The London Plan approach to development viability should have been a perfect system to deal with the cyclical nature of residential development while maximising the delivery of affordable housing.  The ‘viability tested’ route in Policy H5 should have allowed schemes to come forward at whatever percentage of affordable housing they could viably provide, from zero per cent upwards.  Inexplicably, that system appears to have failed, with housing starts in 2025 falling to a few thousand units, resulting in an announcement today by the Mayor and MHCLG of a package of time limited measures to stimulate development (see here).

For far too long, the Mayor applied the 35% target in the London Plan as a quota, resulting in large numbers of schemes securing planning permission which were only deliverable if sales values continued to increase and costs remained flat.  Developers of major schemes who tried to follow the ‘viability tested’ route were met by numerous hurdles placed in their way by the GLA viability team (Stag Brewery being a case in point).  The fallout from the September 2022 ‘fiscal event’, including a significant increase in interest rates, froze many would be buyers out of the market and unsurprisingly the combined impact of all of this resulted in developers downing tools.

The package of time limited measures are as follows:

• Temporary 50% reductions in borough CIL (notably NOT mayoral CIL) for schemes that deliver at least 20% affordable housing.  Higher (as yet unspecified) reductions in CIL will apply when schemes deliver more than 20% affordable housing.
• A supplementary ‘fast track’ route at 20% affordable housing.  Developers will need to achieve agreed levels of build out by March 2030 to avoid a “gain-share mechanism” (a late stage review by another name) which would split any improvement in viability 60%/40% in local authorities’ favour.
• Higher grant rates of £220,000 for social rent, £70,000 for shared ownership, £90,000 for intermediate rent (where rents exceed London Living Rents) and £140,000 per unit where rents are lower than London Living Rent.
• Easing of standards relating to dual aspect units, numbers of units round cores and requirements for cycling parking, all aimed at increasing residential density to improve viability.
• Expanded powers for the Mayor to call in applications of 50 or more units where a borough is minded to refuse an application.  This will operate alongside the existing requirement for referral of applications of 150 or more units.

While all of this signals the Government’s grave concern regarding low levels of housing starts in the capital, reductions in CIL make very little difference to viability – liabilities typically equate to only a few percent of overall construction costs.

With regards to the supplementary 20% fast track, developers largely abandoned the 35% fast track route 2 years ago and applications have been coming forward with percentages of affordable housing ranging from zero per cent upwards, with anything between 5% and 15% being typical.  A 20% threshold may not be achievable for many development proposals, and even the prospect of avoiding late stage reviews may not tempt developers to opt for this route in large numbers.  The “gain-share mechanism” may blunt the attractiveness of this route further still.

Inexplicably, the note is silent on the most significant issue facing developers in London, which is the weakness in effective demand for private flats and houses in the capital.  Reducing the fast track affordable housing threshold does very little to help; it just means that developers who bring schemes forward will have more private flats to sell at prices that potential buyers cannot fund.  Demand side measures - including some form of Help to Buy 2.0 - are urgently needed to give developers in the capital confidence that there will be buyers in sufficient numbers to sell to when their schemes complete.