The Housing and Planning Act: final proposals to speed up housebuilding

Out-Law Analysis | 15 Jun 2016 | 12:23 pm | 9 min. read

FOCUS: The Housing and Planning Act has now passed into law, but much of the detail on how the new provisions will operate and when they will take effect remains unknown until the related regulations and orders have been made.

The Act contains provisions relating to starter homes, permission in principle and vacant higher value council housing. . You can also read our earlier detailed notes on the Bill and its passage into law.

Starter homes

The Act makes legislative provision for 'starter homes' for purchase by qualifying first time buyers, which will be made available at a price which is at least 20% less than market value.. The government intends to ensure that starter homes become a common feature of new residential developments in England.

The provisions will come into force on a future date, which will be specified in the regulations still to be published.  Related  regulations are expected to be made in October 2016.

The main principles in relation to starter homes are:

  • a new duty on local planning authorities (LPAs) in England to promote the supply of starter homes;
  • LPAs will only be able to grant planning permission for certain residential development if the 'starter homes requirement' is met;
  • the 'starter homes requirement' will be set out in the regulations, but is likely to require that a minimum of 20% of homes on the residential development be starter homes subject to exceptions;
  • starter homes will be available to purchase by 'qualifying' first time buyers between the ages of 23 and 40 at a discount of at least 20% of the market value;
  • starter homes are defined as an affordable housing type;
  • restrictions, to be made under regulations, will apply on re-sales: repayment in respect of the starter homes discount, reduced according to the time that has expired since a home was first sold; or preventing a starter home being sold within a specified period other than to a qualifying first-time buyer at a discount;
  • rural exceptions sites, where policy exists for housing under a development plan, will be exempt from any requirement to deliver starter homes.

What we expect from the regulations

The government issued a technical consultation setting out the approach it is likely to take to the detail of the starter homes provisions while the Bill was progressing through parliament. The government has proposed that any first-time buyer who is under the age of 40, but aged 23 or over, will be eligible to buy a starter home. If the property is being purchased jointly and only one purchaser is eligible, they should still be able to jointly purchase a starter home. The age restriction would also be lifted for any injured military personnel or the partners of those who lost their lives in service.

The government intends to impose restrictions on those who would like to sell or let their starter home. A restriction of between five and eight years is likely for sales and lettings. The consultation paper suggests "a tapered approach which enables the starter home to be sold at an increasing proportion of market value" and restricting sales to other qualifying first-time buyers. Once the property has been occupied for eight years, these restrictions would not apply.

Developments which cover over half a hectare or include 10 or more units would be required to build starter homes, according to the consultation. This minimum criterion is in line with the planning definition of a 'major development' and also ensures that small sites would not be forced to provide starter homes, making them financially unviable.

Any qualifying development would be required to allocate 20% of homes as starter homes. The government considered setting a varied starter home obligation based on regional differences, but decided on a "single national requirement" to prevent the rules becoming too complex.

A "general exemption" to the starter homes requirement would be applied where clear evidence proves that it would make the development unviable, according to the consultation. However, this would only be used in "tightly defined circumstances". The government acknowledges that starter homes may not be appropriate for all schemes and that regulations will "identify types of developments which will not be subject to the starter homes requirements". Suggested categories include specialist care accommodation, estate regeneration developments, custom build and purpose-build student housing.

It is proposed that most starter homes would be delivered on site but the government will allow some flexibility where this could make the development no longer viable, especially in areas of high value. In these circumstances, "commuted sums would have to be used by the LPA for providing starter homes elsewhere", according to the consultation.

Areas of concern

Significant concerns remain across the housing industry that starter homes will squeeze out other types of affordable housing, such as affordable for rent and shared ownership, after the government resisted attempts by the Lords to introduce amendments into the Act which were aimed at ensuring other forms of affordable housing would continue to be built. For example, the consultation does not deal with the case where local policy imposes a 20% affordable housing requirement but the national 20% starter homes requirement will mitigate that in full - the result being no further types of affordable housing for those who do not fulfil the starter homes criteria.

Starter homes also take priority over other types of affordable housing provision in viability negotiations. The consultation is clear that the percentage of starter homes should only ever be reduced for viability reasons if the percentage of other types of affordable housing has been reduced to zero. This will be unpopular with some LPAs that wish to provide a mix of affordable housing in viability negotiations. The private rental sector (PRS) is especially likely to feel the impact of starter homes, as predictions show that there will be an increase in the ability of those currently renting privately to get a starter home mortgage.

Permission in principle

The Act introduces an automatic 'planning permission in principle' (PiP) for certain allocated housing sites in England. This is intended to avoid unnecessary delays during the planning process, where such sites might be tested for suitability multiple times.

The parts of the Act introducing PiP will take effect two months after Royal Assent, so 12 July 2016. Development orders will also need to be made.

