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7,000 discount market homes a year: a practical guide to First Homes
From 28 June 2021, and subject to transitional arrangements, English national planning policy will include a home meeting the criteria of a First Home within the definition of ‘affordable housing’. On 24 May a Written Ministerial Statement (WMS) was made setting out the policy, including the First Homes criteria and transitional arrangements, with further details in planning practice guidance published on the same day. The same WMS also explains the replacement of the entry level exception sites policy with a ‘First Homes exception site policy and a new model for shared ownership. This blog focuses on what First Homes are, the new policy requirement and when First Homes will be introduced (they already have been). A blog by my colleagues looks at the policy and its potential impacts in more detail: First Homes – dicing with the discount. National policy on First Homes From 28 June 2021, in England, national policy will say that at least 25% of all homes delivered through developer contributions should be sold as First Homes. What is a First Home? A First Home is: discounted in perpetuity by a minimum of 30% against the market value with plan-makers able to set 40% or 50% in perpetuity discounts where need is evidenced, and developers permitted to offer higher in perpetuity discounts after the discount has been applied, the first sale price of the home (my emphasis) must be no higher than £420,000 in Greater London or £250,000 elsewhere in England with plan-makers able to set lower price caps sold with a mortgage or home purchase plan for at least 50% of the discounted purchase value to a person meeting the First Homes eligibility criteria a primary residence, not used for investment or commercial gain, albeit it may be let for up to two years secured by a s106 agreement to ensure its delivery and the necessary restrictions on title[1] (a model s106 agreement for First Homes is being devised) Who is eligible? First Homes are to be “prioritised” for first time buyers (as defined in legislation already for the purpose of stamp duty relief). The local authority may set local eligibility criteria. The policy provides examples of criteria that might be applied, such as key workers, local connection, different income caps, but this is not an exhaustive list. Members of the Armed Forces and (subject to certain criteria) their partners and veterans would be exempt from a local connection test. So, if no local tests are set, the purchaser must be a first-time buyer purchasing borrowing at least 50% of the discounted purchase value. The purchaser (or purchasers) should not have a combined annual household income greater than £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase. What if there is no demand for a First Home? The planning practice guidance says that a s106 agreement may include provisions permitting open market sale of a First Home if it is marketed as a First Home for at least 6 months in total and “all reasonable steps have been taken to sell the property (including, where appropriate, reducing the asking price)”. Where these provisions are included, the s106 agreement must require the seller to compensate the local authority for the loss of the First Home in the way set out in the planning practice guidance. What is the policy requirement and how does it relate to existing tenure mix policies? At least 25% of all affordable housing units secured through developer contributions should be First Homes. As with other affordable housing, the policy expectation is that this is provided on-site unless an alternative financial contribution or off-site provision is justified. A quarter of any financial contributions for affordable housing should be used to provide First Homes. Having “secured the 25% requirement”, local authorities should prioritise social rent, in accordance with local policy and “where other affordable housing units can be secured, these tenure-types should be secured in the relative proportions set out in the development plan”. Examples of the application of this approach are given in planning practice guidance: “For example, if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a planning application compliant with national policy would deliver an affordable housing tenure mix of 25% First Homes and 40% social rent. The remainder (35%) would be split in line with the ratio set out in the local plan policy, which is 40% affordable rent to 20% shared ownership, or 2:1. 35% split in this way results in 12% shared ownership; and 23% affordable rent”. (Paragraph: 015 Reference ID: 70-015-20210524) The proposed development should also meet up-to-date policy requirements regarding cash in lieu contributions. The local planning authority (LPA) is responsible for calculating the value of the elements of the new affordable housing mix to establish whether a planning application is policy compliant, because it seeks to capture the same amount of value as would be captured under the local authority’s up-to-date published policy. Where the transitional arrangements do not apply, the LPA is responsible for making clear how existing policies should be interpreted in the light of First Homes requirements “using the most appropriate tool available to them”. Regarding the application of First Homes policy locally, consideration of the impact of First Homes policy on existing local policies and the “tools available” to the LPA, the planning practice guidance says: “Local planning authorities are also encouraged to make the development requirements for First Homes clear for their area. The most appropriate method or tool to do this will depend on individual circumstances for each local planning authority. These might include (but may not be limited to): publication of an interim policy statement, or updating relevant local plan policies. Local planning authorities should assess their own circumstances when considering the most appropriate way to achieve this in their context” (Paragraph: 009 Reference ID: 70-009-20210524). Will the First Homes policy requirement supersede development plan policy? Not necessarily. The development plan remains the starting point for the determination of planning applications. The First Homes policy will be a material consideration – indeed it already is, together with proposals for other forms of affordable housing defined in the National Planning Policy Framework, notwithstanding the transitional arrangements. A reminder of the difficulties that arise when Government introduces a swift change to national policy on affordable housing provision is the judgment in Secretary of State for Communities and Local Government (SoS) v (1) West Berkshire District Council (2) Reading Borough Council (2016) (our overview is here). In that case the SoS appealed against the Councils’ successful challenge (in 2015) of national policy introduced in 2014 for a ‘vacant building credit’ and which outlined the circumstances in which contributions for affordable housing and tariff-style