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Housing Zones: Can they fast track housing schemes?

Mon 23 Jun 2014

In his Mansion House speech on 12th June 2014 the Chancellor of the Exchequer announced that the Government would be “removing all obstacles that remain to development on brownfield sites” and that the Government would be “putting local development orders on over 90% of brownfield sites that are suitable for housing”.

As part of this initiative a prospectus has now been published by the Mayor of London (MoL) in relation to the establishment of 20 Housing Zones (HZs) across London. Central Government will also be creating 10 HZs outside London. We set out the key features of the HZ proposals below.

What will happen in the HZs?

HZs were first mooted in the draft Housing Strategy published by the MoL last November. HZs will be areas where house building will be accelerated by a variety of funding and policy levers. The primary aim of a HZ will be the maximisation of new housing supply. HZs will be given a tailored combination of planning and financial tools to kick start housing development within the HZ. Each HZ will be expected to deliver at least 1000 new homes and will have a lifespan of up to 10 years. Overall the MoL expects the 20 HZs to deliver over 50,000 homes.

Where will HZs be located?

The MoL’s draft Housing Strategy originally indicated that the HZs would be located in the 38 Opportunity Areas. However, HZs will not necessarily be located in the Opportunity Areas and other locations will be considered if they meet the criteria set out in the Prospectus. The principle behind HZs is to stimulate construction activity in areas where the market is as yet unable to support large scale development. Only four London Boroughs recorded more than 1000 residential starts last year and the aim is for there to be a greater volume and spread of housing development across London.

Who can bid for a HZ?

Bids must be made by the London Boroughs and the deadline for bids to be submitted is 30 September 2014. Bids must be supported by a “vision document” which will set out the Borough’s aspirations and delivery proposals. The Prospectus makes it clear that the MoL is expecting “something for something” and each Borough must be able to demonstrate both its commitment and its resources to support delivery of housing in the HZ. The bids submitted for HZ intervention will also have to satisfy a test of “additionality” meaning that they must demonstrate how the HZ designation will create or accelerate housing delivery in the HZ.

How will the HZs operate?

Each HZ will need to establish a Delivery Board that will comprise representatives of the Greater London Authority (GLA), the Borough, key land owners and developers. The Delivery Board will be responsible for an agreed Delivery Framework that will set out the number of homes for delivery and in what timeframe. All partners involved, including the GLA, will be held accountable to this Delivery Framework and the Prospectus states that funding will be conditional on performance.

How much money is available to the HZs?

The MoL is committing £200 million of capital funding from GLA housing funds to the HZs and a further £200 million will be made available by Central Government. The capital funding from the GLA will be recoverable funding and therefore will be available either by means of a loan with a commercially calculated interest rate or through an overage or profit share type arrangement. If this is not possible the MoL will consider making investment available through grant but such investment will have to be state aid compliant. The Central Government funding will also be made available as capital funding but will only be open to private sector organisations. Registered Providers will be entitled to apply for the Central Government funding.

How can the money be spent?

The Prospectus states that the funding for HZs cannot be allocated to revenue expenditure. However the funding can be made available for a wide variety of capital expenditure purposes including infrastructure/gap funding, land remediation and site preparation, affordable housing delivery or supporting a home ownership. It is also suggested that pre-sale guarantees could form part of the package of financial measures made available within a HZ.

How will delivery be accelerated in the HZs?

The Prospectus states that HZs are a new approach to housing delivery and that some legislative or policy changes may be required in order to maximise their potential and effectiveness. The Prospectus highlights the use of Local Development Orders (LDOs) by the Boroughs. It concedes that LDOs have so far been little used in London and it is clear that the GLA will expect the Boroughs to promote LDOs within the HZs. The Prospectus also suggests that the MoL could acquire land in HZs using compulsory purchase powers if necessary. The MoL would then work with the Borough and other development partners to draw up a master plan for the zone and even issue outline planning permission for the construction of new homes. This could herald the granting of powers to the MoL to make Mayoral Development Orders which presumably would take the place of LDOs.

It is interesting to note that the recently published Infrastructure Bill contains provisions amending the powers of the GLA when making compulsory purchase orders (CPOs). The GLA will be given the ability to override third party rights and restrictions on land that has been acquired by CPO in a manner that will benefit future purchasers of the land rather than just the acquiring authority itself. This amendment rectifies a deficiency in the CPO powers that were originally conferred upon the GLA.

Christopher Brigstocke, a partner at Winckworth Sherwood, commented:

Whilst a lot of the detail regarding the precise operation of HZs remains unclear, HZs potentially offer landowners and developers a powerful cocktail of financial incentives and planning tools that may help unlock development on brownfield sites that have to date proved too problematic to bring forward”.

He added that:

The housing and regeneration teams at Winckworth Sherwood will be closely monitoring the progress of HZs as a new emerging policy”.

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