TOPIC PAPER AFFORDABLE HOUSING. August of 49

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1 TOPIC PAPER AFFORDABLE HOUSING August of 49

2 About This Document This document is one of series of Topic Papers : which provide the supporting evidence to underpin the preparation of the City and County of Swansea Council s Local Development Plan (LDP). Each Topic Paper provides in-depth analysis of a particular issue that the LDP needs to respond to, including the national policy context, a review of local policy, current circumstances and trends, and also suggests appropriate polices for inclusion within the Plan. As further evidence and information becomes available each Paper will be revised and updated as appropriate. Who to Contact for Further Information? Further information on the LDP process is available to view on the Council s website: The Council s Planning Policy Team are available during normal office hours to discuss any aspect of the LDP. They can be contacted by letter/in person: Planning Policy Team, Room 2.6.2, City and County of Swansea Council, Civic Centre, Oystermouth Road, Swansea, SA1 3SN Or via: Tel: ldp@swansea.gov.uk If you require this document in a different format, e.g. large print, Braille, audio version, etc. please contact the Planning Policy on , ldp@swansea.gov.uk or write to Room 2.6.2, Civic Centre, Oystermouth Road, Swansea, SA1 3SN. 1 of 49

3 Contents Page No. About This Document 1 Who to Contact for Further Information 1 Contents Introduction Definition of Affordability and Affordable Housing Policy Context Characteristics of the Current Housing Market Local Housing Market Assessment (LHMA) Affordable Housing Viability Assessment (AHVS) Proposed Affordable Housing Policy 32 Appendices Appendix 1 Registered Social Landlords in Swansea 36 Appendix 2 Profile of the Strategic Housing Policy Zones 39 Appendix 3 Residual Values for a Notional One Hectare Site 45 Appendix 4 AHVS Sub-Market Areas 48 2 of 49

4 1.0 Introduction 1.1 The City and County of Swansea Council (the Council) aims to ensure that everyone within the City and County of Swansea (the County) has access to a good quality home that meets their personal housing requirements. However a shortfall of affordable housing across the County is a key issue facing residents at the present time. The cost of buying and renting a house at market value is greater than many on low incomes can afford and consequently intervention in the housing market is needed to provide affordable housing by other means. 1.2 The Council have a responsibility for making appropriate provision for affordable housing and this requires a sound understanding of the whole local housing market in order to develop future strategies and policies based on robust evidence. This evidence base shapes and assists with the production of the Council s Local Development Plan (LDP) and Local Housing Strategy. It also informs the strategies of other services, such as education, health, employment and social services, which are integrally linked with housing. 1.3 This Topic Paper assesses the need for affordable housing locally and defines what is meant by affordable housing in the context of national policy. It reviews current circumstances, trends and existing local policy in the light of recent studies and considers the requirements for affordable housing that must be taken into consideration in the Council s emerging LDP and other strategies. It should be read in conjunction with related supporting documents, including the Population and Household Projections Background Paper and Housing Topic Paper: see for further details, which outline anticipated levels of population growth and the implications for future housing provision over the period to of 49

5 2.0 Definition of Affordability and Affordable Housing 2.1 The concept of affordability is generally defined as the ability of households or potential households to purchase or rent property that satisfies the needs of the household without subsidy. This could be based on an assessment of the ratio of household income or earnings to the price of a property to buy or rent available in the open market in the required local housing market area. (Technical Advice Note 2, para 4.1) Affordable Housing for the purposes of the land use planning system is defined as: Housing where there are secure mechanisms in place to ensure that it is accessible to those who cannot afford market housing, both on first occupation and for subsequent occupiers. (Planning Policy Wales, 5 th edition 2012, para ) Affordable housing may be broken down into two categories: Social Rented Housing consists of the stock provided by Councils and registered social landlords where rent levels have regard to the Welsh Government s guideline rents 3 and benchmark rents 4 ; and Intermediate Housing covers housing provision where prices or rents are above those of social rented housing but below market housing prices or rents. This can include shared equity schemes (for example Homebuy 5 ). Intermediate housing differs from low cost market housing, which the Welsh Government (WG) does not consider to be affordable for the purpose of the land use planning system 1 See section 3.0 for further details 2 See section 3.0 for further details 3 Guideline rents are determined by the WG and relate to local authorities. They are calculated using statistical information provided by individual local authorities. 4 The rent Benchmark system requires Housing Associations to charge rents for key property types which, when averaged, are no greater then the benchmark rent. 5 Homebuy is a scheme operated by Registered Social Landlords under which existing social housing tenants and those on housing waiting lists can purchase a home with an interest-free equity loan. The Council bids annually for Social Housing Grant funding for Do-it-yourself Homebuy, where a purchaser buys a property with the assistance of a Homebuy loan from a Registered Social Landlord. The loan can be up to a maximum of 30% of the purchase price in urban areas. 4 of 49