planning obligations should not be sought from small scale and self-build development. The judgement led, effectively, to both sides claiming a victory: the Government won the case, but the case makes it clear that there is no ‘blanket approach’ to the application of government policy to decision-taking, or plan-making. Hence the Government expecting local planning authorities to use the most appropriate method available to them to set out how the First Homes requirements impact on their current affordable housing tenure mix policies and affect the interpretation of policies (see above). What are the transitional arrangements? The requirements will not apply to: local plans and neighbourhood plans submitted for Examination before 28 June 2021, or that have reached publication stage by 28 June 2021, as long as they are submitted for Examination before 28 December 2021 (and subsequently not to planning applications submitted in areas to which they relate); or sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021 (or 28 March 2022 if there has been significant pre-application engagement). However, the Government says “local authorities should allow developers to introduce First Homes to the tenure mix if they wish to do so”. “They” could mean developers or local authorities. The transitional arrangements for plan-making are therefore more of a line in the sand than those for decision-making, given the above statement and that the First Homes product is a form of discount market sale housing in any event. The written ministerial statement notes “The Government will continue to monitor the effectiveness of these transitional arrangements in light of emerging economic circumstances”. Does this mean that planning applications to be determined prior to the end of the transitional period cannot include First Homes? No. Discount market sales housing is already a form of affordable housing, defined in the glossary to the National Planning Policy Framework. According to that definition of discount market housing: “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”. There are already developments with planning permission that will provide First Homes affordable housing. For example, the Dylon 2 scheme at Lower Sydenham, granted on appeal on Metropolitan Open Land, which will provide 49 First Homes. The Inspector said: “Although not policy compliant in accordance with BLP Policy 2 [provision of affordable housing], the provision of 49 affordable units would make a significant contribution to meeting the considerable need for AH in the Borough. I attach substantial weight to this social benefit of the proposal”. The Government’s Equality Impact Assessment for the First Homes policy says First Homes will be a reform of the discounted homes programme and acknowledges: The National Planning Policy Framework already allows local plans to include ‘discounted market sales housing’ that is sold with a discount of at least 20% over market prices. […] delivery remains relatively small scale and we want to substantially increase the build-out of these homes. What about 'low cost homes for sale' that are not First Homes? Sub-category d within the definition of affordable housing in the National Planning Policy Framework is “Other affordable routes to home ownership”.  This includes shared ownership and “other low cost homes for sale (at a price equivalent to at least 20% below local market value)”. This definition does not refer to the eligibility criteria or discount for owners of the home. The scope to provide low cost market homes for sale that are not First Homes as a form of affordable housing will be squeezed by the policy requirement to provide First Homes. Shared ownership products will also be squeezed in the future, but in the short term up-to-date tenure mix policies may encourage them. Community Infrastructure Levy relief is already available First Homes are a form of affordable housing. Mandatory social housing relief from the Community Infrastructure Levy has been available for certain discount market home products since November 2020. To be eligible for mandatory social housing relief in this category, a planning obligation must be entered into prior to the first sale of the dwelling designed to ensure that any subsequent sale of the dwelling is for no more than 70% of its market value.  The existence of mandatory social housing relief for this form of affordable housing further demonstrates that First Homes can already be brought forward now. However, mandatory social housing relief from the Community Infrastructure Levy is not available for affordable housing products offering a discount of less than 30%. Six years to reach delivery of 7,000 First Homes a year In October 2020, MHCLG Permanent Secretary Jeremy Pocklington said to the Public Accounts Committee’s inquiry into Starter Homes that implementation of the First Homes policy will not be quick and referred to the transitional arrangements: “We will need to adjust the planning policy in order to fully implement the First Homes proposal. After that stage, authorities, as they change their policies and update their local plans, will be required to provide First Homes. We are not setting a timetable on that. We are going to learn from the 1,500 homes. This is a policy that will grow over several years. It is not a quick policy to implement”. This acknowledgement of the time it will take to introduce First Homes policy into development plans is reflected in Figure 1 of the Equalities Impact Assessment for First Homes, which says full implementation will be in 2027/2028: Summary… and a blog on potential unintended consequences  Low cost homes for sale are not a new form of affordable housing, but the specific criteria and requirements of First Homes are new. Having said that, there are already examples of planning permissions that include First Homes as a type of affordable housing; the Government’s policy intentions have been clear for some time and the introduction of mandatory CIL relief for First Homes or similar products has been around since last year. Therefore, while the First Homes policy requirement will take some time to filter through to development plans, where developers seek to include First Homes as an affordable housing contribution, there is scope to make the case for this immediately, rather than waiting for the transitional period to end. A blog by my colleagues ‘First Homes – dicing with the discount’ looks at some potential inherent tensions within the First Homes policy and considers whether the one-size-fits-all approach might have unintended consequences.     [1] Paragraph 006 of the First Homes Planning Practice Guidance says: When a First Home is sold by the developer to the first owner, a restriction is to be entered onto the title register identifying the unit as a First Home. This restriction should ensure that the title cannot be transferred to another owner unless the relevant local authority certifies to HM Land Registry that the First Homes criteria and eligibility criteria have been met, including the discounted sale price.

