Agenda item

Report of the Chief Planning Officer and Development Director.

The Committee considered a report of the Chief Planning Officer and Development Director regarding 15 and 16 Minories and land fronting Aldgate High Street, 62 Aldgate High Street: Deed of Variation in respect of Affordable Housing matters; planning permission 15/01067/FULL.

Officers explained that this was a request for a deed of variation to the affordable housing planning obligations for the scheme at 15 and 16 Minories. It was clarified that deeds of variation were normally dealt with by Officers under delegation and did not routinely come to this Committee for consideration. However, given the nature of this proposal, the interest that the Committee has in affordable housing matters and the fact that a change from on-site provision to off-site contributions was proposed, it was felt that, following discussions with the Chair and Deputy Chairman, it would be useful to seek the views of the wider Committee. Officers emphasise that a deed of variation was not the same as a planning application and that this had not therefore gone through the same processes of consultation. The deed of variation was seeking an amendment to a legal agreement which was attached to an implemented planning permission.

It was reported that Officers had been in discussion with applicants on this matter since 2018 and that it had taken a number of years to reach this position. Officers were keen to explore all of the opportunities for the retention of on-site affordable housing in this case and, once this had been exhausted as an option, they wanted to ensure that any commuted sum was the maximum that could be afforded and was policy compliant before presenting a report to Members. In terms of the actual proposals, the affordable housing scheme at Minories was granted in 2015 as part of a wider scheme for the redevelopment for that part of Minories and Aldgate with a hotel scheme and an office scheme. The residential element was for 87 units, 27 of which were to be affordable. Since permission was granted, the sub-structure and concrete frame of the building had been constructed but there had been no progression of the building to full completion which was currently sitting as a concrete core. The deed of variation sought to discharge the affordable housing requirement by means of an offsite contribution rather than on-site provision and the discussions/variations were within the context of the provisions of the 2015 Local Plan and a 30% affordable housing requirement which was in force at the time that the application was determined and remained in force today. It was reported that Officers had looked at two key areas – the first being whether it would be feasible or viable to provide on-site affordable housing in line with the original planning permission. To that end, the applicant had provided two marketing exercises in 2018 and 2021, outlining the potential for the units  to be managed by a Housing Association or by the City Corporation. In both marketing exercises, no Housing Association that was active in or near to the City, expressed any interest in taking on the flats or managing them for affordable housing. Essentially, it was felt that the number of flats was too small for most Housing Associations to manage economically. Secondly, the service charge attached to these flats would be the same as that applied to the private tenants and this was considered to be too high to be affordable and there was a proposed single, shared access point to both affordable and market flats which was felt to be undesirable by the associations. In the case of possible shared ownership housing, the actual cost of the units would have been far too high to meet the needs of those on the City Corporation’s housing waiting list. The option of the City Corporation managing the flats as part of its housing stock had been considered in detail by Officers but, again, it was proposed that a commuted sum would be a better option and would enable the City Corporation to better address its wider estate regeneration plan and enable the provision of new social rented housing which meets the needs of people on the organisation’s housing waiting lists. In turn, this would also secure a longer-term income stream to the Housing Revenue Account which could then be reinvested going forward.

Next, Officers focused on whether the commuted sum offered was sufficient and policy compliant. It was reported that when the proposal was first received, the commuted sum had been considerably below what would be considered to be policy compliant (assessed at £9.5 million). Members were informed that, over the past three years, they had seen three different appraisals from the applicant but that each of these had been well below this level. In 2020 the City Corporation appointed external consultants to advise upon the affordable housing proposal and, after a lengthy assessment in discussion with the applicants, the consultants had concluded that a maximum affordable sum would be £7.5 million. It was reported that, during this process, the applicant themselves had increased their offer significantly. In the early part of 2021, the applicant had entered into a development partnership with a residential developer operating in London and, a result of that development partnership, felt able to increase their affordable housing offer and meet the full policy compliant figure. The current offer from the applicant was now therefore just under £9.5million and was policy compliant. Having made this offer, the applicant was now seeking the deed of variation and to progress the scheme. It was reported that they were now very keen to get on site and complete the development. Officers were now recommending that the deed of variation be approved.

