Planning - the value, incidence and impact of developer contributions: research

5. Evidence from the Roundtables and Interviews

5.1 Introduction

We held three roundtables to which we invited a wide range of stakeholders involved in the process of agreeing and implementing developer contributions. We were very pleased with the level of response to our invitations and grateful to all who participated. The first session involved mainly people working in the planning stages – from all angles; the second was attended by those mainly working on development of both housing and infrastructure; and the third involved a more varied group but with a concentration of national stakeholders. We covered similar questions in each session – although, of course, discussion and opinions ranged widely. The evidence from all the sessions complements that from our case studies (in Chapter 4) which concentrates on four PAs, as it covers a wide range of stakeholders operating across Scotland.

To supplement the roundtables, we also undertook a series of interviews covering aspects of policy and practice – notably to gain a greater understanding around infrastructure provision; how developer contributions work within the wider affordable housing framework; and the value of contributions.

Annex 5 provides a fuller coverage of this evidence and in particular contains a large number of quotations from those who attended the discussions and took part in interviews. It is important to stress that we are reporting what participants and interviewees told us about their experiences and their views, not our interpretation of these experiences and views.

5.2 The importance of contributions

All participants whatever their background stressed how important developer contributions are to their organisation. They were seen as particularly useful with respect to accessing land for affordable housing and in high-demand/high-land-value areas. In areas where there was a need to attract development, they were seen as having less of a role. In this context it was made clear that PAs looking to increase development activity sometimes felt it better to depend on government subsidy to deliver affordable housing, although development contributions might still be used to ensure necessary local infrastructure was in place. It was generally agreed that over the previous 15 years, S75 had become more embedded, consistent and transparent. Section 69 was used more for smaller requirements, while the use of S48 Highways Act agreements to provide transport infrastructure was unpopular because they do not 'run with the land' and therefore cannot bind subsequent owners.

A minority of authorities, however, saw planning conditions as a better means of securing outcomes especially with respect to necessary transport improvements. The most positive feature of planning conditions was that they reduced the need for negotiation and therefore saved time. However, participants emphasised that, in their experiences, some participants thought that it was not possible to use conditions to secure formal financial contributions even though developers will of necessity pay to meet site-specific conditions before they can start to develop – and are happy to do so.

Roundtable participants identified several challenges, especially in how the types of the infrastructure sought had grown in recent years. Several participants referred to 'creep', which reflected concerns about both:

• The types of contribution being required, which is thought to be getting broader (notably, it was argued, with respect to health care facilities); and
• the fact that these might be added later on in the negotiation process.

Healthcare providers however argued that new development did impact on health and social care requirements and therefore should be regarded as legitimate developer contributions. Those involved in NHS estate planning told us they increasingly looked towards developer contributions to secure land and funding for new primary care facilities

Participants regularly referred to 'creep' where requirements not identified in the plans were added to published lists (and formulae) for the infrastructure required for developments. These extra demands could compromise agreements made between developers and land owners based on the original specification. Participants explained how this added complexity and delay to discussions and negotiations. At the limit some felt that:

"What seems to happen more now is that whenever anything comes along which presents a cost burden to a local authority, there is pressure to look at whether development contributions are the answer to that cost burden".

There was a quite widespread belief that contributions should mainly be used to mitigate the more site-specific aspects of a particular development. A number of participants thought infrastructure needs were not always well justified in plans and guidance, and that this gap resulted in delays and renegotiations. Developers made clear they had no objection to contributing to justifiable mitigations but needed clarity and certainty.

In this context it was argued by a representative of a PA that: '

"The development might contribute in part to something that is needed more widely in the area, but the gap (in funding) might be in the funding for the existing community".

Not surprisingly given this perception, it was seen as much more difficult to use developer contributions to secure sub-regional infrastructure. A related challenge came in demands to make contributions to the cumulative impact of several developments but where the development in question made only a limited impact itself. This raised both legal and practical issues which led to tensions and sometimes meant the funding had to be returned.

These discussions raised the more general question of whether S75 was intended to be more directed at mitigation rather than more general requirements. In this context it was suggested that there was a need for clarification of what could legitimately be funded by S75 and statements such as: by a participant

"For strategic infrastructure delivery, Section 75 is not the right piece of legislation".

5.3 The negotiation process

The ease of negotiating contributions depends significantly on the clarity of local plans. There was general agreement that there was reasonable clarity about affordable housing requirements but far less about other infrastructure. In part, these issues were seen by participants and interviewees as an outcome of national policy:

"At the moment it is hard to get the clarity up front at the plan stage because so much of that policy has not been finalised or comes in later at statutory guidance (which will be removed soon)".

A rather different issue related to the scale and complexity of the site. Where there are multiple landowners and developers, and many lawyers are involved, the negotiation process is particularly difficult. Equally, however, these are often large-scale sites where the amount potentially available depends on getting the details right.

They are also the sites where it is likely that the configuration of infrastructure provided in the initial stages might significantly modify the potential of the site leading to the need for renegotiation.

