Affordable housing ruled out

The Court of Appeal has allowed an appeal against a decision in the High Court in which the Royal Borough of Kensington & Chelsea had succeeded in overturning an inspector’s appeal decision which had accepted that affordable housing should not be provided in a 9-flat luxury development. The developers had successfully argued before the inspector that the development would not go ahead if it had to include an element of affordable housing.

In Vannes KFT v. R B Kensington & Chelsea [2010] EWCA Civ 1466, in which judgment was handed down today [20 December], the Court restored the Inspector’s original decision. The issue of whether it was economically viable to make any provision for affordable housing at all was a principal important controversial issue at the inquiry. In his appeal decision, the inspector had noted that the appeal scheme was intended as a "high-end residential development that is aimed, either as one lot or as individual flats, at those very wealthy purchasers (often foreign nationals) who wish to locate in a relatively tightly-drawn area of central London where the supply of suitable property is limited…". He concluded that, given the nature of the proposed flats and the market at which they were aimed, the proposal would be "…in line with the aims of the London Plan to support London's development as ‘the main world city’".

The Inspector then considered the issue of affordable housing, whether provided either on-site or alternatively off-site. The affordable housing policy was triggered in this case because the site had a capacity for more than 10 homes. However, the inspector expressed some sympathy with the view that affordable housing might not sit easily with the type of housing proposed by the developer, although he was not convinced that the on-site provision of affordable housing would be impossible. The evidence at the Inquiry had centred on whether the appeal scheme would be sufficiently viable to support any provision of affordable housing, whether on or off-site.

There was a clear conflict of evidence between the two sides, using the ‘Three Dragons’ program (or ‘toolkit’) for assessing the viability of the scheme with an element of affordable housing. The inspector carefully analysed these figures, but noted that the toolkit analysis is not a policy requirement in determining affordable housing provision; the London Plan simply indicates that it is just "one mechanism that will help". Given the number of uncertain input values which the inspector had noted, the inability of the professional witnesses to reach agreement on them at the inquiry, and their significant cumulative value, he considered that, in this case, none of the ‘toolkit’ results was sufficiently robust to enable any significant weight to be attached to it in determining the provision of affordable housing that could be expected from the appeal proposal.

The appellant's position had been that, if affordable housing were to be a requirement, the appeal scheme would be unlikely to go ahead. In that case, no new residential development would result and the hotel building which it was proposed to convert to flats would either remain unused or the hotel use would be reinstated. Policy 3A.10 of The London Plan refers to the need to encourage rather than restrain residential development and to take account of the particular circumstances of the site, applying targets flexibly taking into account individual site costs and other scheme requirements. Having regard to all the circumstances, including the specialised nature of the area in which the building is situated and lack of reliance that could be placed on the ‘toolkit’ results, the inspector concluded that it would be unreasonable to require affordable housing provision in the case of the appeal proposal, and that in the circumstances there would be no conflict with the aim of policies in The London Plan to secure the maximum reasonable contribution to the provision of affordable housing.

At first instance, Sir Michael Harrison had concluded that in this case, the economic viability of providing any affordable housing on or off-site was undoubtedly a principal important controversial issue at the inquiry which the Inspector had to decide. In his view, the Inspector failed to determine it properly or at all. That was an error of law which vitiated the decision. The importance of deciding that issue was emphasised by the undisputed need for affordable housing and by the policy provisions relating to affordable housing. He therefore held that it was unlawful to grant planning permission without deciding the viability issue in those circumstances.

One of the criticisms levelled at the inspector’s decision (at first instance) had been that the Inspector had failed to grapple with the various input figures, but the Court of Appeal concluded that he had done so, in the sense that he understood the evidence that was put before him and he evaluated the reliability of the figures. The Court decided that the issue of economic viability of the development site was only a part of the relevant "principal important controversial issue". The Inspector was bound to evaluate the evidence on the input figures for use with the "Three Dragons" software. He did so. If the Inspector concluded that the input figures were unreliable and would lead to unreliable results, he was duty bound to say so. He did so. Therefore the Inspector did not err in law in deciding that he could not use any of the input figures to arrive at a conclusion on the economic viability of the proposed development, using the "Three Dragons" software.

