The Housing and Planning Bill – housing heaven or headache? A look at Starter Homes provisions

Out-Law Analysis | 29 Oct 2015 | 3:38 pm | 7 min. read

FOCUS: The Housing and Planning Bill released last week has started its passage through parliament.

The Bill lays out the framework through which the government hopes to deliver new homes under a faster and more streamlined process. As with many new pieces of legislation, however, it will be the detailed draft regulations and guidance still to be issued that will provide a clearer picture of how this will impact on the delivery of homes and how the various initiatives will operate together.

However, there are practical implications that can be considered now. In the first of a series of articles that focus on issues related to the delivery of housing via the planning system, we look at  what the Bill will mean for  'Starter Homes'.

Starter Homes

The Bill includes legislative provision for 'Starter Homes' for purchase by qualifying first time buyers made available at a price which is at least 20% less than market value and delivered on specified brownfield sites not already in use.

The main proposals relevant to Starter Homes under the Bill include the extension of Starter Homes provision through further reforms; a new legal duty on local planning authorities (LPAs) to promote the supply of Starter Homes through their planning functions; and measures to ensure that planning permissions for certain residential developments meet prescribed starter home requirements

Current Policy

Government policy on the provision of Starter Homes within residential sites was first incorporated into national planning policy guidance (PPG) in March 2015 following a government consultation.

The 'Starter Homes Exceptions Site Policy' was introduced to enable Starter Homes to be built on under-used or unviable commercial or industrial sites not currently identified or allocated for housing, on both public and private land.

Under the PPG, local authorities are required to work with landowners and developers to secure a supply of suitable and viable sites. Planning applications made on these "exceptions sites" should be approved unless the LPA can demonstrate overriding conflicts with the National Planning Policy Framework (NPPF) that can't be mitigated. These sites should not be "required" to make section 106 affordable housing or tariff-style contributions and a related section 106 agreement should prevent the re-sale and letting of the Starter Homes at open market value for a five year period.

The government has also said that a Community Infrastructure Levy (CIL) should not be charged on Starter Homes, although this does not currently appear in PPG or legislation.

Starter Homes delivered on exception sites are to be treated as windfall sites, should not be included in a LPA's five year housing supply until they become consistently available and can count against their housing requirement. A "small proportion" of market homes are allowed on exception sites where it is necessary to make the site viable.

Proposed extension under the Bill

The new Bill incorporates a statutory definition of a Starter Home which reflects the description in the current exceptions site policy. It also provides for regulations to be made which will place restrictions on the sale and letting of them. There is no detail of what the restrictions will be but we anticipate that they will at the very least reflect the restrictions in the current exceptions site policy on re-sale and letting, and may go further.

The consultation on Starter Homes said that a working group would be set up to consider the re-sale restrictions, consider the merits of developing a model s106 agreement to assist with determining open market valuations and to consider whether enforcement of the restrictions via appropriate restrictive covenants covering the resale of the property would be effective.

On re-sale restrictions, another possible option for LPAs might be placing conditions or obligations on planning permissions preventing open market sales, for example. The Bill says nothing about how the 20% discount in the price would be guaranteed or recovered in an onwards sale taking place before sale at market value is permitted and this may need to be dealt with under related agreements or documents.

The new proposals will place a legal duty on LPAs to promote Starter Homes rather than a general requirement to cooperate with landowners and developers. In practice, this means local plan and neighbourhood plan allocations and policies will need to be compatible with that duty.

If local plan and neighbourhood development plan (NDP) policy is incompatible the secretary of state (SoS) may, under the proposals, issue a direction that no regard is to be had to that policy for the purposes of determining a planning application. This may give rise to issues for LPAs under section 38(6) of the Planning and Compulsory Purchase Act 2004 which requires them to determine applications in accordance with adopted development plan documents.

The Bill does not currently make clear that the provisions of the new Act would take precedence over s38(6) or that it would be a material consideration. We see this as an area requiring further clarification to avoid legal challenges in practice.

When enacted, the new duty will place additional pressure on LPAs to further overhaul their housing allocations and policies to consider Starter Homes provision. This is on top of increased pressure to ensure adopted local plans are in place. It may be welcomed as an opportunity by neighbourhood forums and parish councils who are keen to see Starter Homes delivered in neighbourhood areas for young local people.

