Open letter to Deputies from the Strategic Development Partnership

Dear Sirs

Re Proposed Amendment to the Island Development Plan ("IDP") Housing Policies

Introduction

This letter is sent on behalf of Strategic Development Partnership a well-represented forum for all the active developers and professionals working in the Island. We wish to express our support for affordable housing provision but our grave reservations that the housing policies contained within the IDP will not deliver affordable housing as intended and will have unforeseen negative consequences on the economy and on the delivery of new housing. On Wednesday 31^st August the Construction Industry Forum met and considered these matters and voted to support an Amendment to be led by Deputy Ferbrache President of Economic Development to delay the IDP pending resolution of these matters.

Background

As Deputies you will be very familiar with the policy resolutions of the States of Deliberation on 29 September 2015, following their consideration of the Policy Letter dated 13 July 2015 of the Housing Department. The proposition that the strategic housing target remains 300 new dwellings per year was rejected by a large majority vote. The Housing Board were directed to undertake a far reaching and objective review of the housing target needs of the Island and the requirement for affordable housing. The discredited target was variously branded by the States in their debate on the 29th September as "pointless", "dangerously unworkable" and "monstrously big".

The effect of the States' resolutions is to render the previously set targets for affordable and private housing, irrelevant. Not only is there no robust or credible evidence for the housing targets that should be used as the basis for the IDP (as such evidence is required generally by the Land Planning and Development (Plans) Ordinance, 2007), but there is no evidence of such targets at all, since the States have abandoned them.

Nevertheless, in October 2015 the Island Development Plan Inquiry Hearing proceeded on the basis of the discredited target of 300 new dwellings per year ignoring the very clear resolutions of the States. Furthermore the Housing Target of 300 new dwellings per year had been a key driver for many of the new land zonings and policy initiatives in the IDP Environment Department's proposals. Many of the most controversial proposals in the IDP Inspectors report are Housing zoning areas and the need to designate swathes of land to accommodate the Housing target of 300 dwellings per year.

In May 2016, some eight months after the States voted for a far reaching review of housing target needs of the Island and the requirement for affordable housing, a Tender invitation was published by the States' Housing Department, with a return date of 1st August 2016. That Housing Review appointee has apparently now been decided upon as KPMG and they are in the process of being appointed and are expected to report in 2017 with a wide remit including defining need and affordability and how these homes might best be funded.

Until the results of the far reaching review are known it is premature to introduce policies to deliver affordable housing via planning covenants. Planning applications for housing with demands for affordable housing delivery via planning covenants are at risk of challenge via planning appeal or judicial review on the basis that the underlying housing needs data is neither correct nor up to date. There is a long line of recent English planning cases on five year housing supply deficiencies and out of date housing data in development frameworks which would have persuasive value in the Guernsey Royal Courts and on planning appeal. The States should wait to get the data from their external consultancy and take time to consider it as part of the review before setting appropriate new housing delivery targets on the basis of the accurate and up to date data.

Development and Construction Industry concerns with proposed IDP Housing policy

Summarised below are further development and construction industry concerns as to why the proposed IDP Housing policy proposals will not work include:

1. A number of the IDP Environment Department proposals have overlooked significant and far reaching implications for the economic outlook of Guernsey for a period of ten years or more. The economic impact of the IDP report is an area of concern, nowhere in the recommendations does it provide economic analysis or data. What may work in a Metropolitan borough or UK city with a large economy driving policy initiatives will not necessarily work well in Guernsey. In many instances the proposals put forward by the IDP will be significant obstacles to growth and may well stall commercial activity in the Island. The IDP is being brought forward at a time where housing sales have slumped to the lowest level since records began and the States exchequer has lost £12m in document duty.

2. There is a lack of understanding of private investor behaviour. The introduction of the requirement for 5 unit housing developments to be bound by affordable housing planning covenants and a sliding threshold of 30% land contributions towards social housing provision will result in investors simply chose to invest elsewhere or in some other product. There is already evidence of investor flight in that projects have been mothballed or completely abandoned.

3. It is acknowledged that there is an housing need in Guernsey but there is a lack of clarity between the definitions of "need" and "affordability" and the two are completely different in terms of policy and the way in which resources should be applied to each. The IDP has not dealt with this issue adequately it conflates the two and says there is a clear need, without stating for what and without referring to a strategic target driver. Furthermore as already stated, the assessment of need is based on historic data and lacks legitimacy or credibility.

4. Whilst acknowledging Guernsey's housing "need" for "affordable housing" it is worth bearing in mind that Guernsey's social housing waiting list is lower than any Local Authority in Britain. In terms of affordability Guernsey has an average dwelling price 14 or 15 times average earnings (as against around 10 times in the rest of the UK and 30 times in London) and that is a serious social problem where 85% of the population aspire to be owner occupiers. There are a host of new forms of intermediate housing products that can help address "affordability" and these involve credit availability, building costs and new ways of working. The impending Housing review needs to explore and recommend that a range of these are introduced to assist with affordability issues.

