Growth and Infrastructure Bill

Lord Best Excerpts

Monday 28th January 2013 Lords Chamber

Moved by

[Lord Best]

55ZA: After Clause 5, insert the following new Clause—
“Time when development began
In section 56 of the Town and Country Planning Act 1990 (time when development began) after subsection (4)(e) insert—“(f) such works as may be described in a condition attached to the relevant planning permission having been agreed between the local planning authority and the applicant for that planning permission.””

[Lord Best]

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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[Baroness Hanham]

My Lords, I would be very happy to write to the noble Lord, but my feeling is that, if the local authority owns the land and thereby gives it without cost to the developer, by definition everything ought to be lower cost and it ought to be able to have some more control over it. I think this justifies a further look and I will come back to the noble Lord.

[Lord Best]

My Lords, I am deeply grateful to all noble Lords who have joined in this debate. By covering a lot of the ground on this now, we have saved time later. I will respond briefly to some of the key points made. With regard to the powerful speech by the noble Lord, Lord Deben, I have been discussing these things with Housing Ministers and Planning Ministers for longer than I care to remember; it was the noble Lord, Lord Waldegrave—then William Waldegrave, the Planning Minister—who first introduced the idea of planning gain paying for new housing development. I remember those conversations. It started in Docklands, where there was a need for local people to see something for themselves when lots of new housing was being built that was much more expensive than they could afford; from that came this way of paying for affordable housing for a range of people.

Perhaps it would be better if one simply taxed more deeply the landowners, the house builders and the occupiers, and put the money in a pot to pay for affordable housing, but it would not then be produced in the way that the noble Lord, Lord Alton, was commending—on sites that are now a mix of owner-occupiers and people who are renting or in shared ownership, which are socially very valuable. In a way, the way in which planning gain operates is a tax, and there are really only three people who can pay it. As the noble Lord, Lord Deben, suggests, the purchaser—who may be a first-time buyer—will actually be charged what the market can bear and the market is determined by the 85% of properties that change hands in the second-hand market rather than those that are built new. The developer can charge only what the market will bear, and the purchaser will look at other properties as well. The purchaser is unlikely to see their price increase for that reason.

The house builder themselves cannot operate at a loss—they would just not be in business at all—so they cannot absorb all the cost of this tax themselves. It is, I think, the third party, the landowner, where the tax finally lands, because there is a very wide variation in the value of land for agricultural or other purposes and land for development, and that is where the tax really has been drawn over the years. That system has worked pretty well.

The noble Lord, Lord Davies, makes the point that this could be a double bad deal for local communities unless we get some changes. The noble Lord, Lord Burnett, noted that local authorities already renegotiated a lot of deals, and he approves of the idea of a quid pro quo now if we are to tamper with the Section 106 agreements.

[Lord Burnett]

I think that I said it was worthy of consideration.

[Lord Best]

I accept that with some gratitude. The noble Lord, Lord Alton, talked about the social mix on decent sites, which is an important part of Section 106. The noble Lords, Lord Beecham and Lord McKenzie, were supportive, for which I am grateful. The noble Lord, Lord McKenzie, wondered whether this way of approaching the issue would actually not work and one might require a different change to the Town and Country Planning Act. The point of this amendment is that it would enable a Section 106 voluntary agreement —yes, I agree, with some pressure—to be made between two parties, and that could specify the definition of what starting on site and getting going would mean. That would not require legislation; you can put anything into a Section 106 agreement. However, the inspectorate, in reducing the amount of affordable housing, would make that conditional upon agreement being reached about what it means to start on site. I think that it could work.

Clearly the Minister is not minded at this time to go for an amendment of this sort. She very properly applauds the way that Section 106 works and accounts for a lot of affordable housing today. Like her, I approve greatly of the work of Nick Boles, the Planning Minister, in energetically trying to ensure that we build more homes, not just to ease housing shortages but to help the wider economy. She brings some reassurance that the community infrastructure levy provisions might produce ways in which developers were obligated to get on with the job. I am not sure whether that is going to be enough and I reserve my position, but at this point I beg leave to withdraw the amendment.

Amendment 55ZA withdrawn.

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Moved by

[Lord Best]

55A: Clause 6, page 6, line 5, at end insert—
“(1A) This section only applies in relation to English planning obligations agreed prior to Royal Assent.”

[Lord Best]

Apologies, my Lords, it is me again. The amendments that follow set out further proposals to moderate the likely adverse consequences of Clause 6. Amendment 55A in my name and those of the noble Lords, Lord Tope and Lord McKenzie, make it clear that Clause 6 relates only to planning obligations agreed in the past, which would usually mean agreed prior to the economic downturn when the foolhardy believed that house prices could go on going up for ever. The amendment, somewhat indulgently, would mean that cases of Section 106 agreement signed right up until the enactment of this legislation could still be subject to appeal and a reduction in the affordable housing component previously agreed by the developer.