The government's productivity plan 'Fixing the Foundations', which trailed the extension of Starter Homes, notes that the current exceptions site policy will be extended beyond under-used and unviable commercial and industrial sites not currently identified or allocated for housing, to also include unviable or underused brownfield land for retail, leisure and institutional uses. This is not included in the Bill itself but is likely to form part of updated guidance and/or be dealt with in new regulations.

Whether this will be effective in enabling LPAs to bring forward many more sites in their areas which to date have not been considered remains to be seen, but we do not anticipate that this would lead to many "quick wins" in terms of housing numbers. Constraints to development such as contamination, site location etc are likely to be associated with these sites and development could be unviable where the proportion of market housing is to be limited.

There is currently no detail on what might constitute a "small level" of market housing, but as LPAs will have discretion on a site by site basis this could be different in different areas or for different schemes. When the exceptions site policy was introduced, it was thought that some developers could end up arguing that 60-70% market rate housing would be necessary to make some sites viable.

The Bill also introduces the 'Starter Homes requirement'. The SoS has the power to make regulations which would provide that an English planning authority may only grant planning permission for a residential development of a specified description if the Starter Homes requirement is met.

The explanatory notes to the Bill and productivity plan indicate that this is likely to include ensuring that every "reasonably sized housing site" includes a proportion of Starter Homes by requiring a s106 planning obligation to be entered into, as a condition of granting planning permission. Under the s106 obligation the developer would provide a specified number of Starter Homes or make a payment of a commuted sum to the LPA for their provision. This will be an additional burden on the LPA who must now ensure delivery of the "Starter Homes requirements" via the planning process. New s.106 agreements, and variations to existing s.106 agreements, will need to deal with Starter Homes accordingly.

The Bill provides that the SoS will have flexibility to apply different requirements to different types of residential developments and to different areas. This could include exempting certain types of residential development. This raises the possibility of different rules for different areas such that the government could apply the requirements flexibly – for example encouraging more Starter Homes in certain regional areas or less in certain sensitive areas. The scope for differences is important and requires further clarification.

The productivity plan and ministerial statements, as opposed to the Bill, have said that regulations and updated planning policy guidance will make Starter Home developments exempt from CIL, affordable housing contributions and tariff-style general infrastructure funds. Concerns will be raised again by LPAs about how they will fund infrastructure. If LPA's pass the costs on to other local developments to compensate for the loss of contributions the result may be higher CIL rates and potentially more unviable sites; alternatively funds will need to be found elsewhere to plug infrastructure deficits.

Taken as a whole, those involved in the provision of new residential development will be concerned about the effect on the wider marketplace. The likely re-sale restrictions could reduce the value of existing second hand houses built as first time buyer properties, plus recently completed first time buyer developments, as first time buyers, may well want to buy a Starter Home at a discounted price with an opportunity, albeit after some time, to re-sell at market value.

Further, it is unclear how Starter Homes sit within the ambit of "affordable housing". There is no reference to Starter Homes being made an affordable product under the Bill, despite David Cameron's announcement that he wanted to make available "affordable homes to buy" as opposed to just rent. This could lead to LPA's taking the view that sites should incorporate both a Starter Homes element and an affordable housing element, making schemes less viable with a lower proportion of market homes.

It is possible that the PPG could be clarified to bring Starter Homes within the definition of affordable housing. Alternatively, Starter Homes may end up effectively largely replacing the provision of a large amount of affordable housing, particularly affordable rented housing. Indeed, it is understood that housing grant for affordable housing will be further reduced and be used to help with the Starter Homes programme.

Unless the ability to cascade out a Starter Home to become a market home is removed, there are concerns that the stock of truly "affordable housing" will be further diminished. Indeed some bodies, such as Shelter, have said that even at 20% below market price, Starter Homes will not be truly "affordable" for a large amount of those in need of real affordable housing.

Richard Ford and Kate Brock are housing and planning law experts at Pinsent Masons, the law firm behind Out-Law.com

For further information, please contact:

London: Richard Ford, Iain Gilbey, Nicholle Kingsley, Marcus Bate, Richard Griffiths, Robbie Owen

Birmingham: Rebecca Warren

Leeds: Jonathan Riley

Manchester: Mike Pocock