6 2.4 All other types of housing are referred to as market housing, which is private housing for sale or rent where the price is set in the open market and occupation is not subject to control by the Local Planning Authority (LPA). 2.5 Affordable housing is therefore provided to those whose needs are not met by the open market and should: Meet the needs of eligible households and be available at low enough cost for them to afford, determined with regard to local incomes and local house prices; and Include provision for the home to remain affordable for future eligible households, or if a home ceases to be affordable, or staircasing 6 to full ownership takes place, any subsidy should generally be recycled to provide replacement affordable housing 2.6 There are two traditional ways of providing new affordable homes: through Social Housing Grant provided to local Councils by the Welsh Government to support affordable housing schemes and through planning agreements to build affordable housing as part of a development scheme or to provide a financial contribution towards affordable housing elsewhere. These mechanisms are considered further in Sections 3 and 4 below which outline national and local policy on affordable housing and review the characteristics of the current housing market. 6 If a property is in shared ownership where the purchaser buys an initial share in the property from a housing provider, they may then buy additional shares towards full ownership known as staircasing 5 of 49

7 3.0 Policy Context NATIONAL POLICY CONTEXT 3.1 Increasing the supply of affordable housing is a key policy goal of the Welsh Government (WG), which has set a target of 7500 additional new affordable homes in Wales by The Wales Spatial Plan (2008) 3.2 This Plan sets out a broad vision for the Swansea Bay Waterfront and Western Valleys area of which the County forms a part, with one of the key priorities being the building of sustainable communities with more affordable and attractive housing (paras 10.4 and refer). Planning Policy Wales (2012) 3.3 The essential role of affordable housing in contributing to community regeneration and social inclusion is recognised in Planning Policy Wales Edition 5, 2012 (PPW), which encourages new housing development in both rural and urban areas to incorporate a reasonable mix and balance of house type and sizes so as to cater for a range of housing needs and contribute to the development of sustainable communities (para ). Technical Advice Note (TAN) 2 Planning and Affordable Housing (2006) 3.4 TAN 2 provides practical guidance on the role of the planning system in delivering affordable housing with the objective of creating sustainable communities. It requires LPAs to: Include an affordable housing target in the LDP which is based on the housing need identified in a Local Housing Market Assessment (LHMA) Indicate how the target will be achieved using identified policy approaches Monitor the provision of affordable housing against the target 3.5 An LHMA enables the Council to gain an appreciation of the demand for affordable housing of different types (i.e. intermediate or social rented) and sizes (number of bedrooms) in relation to supply. Based on the LHMA, the Council s LDP must include a County-wide target for affordable housing (number of homes) and identify the expected contribution the policy approaches set out in the Plan will make towards meeting the target. This includes identification of site thresholds, site 7 Welsh Government Written Statement by Huw Lewis, Minister for Housing, Regeneration and Heritage, 14May of 49

8 specific targets, commuted sums and affordable housing exception sites. The County-wide target must take into account the anticipated levels of finance available for affordable housing, including public subsidy and the level of developer contribution that can realistically be sought. 3.6 A site threshold is a specified number of units which when exceeded triggers a requirement for affordable housing to be provided on a site. This threshold may be set for the County as a whole, or different thresholds applied to different parts of the County. The proportion of affordable housing required once the threshold is triggered will be dependent upon the location of the development. Site specific targets are indicative affordable housing targets for specific residential/mixeduse sites allocated in the LDP. 3.7 TAN 2 advises that When setting site-capacity thresholds and site-specific targets local planning authorities should balance the need for affordable housing against site viability (para 10.4 refers). This involves making informed assumptions about the levels of finance available for affordable housing and the type of affordable housing to be provided, and this is considered in further detail in Section 6.0 below. Further National Guidance 3.8 The Essex Report on Affordable Housing in Wales (2008) 8 recommended that robust and up-to-date information on housing needs, demands and supply was needed to provide a firmer basis for national housing policymaking. This has led to the publication of numerous subsequent papers and guidance by the WG aimed at increasing the provision of affordable housing in Wales including: Improving Lives and Communities (April 2010); Housing Need and Demand in Wales 2006 to 2026 (Holmans & Monk, 2010); Inquiry into the provision of affordable housing in Wales (April 2012); Homes for Wales - A White Paper for Better Lives and Communities (May 2012). These identify further measures to assist with delivery at the local level which have been/will be incorporated into the LDP as appropriate. 8 Affordable Housing Task and Finish Group Report to the Deputy Minister for Housing, June of 49