I sincerely hope that the Planning Inspectorate would show little sympathy for the developer who has only recently entered into an agreement and almost immediately wishes to renege on it on the grounds that the project is no longer viable. The amendment would fix a clear end date to ensure that appeals, as is obviously the Government’s intention, relate not to the future but to the problems created by the economic downturn of 2008 and the years immediately thereafter. I beg to move.

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[Baroness Hanham]

That is because we are concentrating here only on affordable housing. Putting this in primary legislation means that the provisions come into effect immediately after Royal Assent and we do not have to spend time working out regulations. These provisions are in primary legislation because this is an important aspect of getting sites unlocked.

[Lord Best]

My Lords, this has been an important debate. My amendment and some of the others in the group are about there being a cut-off point for the provisions in Clause 6. We know that the Government’s target is, as it should be, agreements made before the peak of the market back in April 2010. I take the point that economic uncertainty—the possibility of things getting worse—prevails; however, one would hope that developers will not enter into agreements from now on without recognising the dangers that they can get into.

My housing association is trying to acquire sites even as we speak, and we keep being outbid by people who we think are paying ridiculous prices for the land. They are entering into Section 106 agreements with their local authorities. It would not be fair on those who are playing the game properly if, later, those who go out and pay far more than they should for a site come back and say, “Sorry, the scheme is not viable with this Section 106. Can we have it reduced?”. That is not a fair way to operate and I think that the Government accept that. I take comfort from the fact that on Report we will hear more about this matter. Therefore, at this stage, I am delighted to withdraw the amendment.

Amendment 55A withdrawn.

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[Lord Best]

My Lords, Amendment 55B in this group, which is in my name and those of the noble Lords, Lord Tope and Lord McKenzie, would enable the planning inspector to rule, after looking at the situation, that the level of affordable housing should be increased, rather than only being able to decide that the affordable housing component must be reduced. Without this amendment, the housebuilders have a one-way bet. They cannot lose by going to appeal, and they might win. This is a recipe for developers to simply “have a go”. The amendment would ensure that there are appeals only where a robust and well evidenced case can be made for a reduction, so it should deter frivolous and unsupported applications.

[Baroness Hanham]

The noble Lord, Lord Best, has spoken to Amendment 55B, which seeks to allow the modified obligation on first applications to be more onerous than the original obligation. If a developer undertook a voluntary renegotiation, he would neither expect nor agree to more onerous terms. He would expect to come out with something better than he went in with. He would revert to the original, agreed obligation if the negotiation was unsuccessful. Under this application process, we want to replicate these circumstances for the first application. It provides an important incentive for developers to come forward and review their schemes. We need housebuilders to bring sites forward and I hope that this provision will ensure that they do this.

The clause also provides an important distinction between the first and subsequent applications to encourage the developer to proceed quickly. Under the first application, the affordable housing requirement must be reconsidered if it is found to be causing the scheme to be unviable. The local planning authority must modify or remove it so as to make the development viable, and the outcome must not be more onerous than the original obligation.

In relation to a second or subsequent application relating to the same planning obligation, the authority has more flexibility in amending the affordable housing requirement. Where it is justified on the basis of economic viability, the affordable housing requirement could be made more onerous than in the original obligation. The only restriction is that the amended obligation must not make the development economically unviable.

The distinction between first and second applications provides a real incentive for developers to reach a new agreement on their affordable housing requirements on the first application and to get on with building. It discourages repeat applications unless the developer is very clear that viability evidence supports their case. It also provides an important incentive for them to come forward and review their schemes. The purpose of these provisions is to ensure that development goes ahead and is not delayed because of unviable affordable housing requirements.

This amendment prevents a developer requesting the local authority to remove the affordable housing requirement, even if viability evidence justified this. It is not our intention that developers should remove all affordable housing requirements. We want affordable housing to be justified on the grounds of viability. In the clear majority of cases, we expect that evidence will demonstrate that some—probably most—affordable housing is viable

However, there will be some cases where evidence demonstrates that no affordable housing at all can be supported by the development. The developer must have the option to apply for this and the local authority must have the option to agree to this. Stalling development with unviable affordable housing requirements serves no purpose. Stalled development brings no local benefit to anybody. I hope that I can reassure the noble Lord that this clause does not encourage applications to remove all affordable housing but looks to ensure that viable applications are agreed to enable development to proceed.

Amendments 55BB and 55BD propose a review of affordable housing after two years where land value has increased. These amendments aim to put in place primary legislation incentives to ensure that developers build their schemes. They look to allow local authorities some control where obligations have not been delivered within two years. The drafting of Clause 6 does not prevent local authorities agreeing a mechanism with developers to increase obligations should markets improve. I am aware that this is the practice in many local authorities where obligations are “staircased” according to market conditions.

We will be clear in guidance on the options open to local authorities, and I urge that this be allowed to be negotiated locally, according to local circumstances. I do not agree that a fixed period for review in primary legislation would be helpful. I hope that the noble Lord will now think that the clauses are helpful.