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Luxury Property Sharks Are Weaselling Out of Their Obligations to Pay for Social Housing

Despite making £17 million more than expected.

Oscar Webb

Capital Towers (Photos via Galliard)

The developers of a block of luxury flats in East London are claiming that they can't afford to pay a £7 million social housing contribution, despite having already sold every single property in the building – and for £17 million more than they'd planned to.

The 30-storey development, aptly named "Capital Towers", came to media attention in 2013 after it smugly advertised itself to overseas buyers as having "no social housing". Planning documents reveal that the developer, Galliard Homes, is now trying to weasel out of paying the £7.2 million it owes the council on the 191-apartment complex. They say that were they to pay the fee, their "level of profit [would be] clearly wholly and inarguably deficient". They go on to say that they would have to halt construction if made to pay. "Removing the [Affordable Housing Contribution] improves the scheme profitability and therefore deliverability, significantly," the document concludes.

Galliard has made £17 million more than expected selling the flats in the development, but claim that because of increased costs and market uncertainty they cannot afford to pay up. Significantly, much of their argument for not paying rests on an estimate of projected building costs, which, they predict, will be £7 million more than originally planned. They also point out that "market trends" – "global economic uncertainty", the "announcement of the EU referendum in 2016" and the "London mayoral elections in 2016" – have affected sales, which is odd given that most of the flats were sold in 2013 and 2014, before any of these "trends" took effect.

They say their profit margin has been further hampered by "marketing fees" of £2.2 million, and "professional fees" of £3 million. Hundreds of thousands were spent advertising the apartments in Hong Kong, Singapore and Kuala Lumpur, with the attractive strap-line: "Fully private development – no social housing!" That expense is now being used to ensure that this is indeed the case.

Galliard also spent £1.2 million on planning consultants, AKA the people who would advise on getting out of paying the affordable housing contribution, among other things. To put that into context, it's four times more than what they spent on architects' fees. Galliard declined to comment when approached.

"This is a fairly common response of developers that you'll see all over the country at the moment," says Peter Rees, the former City of London chief planning officer. He spent 30 years overseeing the City of London's construction boom between the 1980s and 2010s. "They put a lot of effort into trying to negotiate away affordable housing. This financial viability thing is always a black art. If someone comes to you with their books, there's no way that a local authority can know whether they're seeing the right figures or know what market conditions will be like when the development is sold on the market... and obviously the developers' consultants will exploit these flexibilities to the hilt. So, developers can use an awful lot of tricks to get the value down."

"But," says Rees, "the construction costs could be a valid argument here. There is so much construction activity in London at the moment that the cost of construction has gone up enormously because the builders can ask for more money. The developers won't be using nonsensical arguments, but the difficulty is knowing how much you can trust their figures."

In Capital Towers' planning approval document, Newham's planning officers decided that the development would not need to include affordable or social housing because of "constraints... namely the high rise design and location adjacent to busy roads". Two pages later, the same document reiterates its commitment to "maximise affordable housing provision in London". This cave-in sounds not dissimilar to when Southwark council allowed developments to have no social housing because "a second core would be required to provide separate access". In other words, the swankier residents would have wanted a "poor door", which would be expensive. "Not doing so would have significant implications on the values of the private residential properties," they said. It's good to know that councils have everyone's interests at heart.

The social housing contribution is a fee you pay to make up for not building any social housing in a development, and it's supposed to be used only in exceptional circumstances – but it's becoming increasingly common. The 52-floor development at Blackfriars Bridge, for example – where apartments range from between £1.2 million to £23 million – paid Southwark council £29 million instead of including any social or affordable housing. Over the road, a development of nine new skyscrapers on the Southbank, termed the "Bankside Quarter", will similarly include no social housing. The developer, Native Land, instead said they'll pay Southwark council £65 million in lieu. A 37-storey development at Elephant and Castle – "One The Elephant" – is being allowed to pay Southwark a £3.5 million contribution as opposed to providing social housing on-site, a fraction of the £32 million it should be paying, according to campaigners.

Now, developers are getting out of paying even this.

Although hard details of individual developers skirting the affordable housing payment are hard to come by, campaign group "35 Per Cent" estimates that in Southwark alone, £265 million owed to the council for projects such as the Heygate Estate regeneration has been avoided – the developers arguing, like Galliard are now, that such payments would make their projects "unviable".

"Local authorities are very unequally matched with the developers. While developers have access to high levels of expertise in terms of lawyers, accountants and planning consultants, most local authorities don't," says Rees. "It is the job of those consultants to do what they can to mitigate the impact on the developer and to help the developer to maximise his profit. I don't blame a developer for making more profit. The problem is that it's a very one-sided equation. Some councils are very well staffed, with expert lawyers in-house and planners. Unfortunately, though, most authorities are under-resourced at the moment and have had to cut back on such services."

The money paid by developers "in lieu" of building affordable housing themselves is supposed to be used by councils to build new homes. In Newham, however, the council plans to build only 100 new homes, or thereabouts, in the next three years; that's 100 homes after three decades of no new construction by the council and a growing social housing waiting list (17,000 people in Newham). 1,318 council houses in the borough sit empty and campaigners accuse the council of deliberately running down council estates so they can be flattened and regenerated.

"The state we're in," says Peter Rees, "is that affordable housing is disappearing, being renegotiated out of the way by existing developments, and on new commissions it's probably not appearing at all. There is no appetite at a governmental level to create affordable homes, and if we don't create them, London doesn't have a future."

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