NPPF - Starter Homes

On 24 July 2018, the Government published long awaited revised National Planning Policy Framework (NPPF).

One significant revision is the addition of 'Starter Homes' and 'Discounted Market Sales Housing' to the definition of Affordable Housing within Annex 2 of the NPPF as follows:

Starter homes: is as specified in Sections 2 and 3 of the Housing and Planning Act 2016 and any secondary legislation made under these sections. The definition of a starter home should reflect the meaning set out in statute and any such secondary legislation at the time of plan-preparation or decision-making. Where secondary legislation has the effect of limiting a household's eligibility to purchase a starter home to those with a particular maximum level of household income, those restrictions should be used.

Discounted market sales housing: is that sold at a discount of at least 20% below local market value. Eligibility is determined with regard to local incomes and local house prices. Provisions should be in place to ensure housing remains at a discount for future eligible households.

The definition of Starter Homes has been slightly amended from that published for consultation with specific reference to maximum income for eligible households now removed to allow for this to be set by the secondary legislation required to being these provisions introduced by the Housing and Planning Act 2016 into force.

Following consultation responses the definition of 'Affordable Housing for Rent' has been slightly amended to "make it clear that 'social rent' and 'affordable rent' products fall within the scope of 'affordable housing for rent'". The consultation response also gave rise to an amendment to the definition of 'Other Affordable Routes for Home Ownership', to bring this in line with other definitions in the NPPF, to make it clear that these products include other low cost home for sale that should be made available at a price equivalent to at least 20% below market value, although how this differs from discounted market sales housing is unclear.

The amendment to the definition of Affordable Housing broadens the potential tenure mix of affordable housing units to be provided within a proposed development with Starter Homes and Discounted Market Sales Housing capable of being counted towards on-site provision of Affordable Housing.

Discounted Market Sales Housing are often offered in lieu of the 'traditional' on site Affordable Housing i.e. social rent, affordable rented and shared ownership where a contract with a registered provider cannot be secured due to lack of local interest or market for such units or, in the case of shared ownership dwellings, the restrictions in the Housing (Right to Enfranchisement (Designated Protected Areas) (England) Order 2009, may make such dwellings unappealing to registered providers and/or lenders.

The broader definition will assist local planning authorities in delivery against their Affordable Housing targets however consideration will need to be given as to how occupation of such units is to be monitored by local planning authorities. The introduction of Discounted Market Sales Housing to be provided at 20% below local market value may potentially hinder the aim of speeding up the planning application process as agreement will need to be reached between the developer and the local planning authority of the appropriate measure for the local market.

From a developer's perspective the expansion of the definition of Affordable Housing offers greater flexibility in respect of the composition of the Affordable Housing to be provided and may overcome difficulties in relation to viability, particularly for smaller scale developments. The difficulty will however remain whether such tenures are acceptable to local planning authorities as Affordable Housing in their administrative area and whether such tenures will meet the local need. It may be that we see Starter Homes and Discounted Market Sales Housing being offered on appeal where Affordable Housing and/or viability are in dispute. The Government has previously mooted the possibility of requiring up to 20% of dwellings within a development to be provided as Starter Homes but no such requirement is included in the NPPF2. The requirement for major housing developments to provide a minimum of 10% of homes as Affordable Housing (subject to exemptions including specialist accommodation such as retirement living and rural exemption sites) remains in paragraph 64 of the NPPF2.

Landowners, promoters and developers should, however, bear in mind potential impacts of this change, as Affordable Housing defined by reference to NPPF is often used in a range of transactional documents including promotion agreements, options, conditional contracts and overage agreements, as well as heads of terms when negotiating deal terms. If the NPPF is used in the definition of Affordable Housing in transactional papers, and that definition includes replacement guidance without any carve outs or conditions, the unintended consequence may be that Affordable Housing provision will going forward include Discounted Market Sale Housing because of NPPF2.

This may be fine for many purposes, but the use of Affordable Housing definitions in documents should be tracked through carefully, to ensure that minimum price payment obligations still work, planning and promotion objectives are not adversely affected, and overage payments will catch the correct number of dwellings.