There was considerable concern about the extent of uncertainty around the negotiation process, with both developers and local authorities arguing that the process can be unnecessarily bureaucratic and has been developed in an ad hoc manner.

5.4 Coordinating planning and development

Many participants stressed the need for clarity in local plans and supplementary guidance, saying it helped infrastructure providers, for example water and transport, to know where developments would take place and to plan their capital programmes accordingly. Infrastructure providers stressed the need for local plans both to underpin a sustainable approach to services in terms of the locations of new development and to provide clarity about what was required from developer contributions. This necessarily involves co-ordination between authorities and infrastructure providers and between local authorities. It also needs local authorities to have better databases.

The problem of funding and coordinating infrastructure to meet sub regional needs and also to unlock long term development sites is central to these relationships. In this respect participants described how local authorities are beginning to collaborate more with each other and with providers and funders to secure this longer-term infrastructure.

Some argued that it was necessary to bring in at an early stage more of the experts in funding, financing, quantity surveying, cost assessment, civil engineering and development appraisal.

There was a general view among infrastructure providers that while 'Infrastructure First' was a desirable objective, it was not yet working in practice. Some argued that there has never been any meaningful alignment between their investment programmes. This was in part because the cycles of plan-making do not align with government funding, but more generally because there was no certainty about which sites would actually be developed and scale of development over a plan period. Others suggested that the development planning system is changing and will continue to change and that the move to 10-year plans might make the prediction element much more difficult.

There was considerable tension expressed with respect to the relationships between local authorities and infrastructure providers because of the different legal and regulatory environments in which they work and their different priorities. There were also practical issues in terms of funding collection and ensuring the infrastructure was in place within the necessary five-year timespan. All thought effective collaboration between authorities and providers was a highly desirable objective but making it happen was very much still a work in progress. This frustration is perhaps well summarised in this statement by a planning authority:

"It is one thing for a council to try and develop an infrastructure plan, all the parts of the infrastructure need to be linked up. The systems which should be in place to create these links are very unsophisticated, and it is hard to share plans between different projects which may well affect each other. We made some attempts to get the utility providers more involved and trying to look at longer term plans. I was surprised at how unsophisticated some of their forward planning processes are as well as the information and how it is held"

Equivalent, if less detailed, concerns were obvious among representatives from infrastructure providers.

These problems were exacerbated in the context of sub-regional investment. The discussion reflected on many attempts to develop better working relationships but also concern that there needed to be a better framework and indeed more funding. Contributions could not pay for everything.

There was considerable discussion about potential opportunities. One suggestion put forward by planners was that there be a national plan; another was that planners should become deliverers supported by government funding. Developers on the other hand saw the potential for institutional investors to bring in longer term and cheaper funding than that available through the public sector.

5.5 Affordable housing

Participants thought developer contributions were a very important mechanism for delivering new affordable housing. However, developer contributions did not work everywhere – notably on complex or brownfield sites and in low land-value areas. A number of authorities took the view that they needed development to be concentrated on increasing economic activity and did not seek affordable housing through developer contributions.

Agreement on securing affordable housing is often relatively straightforward significantly because of policy clarity. The figure of 25% affordable housing across Scotland is well understood and there is a degree of certainty around this. This helps to avoid some of the parallel problems found in England. In some higher valued areas local authorities do ask for – and obtain – higher proportions with developer agreement.

Most local authorities have clear statements of what affordable housing will be required (normally as social housing), so it is possible for developers to estimate the cost of the contribution and bid for land on that basis. This also covers the details of the housing mix. The subsidy available and the rents to be charged are also known. All of this makes negotiation easier.

However, there were concerns expressed that because the agreements were usually made between the developer and the planning team in the local authority, others who needed to be involved in implementing the agreement (notably the housing department and the housing association) often came too late into the discussion.

Much of the success of this aspect of developer contributions is seen to lie in the potential to obtain on-site serviced land normally transferred to the housing association either at nil price or often at a fairly nominal figure. Alternatively, the dwellings may be built by the developer and the affordable housing transferred as completed units at an agreed price. Without this opportunity to access cheap land, housing associations felt that they would have no chance of being able to find suitable land at acceptable prices. In other words, the capacity to negotiate land as a developer contribution makes the affordable housing work in higher valued areas in a way which cannot be achieved simply through subsidy.

There are areas where 25% is seen as unachievable either because of site specific reasons or more generally because in lower valued areas the site would become non-viable. On greenfield sites, 25% is generally regarded as acceptable.

There are also some instances where both local authority and developer are happy for the provision to be off-site--even in another authority area--notably in rural locations. On the other hand, there was concern that in some rural areas, where new affordable housing was concentrated in a few sites, the location of the affordable housing might not correspond to demand.

All these issues are formally a matter for negotiation between the local authority and the developer. Housing associations are rarely involved directly. It is up to the developer to decide whether they want to bring in a preferred housing association early on in the process, or whether the ultimate owner should be identified before these negotiations take place.