9 LOCAL POLICY CONTEXT Shared Ambition is Critical Swansea Community Strategy ( ) 3.9 This Strategy sets out the long-term shared vision for Swansea which is: By 2020 Swansea will aim to be a sustainable and distinctive European City. Making the City and County a place which: Is great to live in Provides a great start to life Provides excellent education opportunities Is safe and feels safe Supports a prosperous economy Supports and promotes good health Provides the best possible services 3.10 In support of this, one of the key outcomes sought in the Strategy, and therefore a strategic priority, is a significant increase in the provision of affordable housing. Swansea Unitary Development Plan The Swansea Unitary Development Plan (UDP): which is to be replaced by the LDP in due course, states that in areas where a demonstrable lack of affordable housing exists, the Council will seek to negotiate the inclusion of an appropriate element of affordable housing on sites which are suitable in locational/accessibility terms and where this is not ruled out by exceptional development costs. As a guideline: In most areas negotiations will focus on new housing developments of 25+ dwellings, or sites of 1ha+ (or phases of such developments) In the large and small villages 9 (e.g. those on Gower) and the Swansea West Housing Policy Zone, negotiations will be sought on new housing developments of 10+ dwellings or sites of 0.4ha+ (or phases of such developments) 3.12 UDP Policy makes clear that the subdivision, separate ownership or phasing of larger development sites to fall below these thresholds does not overcome the requirement to provide affordable housing. There will be no change in this position for the LDP. The need for and amount of affordable housing to be provided on sites where the threshold is triggered is determined on a case by case basis in consultation with the Head of Housing Services. 9 As defined by those subject to Policies EV16 and EV17 8 of 49

10 3.13 Further policy on local needs affordable housing states that in exceptional circumstances permission may be granted for the development of small sites within and adjoining settlements for the specific purpose of providing affordable housing to meet an existing deficiency for people who need to live in the locality and who cannot reasonably be accommodated through the area s general housing market. This policy is unlikely to change significantly in the LDP. Swansea Local Housing Strategy The Local Housing Strategy which is currently being reviewed: sets out the vision for housing within the County, and the Council s Principal Housing Service objective, which is: To ensure that the housing stock contributes to Swansea reaching its potential as a distinctive European city by providing quality housing services that contribute towards the Council s broad aims The Principal Housing Service aim is: Ensuring the appropriate supply of good quality affordable homes through the publication of a clear strategy and working in partnership with others to provide new affordable homes The Council is no longer able to expand its stock of 13,000 owned and managed units of accommodation due to unfavourable financial regulations. However, it has an important role in enabling the provision of new affordable housing in the form of subsidised social housing for rent and low-cost home ownership initiatives. This is either secured via Section 106 planning agreements, or in partnership with social landlords through the Local Authority Social Housing Grant Investment Programme: Section 106 of the Town and Country Planning Act (1990 as amended) allows the Council to enter a legally binding agreement or planning obligation with a developer to provide affordable housing as part of a proposed housing development. Through this mechanism the Council currently aims to negotiate the provision of 25-30% affordable housing on development sites over a certain size threshold. Social Housing Grants are capital grants provided by WG to the Council to fund Registered Social Landlords (RSL s) 10 in turn to fund or partially fund investment in social housing 10 Detail of Registered Social Landlords in Swansea are set out in Appendix 1 9 of 49

11 3.17 The WG has delegated control to each Council over where and what type of developments RSL s can build utilising Social Housing Grant (SHG). Each year the Council issues its criteria for prioritising support for new social housing development, which any proposals made by the RSL s must meet. The criteria are published in the Local Housing Strategy. The Housing Service also has responsibility for monitoring the programme and ensuring that the Council s allocation of Grant is spent The current Local Housing Strategy is underpinned by a LHMA undertaken in 2007, which established that of the 851dwelling units needed to be built per annum within the County, 221 should be affordable units, resulting in an affordable housing target of 25-30% of all new dwellings. This LHMA has recently been reviewed and a new affordable housing target has been identified which highlights a massive gap between supply (which has averaged around 188 dwellings per annum over the past 4 years) and demand which is for around 500 new dwellings per annum (approximately 44% of future projected housebuild). This is considered in more detail in Section 5 below. Supplementary Planning Guidance Planning Obligations (March 2010) 3.19 Supplementary Planning Guidance (SPG) adopted by the Council identifies the types of development for which planning obligations will be required and explains the procedures involved when entering into obligations. For affordable housing it recognises that the requirement to provide affordable housing will also depend upon factors such as site size, suitability and development costs and whether or not it would prejudice the realisation of other planning objectives In securing affordable housing in connection with a proposed residential development scheme, the SPG identifies the Council s preferred method of delivery is provision on-site to help create socially balanced communities. Off-site provision will only be acceptable at an agreed appropriate alternative site usually within the locality and a higher proportion of affordable housing will be sought. Financial contributions will only be acceptable as an option of last resort and will only be considered when off-site provision is not feasible. 10 of 49

