UK Affordable Housing Viability Assessments: Can Developers Abuse The Privilege?

An East London, UK, tower rises up. Following a viability hearing, no affordable housing is included at all in this project.

What happens when a UK developer, eager for a housing contract that includes a fat government subsidy, deliberately ignores the true cost of the housing and paints a too-rosy picture of how much of the housing can be affordable?

Up until now, nothing much happens. However, as the courts become involved in disputes between local councils and developers, there may be changes in the wind.

Deliberate? Not deliberate? Why does it matter?

In the final stages of project planning the developer can, and very often does, claim that ‘extraordinary costs’ have cropped up in the course of development and must be faced because the project is no longer viable.

This leads to a confidential viability hearing. Too often, the hearing finds there have been ‘extraordinary costs’ and a reduction in the amount of affordable housing the project is required to deliver is allowed.

Can a viability assessment be a ‘win-win’ proposition for developers? The link below describes a council project in which a ‘vigorous’ viability assessment resulted in no affordable housing being built at all in a high rise residential project. Read more in the Hackney Times:  A massive slap in the face’: residents slam council’s plans to build high rise towers on top of schools

Viability assessments that result in no affordable housing are, sadly, not uncommon. Review of previous development approvals is revealing just successful developers can be at utilizing the viability loophole. Read more in The Guardian: Manchester council to publish files used to bypass affordable housing quotas

The majority of UK local councils believe that developers (and their financiers) are hindering attempts to build affordable housing by deliberately misleading their council partners from the very start of each project, then reaping the time-consuming rewards of a viability hearing. Read more in LocalGovWhitehall must reform ‘viability tests’, campaigners say

A recent court case rejected a developer’s demands to reduce affordability quotas at the start of a housing project, if no evidence is submitted to support the claim.

As for the right to apply for a viability assessment at a later date, the court frowned at the possibility of a developer deliberately misleading a council initially, then revising profitability estimates triggering the need for a viability assessment.

Is this a harbinger of things to come? Or is the concept of ‘deliberate’ so vague as to be largely meaningless?

Is a developer remiss if a rosy picture is painted to win a contract? Is it not just good business, if it serves the interests of shareholders?

In buy-sell arrangements, the maxim has always been, ‘let the buyer beware.’ For all the talk of partnerships and common interests, the council is buying a product and a service from the developer. Does it not have a standard obligation to ‘beware’?

Short of getting caught fraudulently falsifying facts and figures, it seems unreasonable that a competent, or even an incompetent, developer could be punished for revisiting costs and proceeding to a viability hearing. The opportunity to increase project profits would seem to be an entirely reasonable and businesslike course of action.

But then, would any sensible individual (or government body?) buy a bottle of snake oil for a set amount, then at the last moment offer the salesman a chance to raise the price? The entire concept of a developer ‘second chance’ stacks the deck against the buyer, making it virtually impossible to ‘beware’.

Read more in Scottish Construction Now!: Affordable Housing 1 Viability 0

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