Having read Tim Clark’s Property Week article on London developers’ controversial viability assessments (02.09.16), which are used to justify paying affordable housing contributions lower than council targets, I think a flat rate should be introduced based on area.
The same was done with the Community Infrastructure Levy and makes sense because it will speed up the process, reduce costs, reduce opposition and may bring down the cost of land.
As a councillor in Tower Hamlets, I get to see viability reports and, as a qualified accountant, I read them with interest. But it is an almost impossible task to predict a scheme’s profitability years before construction starts and what might be many years before completion.
I know of no other industry where something as important as the affordable percentage is set so far in advance.
Personally, I think you should set a medium percentage from the beginning and if the scheme comes in more profitable than expected have a review mechanism close to completion that generates cash that the council can use to build offsite affordable homes.
Having read the viability reports, I can see where some developers are trying to game the system, but I have also read reports (validated by independent appraisals) in which the developer is forecast to make a loss but hopes that sales prices will increase above the average for the area. Even on a flagship project, the developer could be willing to just break even.
Reading the reports makes clear just how risky these projects can be - especially the really big ones.It also helps if you can compare and contrast different viability reports.
In Canary Wharf, we have a lot of these types of schemes. Their sales prices and build costs will all be quite similar, yet we get quite different affordable percentage.
Cllr Andrew Wood, (Conservative, Tower Hamlets)