The Deputy Chairman reported that he and the Chair had spent a lot of time over quite a long period examining this proposal which, until now, had not been particularly satisfactory in terms of the proposed commuted sum. It was felt appropriate that this particular matter should now be considered by the Committee as a whole who could be fully appraised of the background to this before a decision was made.

A Member spoke to emphasise that he felt that the Committee should accept nothing less than policy compliant level payments and found it disappointing that the applicant would seek to offer less than this. He went on to state that his biggest concern here now was around the loss, in net terms, of affordable housing units. He noted that paragraph 10 of the report stated that on-site provision was not feasible or viable due to the design of the scheme and questioned what had changed in the design which had already been scrutinised and consented to as part of the planning application. Finally, he expressed concerns that the £9.5 million proposed here would simply go towards funding cost increases on other schemes meaning that affordable housing units would be lost.

Another Member spoke to state that, in principle, he was not keen on deeds of variation and questioned why developers could not carry out such marketing exercises in advance of submitting their original planning. He went on to state that it was well-known that the City had a huge challenge in terms of providing affordable accommodation, not least for young City workers, and stressed that this was yet another blow to that aspiration. However, this building was currently half-built and therefore, reluctantly, he suspected that he would be supporting the Officer recommendation given that he could not foresee any real alternative. He underlined that, whilst he was satisfied that the proposed sum was policy compliant, he would like to challenge the proposed payment schedule set out at paragraph 3 of the report which appeared to him to be too heavily reliant on sale. He questioned why the City Corporation should take this commercial risk which was a developer risk and stressed that he would like to see a higher percentage of that sum paid up front/on implementation. 

Another Member stated that he was also minded to support this given that the alternatives were not remotely attractive. He went on to question what the implications of a rejection of this might be as well as the what the implications of approving this could be for future planning applications. He also queried whether there were general lessons to be learnt for the Committee and Officers emerging from this in terms of something being proposed and approved but subsequently not proving viable.

Officers reported that when this proposal had originally come to this Committee it had featured a policy compliant level of on-site affordable housing. However, there was no assessment at that time of the viability or deliverability of that affordable housing as the developer had quite clearly stated that they were able to deliver what was required. Over time, the design of the building had changed slightly and, through the marketing exercise, it had clearly become apparent that it was not possible for a Housing Association to deliver affordable housing. Officers stated that, in hindsight, this was the sort of issue that should be further investigated and more rigorously assessed when considering future schemes, event those that were offering the full amount of affordable housing. Officers would be seeking assurances that developers had gone through the marketing and other exercises prior to the submission of their application.

With regard to the proposed phasing of the payments, Officers stated that, if Members were to approve the deed of variation, they could seek to negotiate this further with the applicant with a view to securing a higher percentage of the sum up front.  It was explained that the phasing set out had been agreed with the applicant primarily on the grounds of cash flow.

It was reported that the developer had indicated that they were now very keen to get on and build this scheme and that, if the Committee were to refuse this deed of variation, the developer would have the option of submitting a revised planning application to seek a formal change to the s106 agreement and the affordable housing element and that, in the immediate future, the concrete core of the building would unfortunately remain untouched and partially complete until this process was complete.

A Member stated that he felt that this raised significant questions about the City’s current policy regarding housing. He stressed that the current off-site contribution was unrealistically low and should be up to three times higher. He also suggested that, given the rate of inflation, this should be index linked. He recognised that a further Local Plan update was due this year and emphasised that this was probably one of the most important elements to consider as part of this. The Member went on to underline the need for a clear distinction between social and affordable housing. He commented that this proposal was now policy compliant and felt that the implications of a refusal would simply be significant further delay. He was therefore minded to reluctantly approve the request. He felt that it would also be useful to hear from Officers in the Community and Children’s Services Department who were supporting this deed of variation.