5. The discredited information from which the strategic housing target of 300 new units per year was derived has caused the allocation of great swathes of the main centres and north of the Island to be designated in the IDP as Housing zoned land with high density developments being considered. The strategic target was derived from a discredited process of "Needs Opinion Surveys" carried out historically. It is well established by professionals working in the field that such "wishes" surveys have with the benefit of hindsight consistently produce an over estimate of needs. The imminent Housing review must investigate the correct level of Housing targets and differentiate between "need" and "affordable" types of housing. This important work is not contained within the IDP inspectors' report which relies upon the discredited target of 300 new homes a year that does not define how many should be "affordable".

6. The overall affordable housing policy thrust in the IDP is for the creation of additional affordable homes via the mechanism of developer contributions via Planning Covenants. This form of contribution has been around in the UK for over 20 years but in recent economic times the UK government had to relax the application of the rules, to allow extant unimplemented planning permissions subject to section 106 agreements with high levels of affordable housing requirement, to be renegotiated on the basis of viability often resulting in zero level affordable housing contribution. In the UK Section 106 of the Town and Country Planning Act 1990 planning obligation contributions (Planning Covenants) have worked best in Cities and Metropolitan Boroughs where thousands of houses are being built each year generally in large phased developments where the cash flow from sales funds the affordable housing provision in the following phase. The proposals being put forward in Guernsey are on a micro scale starting with 5 dwellings where profit levels are at best marginal. The policy is intended to have inbuilt flexibility to allow lower levels of affordable provision where clear viability evidence is provided to justify a departure from the stated policy provision levels. The Department believe that viability assessment is entirely black and white with no room for disagreement between the developer and the Department. This is certainly not the experience of Local Authorities in the UK where issues of viability are so complex that section 106 agreements can be held up for months whilst specialist viability consultants and planning lawyers argue with planning officers as to what abnormals should be discounted from land value uplift including matters such as contaminated land clean up; historic water pollution remediation beneath the site; infrastructure repair such as drains.

7. The public resources needed to police such Planning Covenants will put a great burden on the States and the inherent delay will result in less not more housing actually being built and at great cost to both the private and public sectors as more housing applications end up at planning appeal for non-determination relating to inability to agree viability and planning covenant provisions. The Environment Department and the Inspectors acknowledge these extra costs and delays will result and have amended the proposals to allow for a 3 - 5 year transition period but claim things will settle down. It is more likely that the whole Planning process will become even more cumbersome, bureaucratic, costly and even slower than it currently is and further that the Guernsey Courts will be clogged for years with multiple viability appeals. Ultimately it is home owners or tax payers who will bear the cost of these viability appeals and building starts will be delayed or abandoned and land banking of planning permissions is likely to increase.

8. The scale of the Guernsey housing need is disproportionate to the problem seeking to be solved. The combined States Housing and GHA "need" and "affordable" waiting lists are a total of 250 households on the two waiting lists, without duplication. There are some 26,000 households in Guernsey so the combined "need" and "affordable" household waiting lists are less than 1% of the Islands households.

9. In the UK Section 106 of the Town and Country Planning Act 1990 obligation contributions, (which the Guernsey Planning Covenant proposals are largely based on) are part of a much bigger picture where the Homes and Communities Agency, (the HCA) in the UK has a budget of £5 billion in grants available to developers and Registered Social Landlands/Housing Associations. The Local Authorities requiring developer contributions are part of a system that simultaneously allows developers to apply for HCA grants. The UK 'carrot and stick' approach is completely different to what is being proposed here where the carrots have been taken off the menu and bigger sticks issued to the Planning Department. The Planning Inspectors have failed to deal with this issue in their report. In the UK, with the essential help of the HCA, Section 106 agreements have helped to produce up to 60% of social housing in England.

10. It is central to the proposal to introduce Planning Covenants that the development of private market housing remains viable and continues to be delivered. The IDP contains a review monitoring plan to enable the Environment Department to monitor quarterly and annual delivery of housing. During the IDP Hearings it was amply demonstrated that the Department's figures were inconsistent with the quarterly Housing Bulletin's figures and that there was a serious disconnect between the actual dynamic and commercial market figures brought before the Inspectors. The Inspectors report brushes over this as being something that will eventually be sorted out. The development and construction industry in the Island has no confidence in the Environment Departments ability to monitor dynamic market conditions nor to make appropriate policy adjustments to ensure viability of projects in real time.

11. Affordability policy should prioritise a whole range of intermediate housing products not just one organisation, i.e. the Guernsey Housing Association (the GHA) and one product 80% maximum Partial Ownership. Whilst the GHA has had some success with the assistance of £80m of States guarantees in building a lot of replacement social housing in the last decade in Guernsey there are more and better ways to help the "affordable" sector. An 80% product that is not fully stair cased presents problems for households wishing to move on to 100% ownership. The Guernsey Housing Association approach of 80% maximum makes it less attractive for everyone.

