCE needs to be achieved alongside the Site Level Net Margin of 20-25% on GDV. This means that the minimum KPIs used within viability testing (the hurdle rates) should be a Site Level Net Margin of 20% – 25% on GDV, blended across all tenures, subject to also achieving a minimum site level hurdle rate of 25% Return on Capital Employed (ROCE).’

One crucial ‘change in approach’ the Council has to make is to challenge developers’ super-profits

But now the issue of the failure of developers to provide anything like the 35% affordable homes in the city centre can no longer be ducked, not only because of the need for a social mix in city centre housing but also for the very practical reason that City Centre is one of the two areas of the city (along with North) with the greatest capacity for potential affordable housing development.

According to the report the sites in City Centre with a potential capacity of 15+ dwellings (the affordability threshold) could provide 6,403 more homes in addition  to those already planned – about one-third of the total for the city of about 19,000. If the 35% policy was applied that would mean 2,241 additional affordable homes in the city centre.

The Council’s report speaks of ‘a significant challenge’ and ‘a change in approach will be necessary if the target is to be met.’ But the report doesn’t acknowledge that the biggest challenge and the biggest ‘change in approach’ the Council will have to make is to insist in future that applications to build big developments of apartments in the city centre will not be approved unless they include at least 35% affordable homes, and that this means demanding that bids are based on a significant reduction in profit margins. They need to calculate what increased percentage of affordable homes could be achieved if, for example, profit margins were halved from 20% to 10%, and then make it clear to would-be developers that they aren’t welcome in Birmingham if that isn’t enough for them.

 

Richard Hatcher

Birmingham Against the Cuts

16 February 2020

Contact: Richard.Hatcher@bcu.ac.uk

 

 

 

 

 

 

 

 

 

 

 

 

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