Agenda item

Report of the Director of Housing and Regeneration, Head of Residential Services and Head of City Policy and Strategy

6.1     The Committee received a report that provided an overview of national policy changes being made through legislation currently before Parliament (and in particular the Housing and Planning Bill which at that time had reached its report stage in the House of Lords) relating to affordable housing supply and regulation of private rented sector.  Increasing home ownership and house building are key themes of current national policy.  The report discussed their potential impact on Westminster and the Council’s lobbying objectives. 

6.2     The report was supplemented by a Powerpoint presentation that highlighted key provisions in the Bill and the position the Council had taken on each.

6.3     The committee was asked to comment on the Council’s response to date and provide guidance on any further lobbying activity and to provide a view on the Council’s response to the recent Starter Homes Technical Consultation.

6.4     The Committee heard from Hugh Bullock, Chairman, Gerald Eve LLP, who provided a perspective on behalf of investors and developers on the proposed policy relating to starter homes.  Mr Bullock informed the committee that he had worked in Westminster for over 30 years acting on behalf of many applicants.  He had been Town Planning Adviser to the Westminster Property Association since the early 1990s.

6.5     Mr Bullock began by outlining the context of developing in Westminster.  He explained that the functions of housing supply in Westminster were exceptionally complex.  Factors that influenced investment within the City included the fact that high existing asset values create a high entry price to development.  Therefore, substantial additional value and return must be generated to justify development.  The latter is affected by widespread constraints created by historic scale and plot size together with broad limitations on substantial additional floorspace on development.  The costs of non-market and other subsidised housing in Central London are exceptionally high which can have an adverse effect on total housing supply.  Most major developments in the City are necessarily subject to the undertaking of financial viability analyses.

6.6     Mr Bullock then highlighted a number of particular issues for the City arising from the Starter Homes Regulations - Technical Consultation published by the Department for Communities and Local Government in March 2016.  These included that as initially drafted there would be a potentially considerable windfall tax-free capital gain, after 8 years of occupation, wholly to the benefit of the first-time buyer.  There were all so concerns over how starter homes are to be valued.  The minimum threshold is set at schemes of 10 units.  However, in practice, the City has found it more appropriate to use floorspace rather than the unit numbers as a threshold in planning policy.  While the target nationally is for 20% of all homes delivered to be starter homes, the consultation paper asserted that, in London boroughs, the affordable housing targets are more commonly closer to 50%.  However, in Westminster, the proportion of affordable housing actually secured has seldom achieved even the City Council’s policy targets of 25% to 35%.  He considered that the use of a regulation based prescriptive test to assess viability of the kind proposed would be unlikely to work in the highly complex investment and development environment of Westminster.  In recognition of the need for flexibility in high-value areas the Bill allows for off-site commuted sums to be made in lieu of on-site starter home provision.  He indicated that this raised the question as to whether the Council should seek contributions rather than the provision and whether the Council would be able to use such contributions to deliver more homes outside the City?

6.7     The implications for the City of Westminster were then outlined by Mr Bullock.  He commented that as the subsidy to starter homes would be a prior charge by regulation, the residual amount remaining to fund conventional forms of affordable housing and supply, would be likely to be reduced.  Design specification and consequential service charges would likely be as much as an issue for starter homes as for conventional affordable homes.  If a developer were to seek to provide a mix of market homes, starter homes and conventional affordable housing all on one site, the complexities of design and operation of the development were likely to be substantial.  As buyers of starter homes are not required to have a local connection there may be potential for a pan London approach to the investment of commuted sums.  The bedroom mix of starter homes would be influenced by the objectives of the Council as regulations did not appear to prescribe what size these should be.  However, taking into account an average sale price in a high-value area the resulting homes based on the maximum price prior to the 20% discount would produce units of around 35 m².  Family sized units could be produced.  However, the costs would be relatively greater and therefore the impact on conventional forms of affordable housing would be proportionately greater.  He advised that he had not met anyone in the property industry who could see how the policy would work in Westminster.

