Planning matters

First Homes, introduced by the Government into the Planning Practice Guidance in May this year, is a new type of discounted market sale housing – importantly, First Homes are classified as ‘affordable housing’ for planning purposes. This new tenure must be discounted by a minimum of 30% against market value and be sold to first time buyers based on specific eligibility criteria. The discount is retained in perpetuity, but the first sale price must be no more than £420,000 in London after the initial discount has been applied. First Homes are the Government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered through planning obligations.

Whilst First Homes are now a material consideration when determining planning applications, the transitional arrangements set out in Christopher Pincher’s Written Statement mean that their inclusion is not mandatory until after 28 March 2022. On that basis, the statutory Development Plan remains the first port of call, and for London that means the newly adopted London Plan (2021) and the relevant Borough’s own Local Plan. The transitional arrangements dictate that Borough’s who have advanced the preparation of a new Local Plan do not have to incorporate the First Homes requirement (at least until an Inspector asks them to at Examination, or as part of a subsequent Local Plan Review).

The new First Homes policy may seriously hinder Sadiq Khan’s commitment to boosting the provision of low-cost rented housing in London. In seeking to head this off at the pass, the Greater London Authority published a Practice Note in July 2021 setting out their position on the Government’s new First Homes affordable housing product – it includes a number of considerations that decision makers should bear in mind when determining planning applications in London. With a new mandate, the Mayor’s Practice Note has made clear that he will continue to favour the provision of other tenures of affordable housing, principally Social and London Affordable Rent, as well as London Living Rent.  

According to Lichfields analysis, there are as many as 8 Borough’s in London that have sufficiently advanced draft Local Plans to mean they may not be required to consider First Homes until they are up for review in 5 years’ time. Of the Borough’s that haven’t sufficiently advanced preparation of a new Local Plan, 17 are Labour-led and could seek to avoid First Homes by relying on policies in the Mayor’s new London Plan, or even by seeking his intervention on strategic scale applications that are referable to City Hall.

Financial viability remains an important planning consideration in London and this new tenure product could result in further downward pressure on the amount of affordable housing that schemes can viably deliver. The GLA Practice Note states that “in many cases, properties discounted by 30 per cent from market value are likely to exceed the £420,000 cap [in London]”. It goes on to say that “In many cases a discount to market value in excess of 30 per cent would be required to ensure that the cap was not exceeded. This would have a detrimental impact on development viability and the provision of other affordable tenures, particularly Social Rent and London Affordable Rent for which there is greatest need.”

Given the London Plan’s evidence base [1]reports a need for 47% of new homes to be provided for low-cost rent tenure, and just 18% as intermediate products, the First Homes policy may seriously hinder the Mayor’s ability to deliver on his commitment to boost the provision of low-cost rented housing in London.

The Practice Note advises that when giving weight to relevant Development Plan policies, First Homes and other material considerations, the decision makers should have regard to:

• “Affordable housing needs at a local and strategic level;
  
  
• The delivery of affordable housing by tenure against local and strategic targets;
  
  
• The deliverability and affordability of First Homes in a local and strategic context;
  
  
• The discount to market value required to enable First Homes to be provided at or below the £420,000 cap and the relevance of this to scheme deliverability and the provision of other affordable housing tenures; and
  
  
• All other relevant national and Mayoral requirements, including eligibility criteria, for First Homes and intermediate housing.”

Clearly the Mayor’s relationship with Government is already strained, so whilst the Practice Note doesn’t rule out a role for First Homes in London, the content and tone both suggest that City Hall are attempting to kick it into the long grass, at least for now. With First Homes commanding a minimum 30% discount to market, and with the value cap set at £420k in London (after discount), delivering this new tenure could create significant viability problems for developers as they continue to balance other planning obligations and the costs of developing previously developed sites – it is a risk that the Mayor probably doesn’t want to run.

That said, some developers may be starting to consider whether they can include First Homes as the entire intermediate element of their affordable housing quota as it might be marginally more viable in some locations. If developers are able to deliver policy-compliant quantum’s of affordable rented homes, then a case could be made for the intermediate element to be wholly First Homes – that strategy would rely on gaining local Borough support, demonstrating there is a need in that specific local context, as well as ensuring the product is ‘genuinely affordable’. This might be a strategy that is better received in Tory-led Boroughs too (albeit there are relatively few), and perhaps with smaller applications that are not referable to the Mayor.

There is little evidence so far to indicate how First Homes will be received by London Borough’s and their communities on the ground, but we should start to learn more as they begin to be reflected in planning application submissions. In the meantime it may pay to look at how First Homes is working outside the capital – after all the pilot scheme was launched over the Summer by Robert Jenrick in Shirebrook, Bolsover  (remember him?!).

Of course all of this conjecture assumes that First Homes survives longer than its predecessor, the failed ‘Starter Homes’ debacle, whilst our new Secretary of State for Levelling Up, Housing and Communities, Michael Gove, has not yet made any reference to First Homes in his new role – make of that what you will. Either way, my gut feeling is that First Homes are going to be left out in the cold by the Mayor, but watch this space.