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New Class MA - Mercantile to Abode: a slightly reined in Class E commercial to residential PDR from August 2021
Background In December 2020, the Government began a consultation on a variety of changes to permitted development rights. At the core of the “Supporting housing delivery and public service infrastructure”[i] consultation were proposals responding to the need for amendments to permitted development rights, following the September 2020 abolition of use classes A1-A5, B1, D1 and D2, the introduction of new classes E, F.1 and F.2 and the movement of further uses outside of a use class and thus sui generis. The change of use permitted development right most fleshed out in the consultation was a proposed Class E to Class C3 (residential) permitted development right. The outcome of several elements of that consultation have now been published and the associated amendments to the Town and Country Planning (General Permitted Development) (England) Order 2015 (GPDO) have been laid before Parliament in the Town and Country Planning (General Permitted Development etc.) (England) (Amendment) Order 2021.  Tom Davies' blog looks at the amendments to permitted development in that Order related to ports and public service infrastructure (hospitals, education and prisons) that will come into force on 21 April 2021. New Class MA This blog considers the new Class MA business and commercial to residential permitted development right (PDR) introduced by that Order, which will replace and introduce certain commercial to residential PDRs, from 1 August 2021. To be clear, classes M, MA and O are classes of permitted development within Part 3 of Schedule 2 to the GPDO, whereas other classes mentioned in this blog are use classes defined in the Use Classes Order 1987 (as amended) (see the Lichfields Guide to the Use Classes Order). New class MA will be a different beast to the current retail and office to residential PDRs, with several different limitations and conditions. It is important for developers to consider the differences between the old and new business and service to residential PDRs in order to decide - for former A1, A2 and B1(a) use classes - whether or not to submit an application for prior approval before or after 1 August 2021. Our summary table provides an overview of the key differences between the current and proposed business and service to residential PDRs. This shows that the new, broad, permitted development right will actually reduce the scope of office to residential permitted development while increasing the scope of retail to residential PDRs and introducing new PDRs for other typically main town centre uses to change to residential. In essence, the Government has reined back the proposals consulted on by adding floorspace limitations, vacancy and location limitations, having reflected on the consultation responses it received. And as with the permitted development rights for additional storeys to provide new dwellings, introduced in summer 2020, the bold press releases are not inaccurate, but do not flag the hurdles to be overcome before utilising these permitted developments becomes a viable option. Notwithstanding, Class MA, which will allow very many properties within Class E to change to residential without consideration of impact on the High Street if the proposal is outside of a conservation area and limited consideration if it is within, will be among the most significant planning changes in a generation. Only listed buildings and their curtilage and properties in the most sensitive locations such as World Heritage Sites, National Parks and Areas of Outstanding National Beauty will be excluded from the new PD right. The legislation precludes or requires assessment of loss of retail and office in beautiful and heritage locations, but in no other retail or business destinations. The retail assessment required by the current Class M PD right will fall away. Delivering housing and the reuse of redundant shopping space are known to be the Government's priority and the Class MA permitted development right emphasises this. Overview of Class MA Which PD rights are to be replaced by the new Class MA? From 1 August 2021 Class MA will: Replace Class O office to residential Partially replace Class M retail to residential (partially because Class M currently permits change of use to residential from uses not within Class E, e.g. take-aways, betting offices, pay day loan shops and launderettes, as well as from A1 and A2) Class PA – B1(c) light industrial to residential - has already fallen away, at least for the moment. Which pre-September 2020 former use classes fall within Class E and will benefit from the Class MA PDR? Subject to limitations and conditions, former uses classes Class A1 (shops); Class A2 (financial and professional services); Class A3 (food and drink); Class B1 (business); Class D1(a) (non-residential institutions – medical or health services); Class D1(b) (non-residential institutions – crèche, day nursery or day centre) and Class D2(e) (assembly and leisure – indoor and outdoor sports), other than use as an indoor swimming pool or skating rink, will benefit from the Class MA PDR. This means that Class E buildings or planning units that formerly fell within Classes A3, D1(a), D1(b) or D2(e), will benefit from permitted development rights to change use to residential that they did not benefit from before, provided Class E limitations and conditions are met and there are no restrictive conditions. Is there a limit on the size of building to