The main principles in the Act in relation to PiP are:

  • planning permission 'in principle' available for housing-led developments, designed to separate decision-making on issues such as land use, location and amount of residential development from matters of technical detail. The acceptability of the 'in principle' issues cannot be reopened at technical details stage;
  • once made, development orders will grant two types of PiP: 'allocation PiP' for land allocated for housing-led development in 'qualifying documents' such as development plan documents, neighbourhood development plans and in certain registers, including the brownfield register; and 'application PiP' on small sites under 10 units where a developer has made an application to the LPA;
  • allocation PiP will last for five years unless the LPA sets a longer or shorter period;
  • application PiP will last for three years unless otherwise directed by the LPA;
  • where PiP has been granted, full planning permission can only be obtained and work commenced on site once an application for technical details consent has been approved.

What has changed, and what we expect from the development orders

Changes in the final text of the Act have made it explicitly clear that PiP is intended for housing-led development, and not currently for other types of development. In particular, an amendment was agreed to specifically exclude fracking development from being capable of being granted PiP. The duration of both forms of PiP and what 'qualifying documents' could be taken into account for allocation PiP were also added to the final text.

A technical consultation on implementation of planning changes, which closed on 15 April 2016, provides some further background on PiP and sets out proposals for the detail which will be contained in the development orders. The proposals make clear that decisions about granting PiP should be locally driven, taking account of national and local policy. The provisions will not apply retrospectively, so allocations in existing plans cannot grant PiP. Community Infrastructure Levy (CIL) and 'section 106' contributions may be applied, and would be negotiated at the technical details stage.

The 'in principle' matters that the consultation proposes would be determined as part of the PiP include:

  • location: a detailed red line plan identifying the location and parameters of the site;
  • use: should be housing-led but retail, community and commercial uses that are compatible with residential use can also be approved under the PiP where they form part of a housing-led development;
  • amount of residential development: an acceptable minimum and maximum level of residential development is proposed, indicated by number of units or by dwellings per hectare.

Parameters of the technical details for the development that need to be agreed are expected to have been set out at the 'in principle' stage. Technical details will be considered having regard to local and national policy in the normal way.

Areas of concern

It remains unclear how PiP will interact with existing requirements for environmental impact assessments (EIAs) and habitats assessments. According to the consultation, developments exceeding thresholds above which EIAs may be required would not be able to receive PiP unless an EIA has been produced and appropriate mitigation agreed, or the relevant LPA has determined that an EIA is not necessary. This approach appears to be at odds with the government's insistence that the 'in principle' matters dealt with by PiP will only include the location, uses and number of units, given the detailed information required in order for EIA decisions to be made. Many sites allocated in local plans will exceed the EIA thresholds, and so allocation PiP may be of limited value.

The market reaction to PiP has been generally positive, particularly for small builders. It is expected that PiP will encourage LPAs to be more committed to the delivery of sites in their local plans. Some LPAs are supportive but have concerns over the administrative burdens involved in the proposals. There are also concerns around viability for allocation PiPs under the brownfield register, given the high remediation costs involved in these sites.

Vacant higher value local authority housing

Provisions in the Act requiring local housing authorities (LHAs) to consider the sale of higher value council housing that has become vacant had immediate effect.

The main provisions in relation to this new duty, which is now in force, are:

  • a new power for the secretary of state (SoS) to make a determination requiring an LHA to make a payment to the SoS representing the market value of their interests in any higher value housing that is likely to become vacant during the year, less costs and deductions to be prescribed;
  • an agreement may be entered into between the SoS and the LHA for the provision of housing in an area. This agreement may reduce the amount of the payment to be made, subject to certain terms and conditions;
  • where an agreement is in place, it must provide that for every old dwelling sold there must be at least one new affordable home provided in areas outside Greater London (a 'one-for-one replacement'), and at least two new affordable homes in areas within Greater London (a 'two-for-one replacement');
  • a 'new affordable home' can include a starter home.

What has changed, and what we expect from the regulations

A change was made to the final text of the Act defining the relevant local authority housing as 'higher' value housing, as opposed to 'high' value housing. This was introduced in response to concerns in the Lords that, in some areas, all the local authority housing stock would be classified as high value. Further detail will be provided in regulations yet to be made, but the wording of the Act now makes clear that the regulations may define 'higher value' in "different ways for different kinds of housing, different local housing authorities or different areas".

Additional wording was added to ensure that where an agreement about building new homes, and reducing the payment to be made by the LHA to the SoS, is made with an LHA outside Greater London, the LHA would be required to provide at least one new affordable home for every old dwelling assumed sold. This is a 'two-for-one' provision in Greater London.

It is intended that the regulations will include provision to give local authorities with particular housing needs the opportunity to  reach bespoke agreements about the delivery of different types of new homes in their areas. The regulations will most likely contain exclusions to the housing to be considered for payment in respect of higher-value vacant housing in rural areas.

Areas of concern

The main point of contention about the one-for-one and two-for-one replacement provisions is how the replacements will be funded by LHAs in the absence of them being able to retain the sale receipts. The government has made clear that the payments to be made by LHAs to the SoS in relation to their vacant higher value stock will be used to help fund the right for housing association tenants to buy their homes under the extended 'Right to Buy' scheme. The Commons twice rejected amendments that would have enabled LHAs with demonstrable needs to retain the money for reinvestment in new affordable homes and homes for social rent.

There remains uncertainty about how the financials are going to add up, and whether the outcome will be lower quality replacement housing in many areas.