6.8     The Director of Housing & Regeneration stated that the Bill does not include a local connection test requiring starter homes to be sold to people living or working in the borough.  The committee asked about the reasoning behind this decision and expressed concerns about the possibility of such homes being bought by people from overseas.  Cecily Herdman, Principal Policy Officer, explained that the government wanted a product which is simple and not restrictive in any way.  Andrew Barry-Purssell, Place and Investment Policy Manager, explained that the Government intended to ensure that starter homes should not be rented out during the period in which their sale was restricted (currently proposed to be 5 years).  He further explained that the Secretary of State can determine who is eligible to buy a starter home which could include prescribing limits on age and nationality.

6.11    Members asked a number of questions about the subsidy to be applied to starter homes.  This included queries about the number of years that the 20% discount of the market value would apply and what impact this would have on selling starter homes on to other first-time buyers.  The Director of Housing & Regeneration explained that as set out in the Bill the discount would be lost after five years after which the owner of the property would be able to sell it at full market value.  The House of Lords had amended the Bill to propose a 20 year stepped discount period whereby the amount of the discount to be repaid would decrease by 1% per annum.  Cecily Herdman advised that in lobbying around the Bill the City Council had argued that the discount should apply in perpetuity.

6.12    The Committee asked officers about the impact of a pan London market and how this would potentially work.  Ms Brownlee stated that London boroughs had not done anything operationally to enable such a process.  She explained that the GLA viewed London as a whole rather than 33 individual areas for development.  She advised that rather than attempt to seek family sized starter homes from developers which would be unaffordable there is the possibility that bilateral agreements with other London boroughs to use commuted sums to deliver homes may be a better option.

6.13    With regard to the extension of Housing Association Right to Buy, members asked officers about the likelihood of homes sold being replaced within the required 3 years.  Ms Brownlee commented that similarly to the right to buy of local authority social housing, housing associations were likely to experience a loss of funds from the sale of such properties.  She considered that housing associations would probably be influenced to replace right-to-buy homes within the three year period by the government naming and shaming those organisations that failed to do so.

6.14    Officers were asked whether the Council had supported the specific amendments in the House of Lords at the start of the week.  The Director of Housing & Regeneration confirmed that the Council has lobbied on all of the amendments to date and will continue to do so.  She advised in respect of the sale of high-value local authority voids that the Council would like to see a like-for-like replacement in the borough.

6.15    RESOLVED:

1.     The Committee noted that the Housing and Planning Bill incorporated the largest group of changes in the housing sector for some considerable time. 

2.     The Committee noted the complexities that influence the functions of housing supply including affordable housing provision in the City of Westminster.  It acknowledged the link between the Council’s planning function and supply.  It considered that the City Council needs to have a vision and plan of the type of housing it would like to see in Westminster over the long term while at the same time evaluating the implications for the City over the next 20 years if all the policies in the Bill are implemented.  The Committee considered that there was a consensus between the Council and the development sector regarding the importance of housing supply.

3.     With regard to the specific provisions relating to starter homes, the committee expressed concern about the lack of detail regarding some of the policy details and how they would work, many of which will be determined in regulations. The committee noted that there is a consensus between the City Council and the private development sector over the considerable challenges of delivering such homes for sale to first-time buyers in Westminster.  Members had concerns over the likely size of homes that would be delivered in borough to meet the proposed cap of £450,000 as well as the ambiguity of how such homes would be allocated and the possibility for this to be abused.  The committee also had concerns regarding the loss of the subsidy which appears only to be available once which would limit the likelihood of starter homes being recycled.  It also recognised the likelihood that the policy would have an impact on the delivery of other forms of affordable housing.

4.     In terms of the implications of the sale of high-value local authority voids, the committee had concerns about the potential loss of money from the Council’s Housing Revenue Account.

5.     The Committee recommends to the Leader of the Council and the Cabinet Member for Housing, Regeneration, Business & Economic Development that the Council join with other interested parties including Westminster’s development sector to undertake joint lobbying activities on these matters.

6.     That consideration of the policy changes around the Private Rented Sector be deferred to a future meeting.