12 4.0 Characteristics of the Current Housing Market 4.1 The 2011 Census indicated that the County has a population of 239,000, made up of 103,500 households. This represents an increase in population of 15,700 and an additional 9,100 households since the 2001 Census. 4.2 Owner occupation is the dominant tenure with the 2011 Census indicating that around 65% of households are owner-occupiers. This is a decrease of 5% since The owner occupied sector has the lowest turnover of stock and is characterised by the largest properties. Households in this sector display the most affluent profiles, with the highest incomes and the highest levels of car ownership. This sector has the lowest portion of single person ownership and the number of households in this tenure who are in receipt of income support is low. 4.3 Social rent is the next biggest tenure and accounts for 19% of households (no change since 2001). It has low levels of underoccupation and a relatively high proportion of single pensioner households. The average incomes are around a third of those in the owner-occupied sector. Around three-quarters of social rented households are in receipt of housing benefit. 4.4 Sixteen percent of households rent from the private sector, which is an increase of 5% since Historically this sector has the highest turnover of stock approximately five times greater than that of the owner-occupied sector. It contains relatively few pensioner households and approximately one third of households receive housing benefit. 4.5 The need for and profile of affordable housing grew rapidly with the post 2000 housing market boom, which saw house prices rise dramatically in the County, particularly between This was fuelled by uncertainty in the stock market and the growth in buy to rent property investment, especially at the lower end of the housing market. The result of this house price growth has been to put the price of dwellings outside the reach of many first time buyers and impede their ability to secure accommodation in the open market. Even allowing for the slow down in the market in recent years and associated fall in house prices, the average house price in Swansea in 2011 was around 111,000 - an increase of almost 100% since 2000 (Source: Land Registry Price Data). 4.6 Since 2006 the average house price to average household income/earnings ratio in Swansea has reduced from over 7 times income to less than 6. However despite this improvement the lower availability of mortgage finance for first time buyers means that aspiring households still cannot afford to buy. Almost half of the 35% of households in Swansea that are non-homeowners have annual incomes of under 10,000, and three-quarters have incomes of less 11 of 49

13 than 20,000 per annum. These households can realistically only afford social rented accommodation and in most cases need Housing Benefit support to meet the cost of social rent. 4.7 As a result, many developers have put schemes on hold and/or scaled down their building activities. During 2010 and 2011 new housing completions were down by around a third of the average for the past decade. This downturn in the housing market has severely curtailed the ability of the Council to deliver affordable housing through the planning system as an integral part of new development schemes. Combined with this a shortfall in supply of market and affordable housing across Wales has resulted in an intensification of needs, the growth of the private rented sector in response to the fall in supply of other sectors and conversions of existing housing stock to Houses in Multiple Occupation (HMOs). 4.8 The population of Swansea, which has grown by 7% over the past decade, is projected to grow to over 250,000 by 2025 as a result of birth rates exceeding death rates and net in-migration. Between 2005 and 2010 migration accounted for a net 1350 rise in the local population, with population gained from the West Midlands, the South East and South Wales (Rhondda Cynon Taff, Pembrokeshire and Caerphilly), but lost to London, Neath Port/Talbot, Carmarthenshire and Cardiff. In terms of the age-structure of migrants there was a net gain of 3000 people aged (mainly students), but a net loss in all other age groups apart from years old. 4.9 In addition, between 2003 and 2010 an estimated 4,100 migrants moved to Swansea from overseas. Whilst there is no specific source of statistics about the patterns of tenure of migrants; Joseph Roundtree Foundation research 11 indicates that: New migrants tend to enter the UK housing market in the least desirable housing frequently in disadvantaged areas Most recent migrants live in the private rented sector, frequently in poorer standard properties Increased migration to the UK coincides with a shortage of and therefore high demand for affordable housing 4.10 Another change to take into consideration is the Welfare Reform Act 2012 which introduced changes to Housing Benefit allowances from April Housing Benefit paid to private rented sector tenants has allowed this sector to meet the needs of an increasing number of households on low incomes, to the extent that some of the private rented sector housing stock has effectively become affordable housing. The changes to the benefit system will not reduce the number of households seeking affordable housing; however it may increase the demand on the Council to meet these households housing needs. 11 UK Migrants and the Private Rented Sector: Joseph Roundtree Foundation (2012) 12 of 49

14 4.11 These factors together with a decline in the supply of Council housing due to Right To Buy ; a significant reduction in Council tenant turn over during the last 5 years; and the additional costs of complying with new build standards such as the Code for Sustainable Homes, have considerably added to the complexity of the challenge of providing more affordable housing within the County. It is a challenge that will not be solved by one Council service or strategy in isolation, but is a whole system problem involving the Council, its partners in the private and voluntary sector, and the Welsh Government. Review of Local Policy 4.12 Table 1 below analyses the delivery of affordable housing since the UDP was adopted in This shows that of the 884 affordable housing units identified in the 2007 LHMA as being needed over this period, 754 (85%) were delivered. Whilst it is recognised that affordable housing may not be delivered on every site due to the minimum size thresholds of qualifying sites, analysis reveals that planning policy has only made a very small contribution to affordable housing provision over the past four years, i.e. just 69 units, or 9% of the total number of affordable units provided. Table 1: Affordable Housing Units Completed Total Average Additional affordable housing units completed Additional affordable housing units needed Total housing units completed Percentage completed that were affordable 26.6% 22.9% 16.5% 35.2% 24% 24 No. of affordable units delivered by s106/planning Obligation Source: Affordable Housing Data Collection, Welsh Government 4.13 Thus the vast majority of affordable housing units have actually been delivered by means other than the planning system. Social Housing Grant (SHG) is the main alternative mechanism, however there have been other means, including direct Welsh Government funding to 13 of 49

