The threshold approach to affordable housing and fast track
Meet the threshold level of affordable housing on the right tenure split and a London scheme avoids a viability assessment altogether. Miss it and the whole scheme is opened up to scrutiny, with review mechanisms attached.
The threshold approach to affordable housing in London offers a straight trade. Provide affordable housing at or above the threshold level, on the right tenure split, without public subsidy, and the scheme follows the fast track route: the borough and the Mayor accept the offer and no viability information is required. Fall below it and the scheme enters the viability tested route, where the land value, the build costs and the developer return are all examined, and review mechanisms are attached to the permission.
This London Plan policy applies across Greater London, and it is the single most consequential decision a residential scheme makes before it reaches design freeze.
What the threshold approach does
The Mayor's strategic target is for half of all new homes in London to be affordable. The threshold approach is the delivery mechanism, and it works by changing what an applicant has to prove rather than by changing the target.
Under the fast track route, an applicant offering affordable housing at the threshold level does not submit a viability assessment at all. The borough does not commission a review of one. The argument about benchmark land value, which is where most London schemes lose months, simply does not happen.
That is worth real money in programme terms. It also transports the risk: the offer is fixed at the threshold whether or not the scheme turns out better than expected, subject to the review mechanism described below.
The fast track route and its conditions
Meeting the percentage is necessary and not sufficient. Policy H5 attaches conditions, and all of them have to be satisfied.
- The affordable housing must meet or exceed the threshold level by habitable rooms or by units, calculated as the policy specifies.
- The tenure split must comply with the Mayor's requirements, with a minimum proportion of low cost rented homes, a minimum proportion of intermediate homes, and the balance determined by the borough.
- The scheme must meet the relevant design, transport and environmental policy requirements, including the energy hierarchy, which is where the Energy Statement has to do real work.
- The affordable housing must be provided on site unless the policy's exceptions apply.
- Delivery must be secured through a section 106 agreement.
Miss any of those and the fast track is not available, however good the percentage looks in the marketing material.
The higher threshold on public and industrial land
Two categories carry a higher threshold than the general one.
The first is public sector land, where the higher figure applies to sites brought forward by public bodies, typically under an agreed strategic approach across a portfolio rather than site by site. The second is development on industrial land where the scheme results in a net loss of industrial capacity, which reflects the Mayor's position on protecting industrial floorspace in a city that keeps converting it.
Establish which threshold applies before the land is valued. A site acquired on the assumption of the general threshold that turns out to be industrial land with a net capacity loss has a hole in its appraisal that no amount of design can close.
What the viability tested route requires
Where the offer falls below the threshold, the scheme has to justify the shortfall with a full viability assessment prepared in line with national guidance and the Mayor's own guidance on development viability, and the assessment is published.
Expect scrutiny of the benchmark land value, using the existing use value plus premium approach rather than a price actually paid, the build cost assumptions, the sales values, the finance assumptions and the developer profit. Expect the borough to appoint its own reviewer, and expect the Mayor's officers to look at referable schemes independently.
A Viability Assessment at this level is specialist work, normally to the RICS professional standard on financial viability in planning, and councils expect a suitably qualified author. Build the programme around it: the assessment, the review, the response to the review and the negotiation of review mechanisms routinely add months.
| Fast track route | Viability tested route | |
|---|---|---|
| Viability assessment required | No | Yes, and published |
| Affordable housing level | At or above the threshold | Justified by the assessment |
| Tenure split | Must comply with the policy | Negotiated within policy |
| Review mechanisms | Early stage review if implementation is delayed | Early stage and late stage reviews |
| Typical determination path | Shorter | Longer, with independent review |
Early and late stage review mechanisms
Reviews recapture value where a scheme performs better than the appraisal assumed.
A fast track scheme is not entirely free of them. Where an agreed level of progress on implementation has not been made within the period the policy sets, an early stage review is triggered, which stops the fast track being used to bank a permission that is never built.
Viability tested schemes carry more. An early stage review applies where implementation does not begin within the agreed period, and a late stage review applies once a defined proportion of homes has been sold, capturing surplus above the appraised position and converting it into additional affordable housing or a payment in lieu. Large phased schemes may carry mid-stage reviews at each phase.
Negotiate the drafting carefully. The trigger points, the definition of surplus, the cap on additional contribution and the treatment of build cost overruns are all matters for the section 106 agreement, and the difference between a well-drafted review clause and a poorly drafted one runs into millions on a large scheme.
Evidence a borough will test
Whichever route the scheme takes, boroughs test the same underlying facts. The habitable room count and the method used to calculate the percentage. The tenure split by unit and by habitable room. The unit mix against the borough's identified need. The distribution of affordable homes through the scheme rather than in a single core. The service charge levels on the intermediate homes, because unaffordable service charges defeat the point.
Set that evidence out in the Affordable Housing Statement with the arithmetic shown, using the same numbers as the drawings and the section 106 heads of terms. Inconsistent figures across those three documents is the most common reason for a delay that nobody planned for.
Choosing between the two routes
The honest position is that the fast track is usually worth taking where the site can carry it, because certainty and time have value that a marginal percentage saving rarely beats. A scheme that could deliver close to the threshold is often better redesigned to reach it than argued below it.
Where the site plainly cannot support the threshold, the viability tested route exists for a reason. Take it properly: appoint the valuer early, commission the cost plan before the assessment rather than after, and expect the benchmark land value to be assessed on existing use value plus a premium rather than on what was paid for the site.
One caveat worth stating plainly. The threshold figures, the tenure requirements and the review triggers are set in the current London Plan and its supporting guidance, and they are revised. Check the adopted version and the borough's own affordable housing policy, which can require more, before committing.
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Frequently asked questions
What is the fast track route in the London Plan?
It is the route under affordable housing policy that allows a scheme meeting or exceeding the threshold level of affordable housing, on the required tenure split and without public subsidy, to be determined without submitting a viability assessment. The borough accepts the offer and the viability argument is avoided entirely.
When does the higher threshold apply?
The London Plan applies a higher threshold to public sector land brought forward under an agreed strategic approach, and to development on industrial land where the scheme results in a net loss of industrial capacity. Establish which threshold applies before the site is valued, because the difference is material to the appraisal.
Does the fast track route avoid review mechanisms completely?
No. A fast track scheme is subject to an early stage review if an agreed level of progress on implementation has not been made within the period the policy sets. That prevents the route being used to bank a permission. It does avoid the late stage review that applies to viability tested schemes.
Who can prepare a viability assessment?
Boroughs expect a suitably qualified author working to the RICS professional standard on financial viability in planning, and the assessment is published and independently reviewed. A draft can structure the argument and assemble the inputs, but the valuation judgements need a chartered valuer who will stand behind them.
Is the affordable housing percentage measured by units or habitable rooms?
The London Plan specifies the basis, and habitable rooms are used for the main calculation with units also reported. Boroughs test both. Set the arithmetic out in the affordable housing statement using the same figures as the drawings and the section 106 heads of terms, because inconsistency between them causes avoidable delay.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.