13. At a Seminar sponsored by Guernsey developers and builders in June 2016 Professor Christine Whitehead from the London School of Economics issued warnings about the problems of trying to introduce Planning Covenants in a financial crisis and the lack of adequate information on "Planning Gain" and the risks of making permissions unviable in Guernsey. Professor Whitehead concluded that the States is quite restricted in the range of housing policies it is implementing and many more initiatives are needed. She stated that there was a need to expand the range of policies to assist owner occupation and not just one policy that seeks to make landowners, developers, owner occupiers and housebuilders responsible for funding social housing. Professor Whitehead called for more clarity about the role social housing should play in Guernsey. She cautioned implementing a policy based on out dated data and identified the need for more information and analysis, stating we had good data on population but not so good on households and this could be improved through utilising the e-census. In the past projections have been too high based upon an expanding economy, and she highlighted that this no longer pertains.

16. Planning Section 106 agreements in the UK or Planning Covenants are only one element in a whole menu of government initiatives that should support home ownership. Examples that would be supported by the Development and Construction industry include:

• Right to Buy - enables tenants to benefit from home ownership; results in community integration of social housing; cost of social units can be offset if funding recycled; potentially results in savings on welfare benefits in the longer run;

• Help to Buy - partial ownership through equity mortgage at 0% for first five years;

• Starter Homes initiative - a new build affordable homeownership product sold at 80% of market value;

• Mortgage guarantees - a 'cheap' approach to enabling those who can afford owner-occupation but are constrained by mortgage availability;

• Rent to Buy — a progressive means of acquiring 100% ownership.

19. The IDP inspectors have not given sufficient weight to the longer term economic pressures and the Guernsey economy.

• Population has not grown as projected and is getting older;

• Average earnings have not increased in real terms since 2008;

Average house prices also similar in real terms to 2008, but we must also considerable volatility and bear in mind that 2014 quarter 4 12% higher than 2016 quarter 1;

20. The funding responsibility for all social housing is unsustainable if transferred wholly to the Islands private residential developers. This will not work as has already been set out above and will actually exacerbate the situation by stalling private developments and causing financial collapse across the sector. Economic activity will reduce and unemployment will increase in the construction sector as a consequence.

21. It is unworkable to have mixed social housing and private owner occupiers 'pepper potted' adjacent to each other on the same sites. The difficulties with separate accesses and divisions expressed in the UK have led to many problems on larger developments. This problems are even more difficult on small sites of five to ten dwellings and will add disproportionately to developer's costs and then knock on into house sale prices. Evidence from the UK also suggests that it greatly increases the public sector cost to service and maintain 'pepper potted' social housing.

22. The Inspectors' GP 11 proposed Transition Amendment to Planning Covenants and GP 11 is unworkable because in the transition period it will result in small fractions of sites being orphaned and unused.

23. The last meeting of the previous Housing Board in May 2016 decided to widen the definition of those people who qualify for social housing; this decision was taken in an attempt to expand the housing waiting lists to encompass all persons in need but without understanding the full economic and social impacts that these changes might have. This matter will further impact upon the draft IDP, if as anticipated the new definitions significantly expands the combined Housing waiting lists. This decision and the correct definitions of "need" and "affordable" social housing ought to be fully reviewed by the far reaching Housing Review prior to the IDP's recommendations on Housing Policy being considered by the States.

24. The President of Environment and Infrastructure, Deputy Barry Brehaut, has indicated that the proposals for the First Time Buyers Loan Scheme should not be considered before the far reaching Housing Review has considered the proposals first, this would appear to set a precedent for all pending housing matters to follow.

Summary

Housing touches every aspect of Islanders' lives and this IDP will be in place for more than ten years and it must be right first time. The far reaching proposals currently being considered under the review of all Housing matters commissioned by the States of Deliberation on 29 September 2015 are awaited within the next six to twelve months.

This is a once in twenty year review and it will clarify the strategic Housing target for new dwellings and all matters Housing. Since many of the ideas that have been included in the draft IDP are founded in Policies and the SLUP that were developed over the last ten years in a buoyant economy and the Island is now facing a shrinking economy there are many anomalies that should be considered carefully in the light of the current economic circumstances.

In this regard the imminent far reaching Housing Review needs to be completed taking into account the changed economic circumstances of a falling population, no wage growth since 2008, falling house prices and an overhang of unsold housing. To not await the conclusions of the far reaching Housing review would be irresponsible and it could be reckless to proceed with Policies developed for a growing economy when the economy is declining.

It is proposed that until such time as the far reaching housing review is completed that the draft Island Development Plan is reserved pending the outcome of the Housing review and a new strategic housing target being set and until such time none of these are enacted by the States.

The current Island Rural and Urban area plans would continue to operate under the current planning Laws until such time as the impact of the Housing Review was known and any further necessary amendments and consultations had taken place.

Thank you for taking the time to consider my views on the proposed IDP housing policy and I sincerely hope you will feel able to take my suggested amendment forward to the States.

Yours faithfully

C McHugh

Chairman

Strategic Development Partnership