Another Member spoke to agree that changes were clearly needed to the Local Plan going forward in terms of affordable housing commitments. She went on to express concern at the two attempts by the developer to conduct market exercises in the past four years with none seemingly carried out in advance of submitting their application. The Member remarked that the report did not provide much information as to the nature of the viability exercises carried out since the application had been approved but suggested that this could now be used as an example case study for the Committee to consider alongside revisions to the Local Plan going forwards. The Member went on to question what costs the City Corporation had incurred in terms of dealing with this application and a delay of four years. The report referenced the appointment of consultants to assess viability and questioned whether this was paid for by the applicant.

Another Member commented that he was particularly surprised that the Housing Association had suggested that a single entrance shared between the affordable housing and market rate units was unappealing to them. He stressed that the key point here was that when a developer proposed a development that was policy compliant they need to have established, from the outset, how this was to be delivered without the need for 4-5 years of discussion thereafter. If the service charge envisaged by the developer would make affordable housing unaffordable then they should clarify this. The Member stressed the need for policies to require affordable housing that was genuinely affordable, even if this should mean introducing a reduced service charge for example.

Officers responded to state that it was clear that were lessons to be learned from this matter and accepted the need to factor these into the revised Local Plan and strengthen policies relating to affordable housing going forwards. Officers had originally taken the developers on their word and highlighted that a policy compliant level of affordable housing did not need to be justified through the submission of viability information. Officers underlined that they were also frustrated at not being able to report that affordable housing was to be delivered on-site to meet the housing needs of those in the City in this case. In terms of costs, it was reported that the costs of the independent review had been met by the developer and that the only cost incurred by the City Corporation was around staff time in managing the process. Officers clarified that, whilst developers are required as a matter of policy to pay for the independent assessments, the assessors reported to the City Corporation independently.

With regard to the point on shared access, Officers clarified that this related in part to the issue of service charge and that if a housing association and their tenants were using the same access point and services/facilities as private owners then the service charge reflected this.

A Member commented that he lived near to the site in question and had been intimately involved with this development for in excess of 12 years to date. He commented that local residents were fed up of having to look at a building site and that it would be very badly received by them if this should be artificially delayed any further. Secondly, the Member commented that, like others, he would have greatly preferred to have seen affordable residential units delivered in the City but that he was well aware that, as reported by Officers today, the obvious landlord for such a scheme would simply not have tenants to fill these units due to high levels of affordable rent and service charge. The Member commented that there were many different and possible new social housing opportunities on existing estates which needed funding and so he stressed that funds would not go to waste but would be quickly and efficiently used.  The Member concluded that he would therefore, with a heavy heart, be supporting the proposals given that there was no other real alternative that would avoid local residents having to look at an eyesore for another four years.

Another Member wished to discuss the effect on the HRA should this deed of variation be approved, further highlighting that the report provided no indication as to how much increased income stream would go to the HRA and when. It simply stated that new affordable housing constructed by the City elsewhere some of the proposals, if they were to be managed elsewhere would generate an income for the HRA. He echoed the views of others in that this clearly now needed to be progressed.

MOTION - A Member spoke again on the proposed phasing of payments and the desire to see more of this paid upfront. He disagreed with the suggestion that this should be for Officers to negotiate further with the developer if the deed of variation were to be approved today and proposed that, if the deed of variation were granted, it should be subject to the commuted sum being payable in three instalments with 50% on implementation, 35% on 50% sales and the final 15% on 75% sales. He was of the view that this would provide the City Corporation with much greater financial security.

The proposed amendment was seconded and unanimously approved.

A Member wished to focus on the impact upon the 272 dwellings in the Department of Community and Children’s Services development pipeline given that much was made of the fact that this development would help the proposed development of alternative affordable accommodation. He questioned whether this meant that there was a firm commitment from elsewhere in the City Corporation for the delivery of all 272 units and that this sum of money would not be used for other purposes.