Another element in the negotiation process relates to the mix of affordable housing provided. Some authorities require all of the housing to be transferred to the authority itself as council housing; others want all the housing to be social rented; others accept a mix of mid-market and affordable homes. There may also be negotiation about timing – e.g. it may be agreed that the affordable housing is built early in the development process to support cash flow. The negotiations appear to affect the financial value of the contributions made by developers on individual sites rather than the number of affordable dwellings provided on these sites

The same appears to apply to the mix of dwellings provided with respect to the number of bedspaces, rooms, accessibility and outdoor space. Negotiations relate to identified need, and again appear to affect the value of the contribution more than the numbers of units provided. However, while most participants felt these housing needs were well understood, others thought there was a general lack of clarity around exactly what was needed both at national and local levels.

Finally, participants argued that in general trade-offs were not made between affordable housing and other infrastructure provision. The affordable housing requirement was generally clearly specified; infrastructure requirements were discussed separately and were not seen as directly resulting in less affordable housing being provided.

5.6 The importance of grants

The starting point for decisions about the numbers and types of affordable housing required is the local authority's Local Housing Strategy. This is supported by an annually updated Strategic Housing Investment Plan setting out the local authority's view of affordable housing delivery priorities over a rolling 5 year period. Affordable housing receives central government grant which provides considerable longer-term certainty to providers. It was suggested that on average these grants cover between 48% and 50% of the cost per unit, leaving the rest to be found by the housing provider, including housing associations, potentially supported by developer contributions. Some authorities however felt that there was no need to ask for contributions, as the subsidy was enough to enable the required proportions of affordable housing to be provided. However, they saw the potential for securing developer contributions were grant rates to be reduced in the future.

Later interviews confirmed the importance of grants and how they both helped to keep rents low for tenants and helped housing associations acquire land and/or completed dwellings. Contributions on the other hand were designed to allow affordable housing to come forward on sites and in areas where either land would otherwise not be available and/or where affordable housing would be too expensive to build without support. In some areas developer contributions are seen to make higher proportions of affordable homes possible. In others, even with both grant and contributions, only small proportions can be achieved. This was notably the case in higher cost rural areas. Contributions could also allow higher numbers of affordable homes to be provided off-site through commuted payments.

There was however some concern about the interaction between the two forms of assistance. It was clear from interviews and policy that benchmark subsidy rates as well as actual subsidy levels are determined centrally and take no direct account of the potential for contributions. This is seen as wholly a local issue.

Asked whether grant tended to offset some of the reduction in land values arising from developer contributions, roundtable participants argued that grant was necessary to ensure viability and deliver the amount of affordable housing required and that landowners did not gain financially. Some however felt there was an effect on land values and perhaps even on developer profits. One participant, from a housing association, made the point that without grants, housing associations would pay less for completed units and developers would have to pay less for land to maintain the viability of their schemes.

5.7 SME builders

Roundtable participants suggested that the negotiation system disadvantaged smaller builders, whose financing model differs from that of major developers. In particular, they must usually pay for the land upfront before any negotiation can take place, and they cannot spread risk by diversifying across a range of sites. Negotiations are of course necessary attributes of the individual planning permission system, but negotiating developer contributions was seen as adding a further layer of complexity.

5.8 Challenges for policy and practice

Participants raised a number of issues related to government policy and guidance as well as the impact of recent court cases and reporter decisions on planning appeals.

The most general issue raised by everyone who took part is whether contributions should be restricted to mitigating site-specific externalities or should fulfil wider objectives, such as providing sub-regional infrastructure or dealing with the cumulative impact of several developments. Some noted their frustration that the Infrastructure Levy had not yet been implemented.

There was concern that S75 has been stretched too far, especially on large-scale developments, in order to cover these sub-regional and cumulative development requirements. Participants felt that court cases had helped to clarify what was and was not allowed under S75.

A significant additional concern raised was how to address the need for upfront funding to provide the required infrastructure well before contributions were payable. There was also concern about inequities between developers with respect to the ordering of their contributions unless there are equalising arrangements put in place. Not entirely surprisingly, one suggested way forward was to reduce risks by providing upfront public investment to enable large developments to get underway.

5.9 Conclusions; is the contribution approach worthwhile, and how can it be improved?

Most of the participants in the roundtables and our interviewees thought the system worked well, although more collaborative working and greater clarification on requirements would improve things. They also thought that the public sector might need to take on more risk.

As one private sector participant put it:

"…Section 75 is a well-established system, it has stayed in place for a long time and people are getting better at using it… There is only so much contribution you can extract from a development before its unviable. Section 75 has the flexibility to let local authorities be in charge of what they choose to seek contributions to and/or whether they can get enough contributions to support it. Other systems have less flexibility".

A local authority participant agreed that authorities also needed to change

"Clear and consistent guidance would help. It has been heartening to see consensus today. We as councils need to get better at the infrastructure plans and what education contributions are likely to be. Room for improvement but working reasonably well".

Despite feeling that contributions worked well, many participants also wanted a more strategic approach to infrastructure funding, especially for large and complex sites and for sub regional infrastructure. They also wanted more and better integration between development and infrastructure plans. Some also thought there needed to be new ways of dealing with upfront funding and others expressed frustration that the government had not yet implemented the Infrastructure Levy.