15 RSL s to purchase units from developers during 2009/10 and 2010/11. The totals also include housing subject to the UK Government s Mortgage Rescue Scheme and Housing Association off the shelf purchases. These schemes have disguised the fact that the SHG for Swansea has reduced from a peak of 6.9m in 2007/08 to an allocation of 2.7m for 2013/14, with a notification that the amount will decline in future years 4.14 On the basis of recent completions set out in Table 1 above, the average number of affordable housing units completed each year amounts to 188.5, of which only are delivered through the planning system. If current trends continued over the 15 year period of the LDP ( ) this would deliver around 2830 affordable housing units, with just 260 being generated through the planning system and 2570 by RSL s. It should be noted however that current build rates are reflective of a period of economic recession with an average of 785 units of both market and affordable housing built per annum over the past four years, which is well below the 15 year 1113 per annum build needed to meet the LDP target of units. However if/when build rates increase, so will the number of affordable units delivered The low level of delivery through the planning system is also in part a reflection of past lack of knowledge and understanding of the cost and viability of schemes. Additional information and resources are now available to overcome this and enable a more informed negotiating position when dealing with planning applications that trigger the affordable housing thresholds. In future the 25-30% target for affordable housing provision on site should be regarded as the absolute minimum position bearing in mind that 44% is the average target for the whole of the LDP period (2010 to 2025). The lower the level of provision accepted now will only increase the level of provision required to be negotiated on schemes brought forward towards the end of the Plan period, which could potentially render them undeliverable. This is considered further in Section 6.0 below It has been over 4 years since the current affordable housing provision requirements were introduced through the UDP. During this period the Council has been extremely flexible in making allowances for developers who had completed land transactions without building in sufficient allowance for affordable housing provision. It is now time to draw a line and adopt a more rigid approach, whilst sending a clear message to landowners, that given the acute County-wide shortfall in affordable housing there is almost no scope for disposing of land at full market value and expectations must be lowered accordingly As one of the largest landowners in the County, the Council should take the community s need for affordable housing into account as part of its Asset Disposal Strategy by giving consideration to the disposal of public sector land below market value to RSL s and other potential 14 of 49

16 developers conditional upon delivery of affordable housing units typically through a joint venture. Whilst Councils have a duty to secure best value for land, WG guidance on delivering affordable housing 12 states that this should include: An assessment of the contribution disposal of these assets may make to the achievement of strategic policy priorities and objectives. Where delivery of affordable housing is a priority this should be taken into account when considering the options for the disposal of public sector land. (para 7.5) 4.18 Receipts from the disposal of public sector land over the past 4 years have amounted to over 19m. The Council s current disposal programme projects a further 34m to be raised from disposals, however this makes no allowance for disposal of land below full market value in order to facilitate delivery of affordable housing. In accordance with the WG guidance outlined above, identification of delivery of affordable housing as a strategic policy in the LDP Preferred Strategy will require a review of the value of certain sites in the Council s Disposal Strategy A good example of being more proactive in delivering affordable housing units is the Council s Empty Property Strategy, which has introduced a range of measures to bring empty dwellings back into residential use. It specifically targets empty homes in identified areas of housing need and problem empty dwellings/buildings due to their condition, location and detrimental effect on local amenity. During 2011/2012, there were 32 empty properties brought back into use as a result of direct action by the Council and 7 were demolished. Maintenance of this level of intervention over the fifteen year LDP period could see up to 480 empty dwellings brought back into beneficial use. Not all of these properties will fall into the category of affordable housing and much will depend on the future availability of grants. However there is clear potential for these properties to make a significant contribution to the affordable housing supply The Council has relied to a significant extent on larger sites in meeting housing needs and demands with a significant proportion of homes built on sites with a capacity of 10 dwellings or more. Consequently in Swansea West where property value as well as demand for affordable housing is high but supply is limited, smaller sites predominate and the potential opportunity to provide affordable housing is much reduced. Further analysis of the viability of smaller sites is therefore necessary to consider the extent to which the threshold for negotiating affordable housing could be reduced. This is considered further in Section 6.0 below. 12 Delivering affordable housing using section 106 agreements: A Guidance Update, Welsh Government, September of 49