The Housing Community Development Manager, Community and Children’s Services stressed that his Officers supported the commuted sum given that, as at 31 December 2021, there were 888 people on the housing waiting list of which 190 were existing tenants wishing to transfer to larger properties or who had specific housing needs. With regard to the commuted sum, Members were reassured that this money categorically had to be used for the provision of new social housing and could not be swallowed into the HRA fund and be utilised for other purposes. Officers went on to explain that, in relation to the additional 272 properties which they hoped to provide, planning permission had been obtained in all cases with one project at Sydneham Hill which was going to be protracted due to a judicial review. It was confirmed that all of these would produce rental income for the HRA and that, even if you were to take a moderate sum of £120 per week, multiplied by 272 and by 52 weeks, this would equate to an income of £1.7 million per annum. Officers explained that Community and Children’s Services were very supportive of this scheme and that, whilst it would be preferable to have on-site affordable housing within the City (ideally managed by the City of London), it would need to be at social rent in the same way that the 272 properties that the City Corporation hoped to deliver would be, thereby providing accommodation for City residents and applicants on the waiting list.

A Member spoke to stress that the City Corporation should do all that it could to avoid a repeat of these circumstances in the future. She also reiterated the need to clarify the difference between affordable and social housing.

Another Member spoke in response to Officer comments around viability and the cost of social housing. She stressed that when this case had originally been considered by the Committee it was a change of use from office space to hotel with a new office development and a residential element and there had been some nervousness amongst Members around this. The assurances given at the time was that the office space and housing element would be delivered at the same time that the hotel opened and, crucially, this would result 27 affordable housing units in the City. Since then, the hotel had opened but the office space had still not been developed and it was understood that this site had since been sold on and was to be the subject of a new planning application coming forward shortly. There was clearly now also an issue with the housing element and the Member questioned whether the Committee would have granted the scheme at the outset had they have foreseen any of this. The Member went on to state that the greatest cost in affordable housing was the land cost which was why it was extremely important to see this housing delivered within the City. She went on to comment on the issue around shared access and service charges, stating that other local authorities such as Tower Hamlets and Newham had been able to successfully navigate these and deliver affordable and social housing with new schemes in their boroughs. She questioned why housing associations were not willing to take on 27 units which seemed a fair number to most and stressed that, if this was the case, the organisation would need to look again at how it was going to deliver housing in the City. The Member stated that an informal discussion around how best to tackle and deliver affordable and social housing within the City of London would be welcome going forward.

The Comptroller and City Solicitor reported that if a commuted sum had been approved as part of the original planning application, the timing of the payments would have been negotiated in the same way that they were now being as part of this proposal. In circumstances where section 106 payments were to be split or delayed, Members were informed that it was common to ask for approximately 50% of the costs to be paid up front, prior to commencement of development with the remaining 50% to follow upon 50% of sales. When negotiating the phasing of payments, this was done around cash flow and the viability of the scheme so it was hard to define a ‘norm’ for this. The Deputy Chair asked the Comptroller and City Solicitor to clarify if the Committee were therefore entitled to alter the phasing of payments in the manner now proposed. The Comptroller and City Solicitor confirmed that this was correct and that it was within the remit of this Committee to set out the terms for the deed of variation. It would then be for the developer to decide whether to accept such terms.

A Member commented that it would be useful for Officers to provide the Committee with information as to what other councils did in similar circumstances for any future reports of this kind given that the City’s experience in delivering affordable housing was comparatively less than some of its neighbours.

The Deputy Chairman concluded the debate by underlining that he and the Chair had been keen for this matter to come to the Committee as it clearly raised a number of questions and difficult issues. He added that there were a number of lessons to be learned from this particular application as well as in the broader context of social housing.

The Committee then proceeded to vote on the amended recommendations. The vote was conducted by rollcall led by the Town Clerk.

Votes were cast as follows:    IN FAVOUR –   26 Votes

                                                OPPOSED –     0 Votes.

                                               There were no abstention.

RESOLVED – That a Deed of Variation of approved to the section 106 planning obligation under application number 15/01067/FULL, allowing the meeting of the required affordable housing contribution via a commuted sum payment of £9,483,635, to be paid in three instalments as follows:

·         50% on implementation

·         35% on 50% sales

·         15% on 75% sales