Having concluded that it could not reliably be determined whether the proposed development would be economically viable, then it was reasonable for the Inspector also to conclude that he could not place any significant weight on the factor of economic viability when determining whether or not there should be a provision of affordable housing in the proposed development scheme. It was difficult to see what other weight could be placed on that factor in the circumstances. Questions of weight to be attached to a particular factor are a matter for the Inspector and not the court. Accordingly, the conclusion reached in the Inspector's Decision Letter did not disclose an error of law.

The LPA had argued that the view taken by the Inspector on the developer’s position at the Inquiry (that the development would not proceed if there had to be an element of affordable housing) must necessarily be dependent on the determination of the economic viability issue in the developer’s favour. That was because the developer’s position depended on their ‘toolkit’ input figures being correct. As the Inspector did not determine the issue of economic viability, it was argued, he did not properly take account of the developer’s stated position when reaching his overall conclusion that it would be unreasonable to require an affordable housing provision in the case of the appeal proposal. The judge at first instance had accepted this argument and concluded that insofar as the developer’s position was dependent on the issue of viability, the Inspector's failure to decide that issue would infect his reliance on the developer’s stated position.

However, the Court of Appeal did not read the Inspector's decision letter as a statement that depended on the Inspector’s having accepted the developer’s expert evidence about the input values or the result of the "Three Dragons" toolkit exercise. There was nothing to suggest that the developer’s position was dependent on such a conclusion. The decision letter merely expressed the obvious logical consequences if the scheme were not to go ahead; viz. there would be no new residential development and so the hotel site would remain unused or its hotel use would be reinstated.

The Inspector had referred to the policy considerations set out at Policy 3A.10 of the London Plan, and expressed his conclusion on the "principal important controversial issue" as to whether there should be an affordable housing provision in the case of the appeal proposal. He stated that he had had regard to "all the circumstances". If (as the decision letter made clear), the developer’s position was not dependent on any finding by the Inspector on the correctness of its figures on input values, nor therefore upon its case on the development's economic viability, then Aikens LJ could not see how taking the developer’s stated position into account vitiated the Inspector's decision on the issue of whether there should be a requirement for affordable housing. When reaching his decision on that issue, the Inspector was entitled to take into account the stated position of the developer that if there was an affordable housing requirement, then the appeal scheme was unlikely to go ahead.

I can well understand the concern which has already been expressed about this Court of Appeal decision. There is a certain circularity in the argument which the Court seems to have accepted. The judgment would appear to suggest that a developer has only to assert that he will not go ahead with a proposed residential development if forced to include an element of affordable housing (even off-site), and that may be enough to justify the decision-maker in taking that statement at face value (although not, of course, obliged to do so). It makes a nonsense of the widely accepted need for convincing objective evidence of viability if it is asserted that the requirement for affordable housing will prevent the proposed housing development from going ahead.

Oh the other hand, it does highlight a fundamental weakness in relying on a policy requirement for the provision of a proportion of affordable housing (particularly at the increased percentages now being demanded by some LPAs). The developer will ultimately take his own subjective view as to the viability of the project, and if he concludes that the requirement for affordable housing will reduce the profit on the scheme to less than what the developer would consider acceptable, then he may well decide not to proceed further but may simply keep the site in his land bank in the hope of securing a better deal at some date in the future. This could have the effect of both reducing the overall amount of housing actually built and also limiting the actual availability of affordable housing. It is a conundrum that planning authorities would do well to ponder.

My own view has always been that reliance on this method of securing the provision of affordable housing is misplaced, and that the only sure means of securing its provision is through publicly-funded social housing. Admittedly, the prospect of such provision is more remote than ever in the foreseeable future, and so the guerrilla warfare between LPAs and developers typified by this case is set to continue.

© MARTIN H GOODALL