17 4.21 However in general terms it would appear that current policy has failed to take into account the very significant uplift in value for small schemes which typically involve development of residential ancillary land i.e. parts of gardens, backland or infill development. On this basis there is scope to take affordable housing contributions from small schemes certainly in the middle and higher property value areas and there is a need to reconsider site size thresholds throughout the County To assist in identifying current affordable housing need throughout the County an assessment of the whole Swansea Bay area was jointly commissioned by the Council and Neath and Port Talbot Borough Council to inform the authorities respective LDPs and Local Housing Strategies. Such collaborative assessments are encouraged by national planning policy where local housing markets cross administrative boundaries. The findings of this assessment are set out in the following section. 16 of 49

18 5.0 Local Housing Market Assessment (LHMA) 5.1 A LHMA provides the evidence base for the Council s LDP and Local Housing Strategy. Its purpose is to establish the nature and level of housing requirements in the local housing market and provide supporting policies to deliver affordable and market housing. 5.2 The assessment was carried out by Opinion Research Services (ORS) during 2012 and 2013 and the full report of findings may be read here: The assessment was prepared in partnership with stakeholders, including RSL s, the Home Builders Federation and local letting and estate agents. It takes into account WG Local Housing Market Assessment Guidance (March 2006), but also captures additional data on the private rented sector and Housing Benefit support and is consistent with the methodology developed and used by the WG in the Holmans and Monk Report (2010) 13 which adopts a more long-term and strategic approach to modelling housing need and demand. 5.3 The assessment, summarised in Table 2 below, highlights that over the period 2011 to 2025 Swansea requires 16,100 new dwellings of which: 9000 (56%) should be market homes, and 7100 (44%) should be affordable homes, and of the overall total 2000 (12.5%) should be intermediate housing and 5100 (31.5%) should be social rent housing, i.e. a ratio of 30% intermediate housing to 70% social rent housing. Table 2: Net Housing Requirement for Swansea Area Number of Dwellings Required Market Affordable TOTAL Net Requirement Swansea East 3, ,200 Gower Gower Fringe Greater North West Swansea 4, ,600 Swansea Central 1,300 1,800 3,100 Swansea North - 2,100 2,100 Swansea West 400 1,200 1,600 Total 9,000 7,100 16,100 Note: All figures rounded to the nearest 100. Figures may not sum due to rounding. All percentages are calculated based on data before rounding 13 Modelling of Housing Need and Demand for Wales (Holmans and Monk, Welsh Government, 2010) 17 of 49

19 5.4 The Social rented category includes social rented housing as well as any other forms of affordable housing for rent which would be eligible for housing benefit support. The Intermediate category includes all households that can afford to pay more than social rent without any financial support, but cannot afford the market housing at the threshold rent or purchase price referred to as Low-Cost Housing. 5.5 The LHMA considered housing need across 7 housing submarkets within the County (known as Strategic Housing Policy Zones or SHPZs), which share similar characteristics in terms of housing type and price. Figure 1 below illustrates the distribution of the housing requirement across these SHPZs. A detailed profile of theses Zones is set out in Appendix 2. In summary the LHMA concludes that West Swansea, which has both the highest house prices and lowest build rates has a high requirement for affordable housing. North Swansea has a disproportionately low level of anticipated dwelling delivery, but significant levels of affordable housing need. East Swansea has a lower affordable housing requirement due to the availability of more affordable private sector dwellings to meet need. Figure 1: Map of Housing Requirement by Sub-Area of Swansea to Over half of the new build within Central Swansea needs to be affordable housing units. The Greater North West area shows a significant requirement for affordable housing, and there is little need 18 of 49

20 identified for market housing on Gower. Many of those moving to Gower arrive with equity and can afford to pay the very high prices to be found in the area. Therefore, to provide for local households, any additional housing should be affordable. 5.6 In practice whilst the Council may identify specific sites for up to 100% affordable housing in the LDP to reflect particular local circumstances, PPW identifies such sites are likely to be small in number and in scale in relation to the total amount of housing allocated (PPW para refers). Similarly requiring all new development within urban housing sub areas to be affordable housing does not meet the underlying policy objective of creating balanced sustainable communities. 5.7 The LHMA concludes that in the current economic climate it is uncertain whether the affordable housing delivery target can be achieved. The indications are that even if currently viable levels of affordable housing are negotiated on every site there is still likely to be a shortfall on the estimated affordable housing requirement. This must be made explicit in the LDP, so that there is no unreasonable expectation that the LDP will be delivering the entire 7100 affordable housing units identified as being required. 5.8 When preparing the LDP, the Council must balance the provision of affordable housing with the delivery of sufficient market housing to meet its overall housing requirement and the creation of sustainable communities. If the affordable housing target is set too high, the adverse impact on development viability will choke off supply. If the target is set too low, the need for affordable housing will not be met. 5.9 Accordingly the Council commissioned an Affordable Housing Viability Study (AHVS) to assess the range of housing market circumstances across the County, details of which are set out in the following section. 19 of 49