which the PDR applies? Yes. The permitted development right does not apply if more 1,500sqm of cumulative floorspace is to be converted. This is significantly more than the 150sqm permitted under Class M retail to residential at present, but a significant new restriction for office to residential change of use via permitted development. This limitation also did not feature in the original consultation and was introduced in response to the consultation on the new permitted development right. Converting only part of a building is permitted, so the building may be bigger than 1,500 sqm. The Explanatory Memorandum says at paragraph 7.7: “No more than 1,500 sq m of floorspace in any building may change use. Part of the building may change use under the right, including where the lower floors are in Commercial, Business and Service use and the upper floors residential”. Given that the floorspace of most retail premises within town centres is below 1,500 sq.m, this limitation excludes very few of such premises from the new permitted development right, but many small shop units may be under the minimum space standard for residential use. Does new Class MA apply to all Class E buildings/planning units of 1,500sqm or less? No. There are also limitations relating to the location of the development, longevity of existing use and vacancy. Article 4 Directions removing Class O permitted development rights will continue to apply until 31 July 2022. The inference is that Article 4 Directions removing Class M permitted development rights for change of use from former use classes A1 and A2 will fall away. However, there are transitional and saving provisions relating to Article 4 Directions at Regulation 3 of the Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 and the Explanatory Note to those Regulations says: "regulation 3(4) provides for references to uses or use classes in article 4 directions which have already been made to continue to be construed as the previous use classes". There may also be restrictive planning conditions or legal agreements that prevent change of use via Class MA. In which locations does the Class MA PDR not apply? The PDR does not apply in certain designated areas. For former class A1 and A2 uses the Class MA PDR is less restrictive than current Class M, because Class MA applies within conservation areas where Class M does not. But there will more limitations on the locations that will be able to benefit from office to residential PDRs than there are at present. Class MA does not apply in a site of special scientific interest, an area of outstanding natural beauty, an area specified by the Secretary of State for the purposes of section 41(3) of the Wildlife and Countryside Act 1981 (enhancement and protection of the natural beauty and amenity of the countryside), the Broads, a National Park or a World Heritage Site -  Class O applies in these areas and Class M does not. As with the Class M and Class O PDRs, development is not permitted by Class MA if land covered by, or within the curtilage of, the building is or forms part of a safety hazard area or a military explosives storage area; a listed building or land within its curtilage and/or a scheduled monument or land within its curtilage. What are restrictive planning conditions? There may be a condition on a planning permission for an existing use or development that seeks to prevent change of use to other uses. The extent to which such a condition would prevent a building or part of a building from benefiting from Class MA would need to be considered on a case by case basis. As noted above, legal agreements should be checked too. What is the longevity of existing use limitation? To benefit from Class MA, the use of the building must have fallen within Class E or one or more of the uses that it replaced for at least two years continuously prior to the date the prior approval application is made. This limitation was introduced in response to the consultation outcome and did not feature in the original consultation. The legislation is not clear on whether the building must have been in the same use or mix of uses for the two year period, but the Explanatory Memorandum suggests not. It says that “the building must have been in Commercial, Business and Service use for two years before benefiting from the right […] time served in the uses in former use classes now within the Commercial Business and Service use class […] will count towards this period”. It is possible that planning units that were once in a sui generis mix of uses now together fall within class E (e.g. shop and café where the café is not ancillary).  Similarly, where uses such as beauty salons might now be considered within class E, they were not always considered to fall within class A1. Therefore, the implications of the longevity test for such buildings and planning units formerly considered sui generis, but now in Class E, may need some consideration. The longevity test is intended to prevent “gaming”, but giving how wide-ranging Class E is, one wonders what gaming might have taken place to have a lawful Class E use for less than two years purely with a view to obtaining planning permission for residential? What is the vacancy requirement? The building must have been vacant for a continuous period of at least 3 months immediately prior to the date of the application for prior approval. This is another limitation that was introduced in response to the consultation outcome and did not feature in the original consultation. Periods of closure as a result of Government Covid-19 restrictions