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New Guidance paves the way for more Build to Rent

What’s happened?

The Government has issued new guidance to help councils grant planning permission for Build to Rent schemes. This is great news for Build to Rent developers as it should mean that permissions are granted more quickly. Councils are encouraged to plan for Build to Rent in their areas where a need is identified, which should mean that more Build to Rent permissions are granted in the future.

Why?

The Government has recognised the significant role that Build to Rent has to play in solving Britain’s housing crisis. As a relatively new type of housing, the Government is trying to provide a national framework for Build to Rent housing and to provide clarity to councils who want to plan for and grant permission for Build to Rent schemes.

What kind of affordable housing?

A discount of at least 20% off market rent should be applied to the affordable units at the point the tenancy is entered into or renewed. The affordable units should be in place for the life of the scheme. The guidance tells councils how to deal with the possibility of units being sold off as build for sale units. This may include the provision of alternative types of affordable housing or a “clawback” contribution. The guidance provides a potential formula to help councils with this.

Other types of affordable housing (including financial contributions) can be provided, but this will require specific agreement with the council. Like the market rent homes, the affordable units should be under common management, be distributed throughout the scheme and be indistinguishable from the market rent homes.

How much?

The guidance suggests that 20% of the Build to Rent units should be affordable. However, councils are free to set their own required proportion in their local plan, based on their local housing needs.

The Mayor of London has done just this in his draft London Plan. For Build to Rent schemes to follow the Fast Track Route (avoiding the need for an open-book viability assessment) they must deliver at least 35% affordable housing and at least 30% of the affordable units must be rented at or below the London Living Rent.

The guidance allows some flexibility for developers as it recognises that viability issues may mean that developers need to make a case for fewer affordable units. There is also flexibility in terms of the spread of discount across the site. This might involve a trade-off between the proportion of discounted units and the discount offered on them – another win for developers.

Management

The process for managing affordable rented units should be set out in the section 106 agreement with the affordable units under the same management as the market rent units. The agreement should specify:

  • the lettings agreement parameters;
  • rent levels;
  • spread of homes across the scheme;
  • management and service agreement; and
  • marketing arrangements.

The scheme operator may be asked to produce an annual statement to the council to show compliance with the planning agreement.

The guidance does not prescribe a covenant period during which homes must remain as rentals, but suggests that councils should consider setting one. Potential compensation mechanisms are suggested in the event that homes are sold off during the covenant period.

Giving Build to Rent a boost

All in all, this is good news for the Build to Rent sector. There continues to be clear support for Build to Rent and the guidance provides structure and detail to the planning process. This should help to demystify councils and inject confidence and trust in the sector. What is crucial, now, is that the flexibility within the guidance is respected and that communication between councils and developers is maintained to build on the steady foundations of the new planning policy and guidance.