21 6.0 Affordable Housing Viability Study (AHVS) NOTE: THE AHVS WAS RECEIVED AFTER THE DRAFT LDP PREFERRED STRATEGY WAS APPROVED FOR PUBLIC CONSULTATION. THE CONTENTS OF THIS SECTION SHOULD THEREFORE BE READ AS AN UPDATE, TO BE INCORPORATED AS APPROPRIATE INTO THE FINAL VERSION OF THE PREFERRED STRATEGY. 6.1 In accordance with TAN2 in order to identify the expected contribution the LDP could make towards meeting the affordable housing needs identified in the LHMA, Andrew Golland Associates were commissioned to prepare an Affordable Housing Viability Study (AHVS) for the County. The main purpose of the AHVS was to identify viable targets and appropriate thresholds for affordable housing provision to inform the development of policies in the LDP. 6.2 In relation to setting affordable housing targets, TAN 2 states: The target should take account of the anticipated level of finance available for affordable housing, including public subsidy, and the level of developer contribution that can realistically be sought. (TAN 2, Para 9.1) 6.3 WG guidance to Councils on the preparation of Affordable Housing Delivery Statements ( ) 14 re-iterated the importance of viability evidence in identifying targets for affordable housing delivery: Targets for the amount of affordable housing to be provided should reflect an assessment of the likely economic viability of land for housing within the area, taking account of risks to delivery and on the likely levels of finance available for affordable housing, including both public subsidy such as Social Housing Grant and the level of developer contribution that could reasonably be secured. A viability calculation is equally relevant in a buoyant or a depressed market. The needs of both current and future occupiers should be provided for, building on evidence in the Local Housing Market Assessment. (Para 1.24) 6.4 Evidence on viability is also required to demonstrate the robustness of the site size threshold to be set out in the LDP. The threshold identifies the size of site above which the Council can seek an element of affordable housing to be provided. However TAN 2 does not provide any national guidance on appropriate thresholds and leaves this to the Council to identify on the basis of local circumstances. 14 Published by the Welsh Government in February of 49

22 6.5 Good practice guidance on how to provide evidence about viability when preparing LDPs was produced in 2009 by Three Dragons 15 (of which Andrew Golland Associates were formerly a part) and endorsed by the WG. This guidance and associated development viability software has now been adopted by most Councils in Wales. The software, referred to as a Development Appraisal Toolkit, is used to calculate what would be a reasonable selling price for specific parcels of land given the location, size and type of development that is proposed by the developer. It assists Councils in negotiations, as it can estimate the profit margins that the developer will achieve and can recommend what would be reasonable for the developer to provide via Section 106 agreements or planning obligations in terms of type and number of affordable housing units. The findings of the Study may be viewed in full here: In contrast with common perception of the property development industry, a developer s profit margins represent a relatively small percentage of the purchase price of a property - typically 8% to 18%. By comparison, construction and land purchase costs amount to around 70%. There are also various miscellaneous costs, including finance charges and professional fees. Collectively these elements are referred to as scheme costs. The revenue generated by a scheme must exceed the scheme costs for development to proceed. The difference between scheme revenue and scheme cost is known as the gross residual site value. The cost of Section 106 agreements/planning obligations for affordable housing and other related community infrastructure (e.g. play areas, highway and sewerage system improvements, etc) are deducted from the gross residual site value to obtain the net residual value of a site. Thus, as more affordable housing, etc, is provided on a site, its net residual value decreases until a point is reached where there would be no incentive to proceed with development. 6.7 The AHVS considered the viability of a number of potential development scenarios based on analysis of typical development mixes (e.g. 1 or 2 bed flat, 2 or 3 bed terrace properties, 4 bed detached, etc). Following a workshop with the development industry the Study suggested the following mix reflected housing needs locally: 15% one bed units, 30% two bed units, 45% three bed units and 10% four bed+ units. This development mix was tested across a range of densities of development, namely 20 dwellings per hectare (dph), 30, 40, 50 and 100dph. A full range of affordable housing targets was also tested assuming delivery of 10%, 20%, 30%, 40%, 70% and 100% affordable housing. This assessment was based on a tenure split of 50% Social Rent and 50% Low Cost Housing. 15 South East Wales Strategic Planning Group: Guidance on Preparing Affordable Housing Viability Studies, Three Dragons, (2009). 21 of 49