will not count towards the vacancy period where the building continues to be occupied by the owner or tenant. A prior approval application can be made to change the use of part of the building only. The vacancy test applies to the building, but as the definition of a building in the GPDO relates to part of a building this might mean the vacancy test is only required for the part of the building to be converted. Certainly this would be the most sensible interpretation in order to make the best use of land. The requirement that building must have been vacant for a continuous period of at least 3 months immediately prior to the date of the application for prior approval suggests that the building can be brought into use after the prior approval application has been submitted. Are the prior approval matters for Class MA broadly the same as for Class M and Class O? All prior approval matters are carried over from Class O, and of these matters the following are also Class M prior approval matters: transport and highways impacts of the development, contamination risks, flooding risks and the provision of adequate natural light in all habitable rooms of the dwellinghouses. Three new prior approval matters will be introduced relating to loss of certain social infrastructure, agent of change and impact on conservation areas, which will not be relevant to all schemes. A key change arising from Class MA will be the loss of a prior approval matter considering the impact of the loss of retail, which is currently required under Class M. This becomes more of a glaring omission given that one of the new prior approval matters requires the impact of the loss of nurseries and clinics to be considered (where relevant). In a conservation area and where the change of use is at ground floor level, the impact on the character and sustainability of the conservation area is another new prior approval matter. Addressing this matter could potentially include a limited assessment of retail impact. There are two agent of change prior approval matters – one requires consideration of the impacts of noise from commercial premises on the intended occupiers of the development, which is already a Class O prior approval matter. A new prior approval matter requires consideration of the impact on intended occupiers of the development of the introduction of residential use in an area the authority considers to be important for general or heavy industry, waste management, storage and distribution, or a mix of such uses. How local planning authorities are to determine what is an important area for such uses is potentially open to interpretation. The Class M external appearance and design prior approval matter does not feature in Class MA, but nor does the ability to obtain prior approval for operational development reasonably necessary for conversion to residential – so that prior approval matter is no longer relevant. Procedure for applications for prior approval under Part at Paragraph W the same? There will be minor changes that affect all prior approval applications under Part 3. Firstly, the total floor space in square metres of each dwellinghouse must be shown on the plans. Secondly, the local planning authority must now serve notice on any owner or occupier of the other part or parts of the building, where the application relates to part of a building. What about the need to meet space standards? The requirement to meet space standards will come into force on 6 April 2021, through an amendment to Article 3 of the GPDO. From that date, Article 3 will state that the GPDO does not grant permission for any dwellinghouse that would be less than 37sqm or would not comply with the nationally described space standard. Therefore, this new requirement will apply to current Classes M and O and all other classes of permitted development that permit dwellings, including Class MA once in force. What will the application fee be? £100 per dwellinghouse, up to a maximum fee of £5,000. This is a significant rise from the current £96 total fee (the fee for change of use only, under Class M, is £206 if operational development is proposed too). According to the Government, “this strikes a balance between supporting local authority resource and encouraging future development”. The minimum internal floorspace requirements mean that a 1,500sqm building could accommodate a theoretical maximum of 40 dwellings, more likely fewer given the circulation space needed and housing mix potentially desired. So, notwithstanding the intended maximum fee stated by the Government, it is unlikely that an application fee would exceed £4,000.  Can prior approval still be sought under Classes M and O? Yes. Valid prior approval applications must be submitted on 31 July at the latest. And for the moment, Class M can be used after 31 July 2021 for uses that benefit from this PDR and do not fall within new Class E (e.g. take-away to residential). However, it is anticipated that different Part 3 (permanent change of use) permitted development rights relating to other now obsolete use classes (such as Class A5 take-aways) will be in force by 1 August 2021. According to the Supporting housing delivery and public service infrastructure consultation outcome, the Government will undertake a technical consultation on each Part 3 permitted development right that is to be amended or replaced. [i] The Lichfields planning news story on that consultation: https://lichfields.uk/content/news/2020/december/9/england-planning-news-december-2020/#section1  

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