23 6.8 The Study makes allowance for s106 financial contributions other than for affordable housing and assumes the equivalent of 5000 per dwelling, a 17% profit margin and a 5% overhead on build costs. The results of these tests are summarised in Appendix 3. Unlike for the LHMA, the housing market areas were not based on the SHPZ s, but on a broad analysis of house prices by post-code sectors. The market areas do not exactly correlate, however a broad approximation by ward is set out in Appendix The Study identifies that there is a considerable variation in the economic viability of development sites across the County and also in terms of the density and development mix. For example, in the Mumbles area, where the net residual value of schemes is very strong, 70% affordable housing at a density of 20 dwellings per hectare would achieve residual values of between 400,000 and 600,000 per hectare. This residual value increases as the density of development increases and therefore a high target for affordable housing may be sought in this area. Whilst in the small and large villages of Gower/Gower Fringe the Council may set a fairly ambitious affordable housing target of up to 100%, as there is only a requirement for a relatively small number of additional housing units (up to 500 units, i.e. 33 per year over the Plan period) specifically to meet local needs Up to 60% of residential development within Central Swansea should be affordable and this is achievable on schemes of over 30 dwellings per hectare. There is potential for this target to be exceeded, as the Central area is the location of the highest density schemes, typically 1 or 2 bedroom flats largely brought forward by RSL s. This would offset the weaker housing sub-market of East Swansea where an affordable housing delivery target of 10% will only be likely to be achievable for schemes of over 30 dwellings per hectare. This does not mean that higher levels of affordable housing will not be delivered in East Swansea. There will be hot spots, such as SA1 and Swansea Vale, where schemes will be more viable, even though generally the value of land is such that opportunities are likely to be limited. Further appraisal of these hot spots will need to be carried out using the Development Appraisal Toolkit to inform the Deposit LDP A similar situation exists in North Swansea which has a high requirement for affordable housing, but this is unlikely to be deliverable in practice. North Swansea offers a significant number of potential development sites, however new build levels have historically been low and if past trends continue much of the need for the North Swansea area will have to be met by the adjoining Great North West SHPZ. This is the area of greatest projected new house build over the LDP period and has the potential to deliver 20 to 30% affordable housing from schemes of between 20 to 50dph. 22 of 49

24 6.12 When considering whether higher densities of development are achievable, Table 3 below shows the average density of development permitted on sites within each SHPZ taken from the latest Joint Housing Land Availability Study ( ) 16. This shows that within all Zones schemes are already generally committed close to, or well above, 40dph. Table 3: Average density of development permitted by SHPZ Housing Policy Zones* Average density (per hectare) Central East 87.3 North 40.2 Greater North-West 37.4 West 65.3 Average for all Zones 84.5 Source: JHLAS *Gower/Gower Fringe excluded as density of development not recorded 6.13 A density of development at 40dph is therefore taken as the starting point for further analysis. Table 4 below takes the residual value findings for a notional 1 hectare site developed at 40 dph as identified in the AHVS (see Appendix 3, Figure C3), and applies the highest possible viable level of affordable housing contribution against both the overall and affordable housing requirement as set out in the LHMA. This crude approximation assumes that all sites regardless of size have the potential to yield affordable housing. This provides a figure for the absolute maximum potential affordable housing that could be delivered over the LDP period, i.e dwellings. In reality as the further analysis below reveals the actual achievable figure will be much lower than this. This unequivocally demonstrates that the LDP will be unable to facilitate the delivery of anywhere near the 7100 target for affordable homes. This should come as no surprise however, given that the need for affordable housing has built up over many years and it is totally unrealistic to expect this situation to be suddenly redressed by the LDP within the Plan period, particularly whilst the economy is in recession Only in Swansea West and Gower AONB/ Fringe is there potential for the LHMA 44% target for affordable housing to be exceeded. However, further refinement of this figure is required given that the ability of the Council to deliver affordable housing depends on the trigger point at which policy allows affordable housing to be sought. Clearly the lower the threshold the greater the potential contribution will be. 16 Annual Joint Housing Land Availability Studies monitor the provision of housing land within Swansea: 23 of 49

25 Table 4: Maximum potential affordable housing contribution comparing AHVS against LHMA Housing Sub Area* Housing requirement LHMA 44% AH Target % AH Viable at 40dph Central East North * AHVS Deliverable Target Greater North West West Gower/Fringe Overall * Nominal target. AHVS indicates that affordable housing is not deliverable at any density within this area, however there will be hot spots where this is not the case Currently there is no requirement to seek affordable housing provision on sites of less than 10 dwellings in any area, and on sites of less than 25 dwellings in most locations. Looking at the minimum threshold (10 dwellings) to enable comparison with Joint Housing Land Availability Studies (JHLAS), which classify sites on the basis of whether they are above or below 10 dwellings, Table 5 below shows all housing completions by SHPZs as identified in recent annual JHLAS. It can be seen that the majority of development is built on larger sites (10 dwellings or more). However, the percentage of dwellings completed on small sites (fewer than 10 dwellings) is not inconsiderable - generally being around 20%. The precise percentages are: Greater North West Swansea 12.8%; North, East and Central Swansea 22.3% and West Swansea 28%. Sites on Gower and in the Gower Fringe are small scale in almost all instances. This presents a significant number of dwellings built on smaller sites that are not subject to the requirement to contribute towards meeting affordable housing needs. Table 5: Completions by Housing Sub-Market Area of 49