KEY LEARNING POINTS
- It is important to build internal support for any new Exception Site policy a council may plan to introduce. In this case it took some time to get the development management and other teams in the council fully on board. Strong political support for an initiative like this is also vital
- Check that the approach and criteria applied to ensure the homes remain affordable in perpetuity are robust – council officers from different departments, local politicians and communities will want reassurances on this
- Engage with lenders to ensure that they understand the implications of Section 106 agreements that will be applied. Some lenders are not willing to lend on a home where the resale value is restricted to a percentage of the market value
- Recognise that applicants may want to ‘push’ the rules or adapt the design to get around some of the restrictions imposed by the policy. For example, permitted development rights may need to be removed. The policy also needs to be clear whether roof spaces can be adapted for habitable use and whether garages count towards any floorspace restrictions – in Shropshire a detached garage is permitted in addition to the permissible 100 sq m gross internal floor area, but is not included in the property valuation to determine the discounted market price
SHROPSHIRE’S ‘BUILD YOU OWN AFFORDABLE HOME’ INITIATIVE
Shropshire’s well-established Single Plot Exception Site policy (locally known as the ‘Build your own Affordable Home’ initiative) was introduced in 2009.
The policy forms part of the Council’s Local Development Framework Type and Affordability of Housing Supplementary Planning Document (adopted September 2012). This supports the Shropshire Core Strategy (adopted February 2011) which permits affordable housing to be built on exception sites for local needs in identified locations subject to suitable scale, design, tenure and arrangements to ensure that affordability is held in perpetuity for people with a local connection to the area.
The policy is aimed at sustaining communities by allowing local families in housing need to develop their own affordable home on plots that would not be granted planning permission for open market housing. The land has to be on the edge of existing settlements, and most plots are acquired from local farmers at values significantly below the normal price paid for open market housing sites – typically £8,000 to £12,000 per plot.
Successful applicants sign a Section 106 agreement that limits the resale value of the home to (usually) no more than 60 per cent of the market value. In some areas, where property values are traditionally lower, the limits are set a little higher – occasionally at 70 to 75 per cent. These limits ensure the home has sufficient free equity for construction costs and mortgagability purposes and remains affordable for other local people should it come up for sale at some stage in the future.
The policy is popular with local people, parish councils and politicians, as it has helped to grow the stock of rural affordable housing for the benefit of community sustainability in the long term.
The main eligibility criteria set by the policy are: -
- The site has to be in or on the edge of a recognisable settlement
- The policy usually restricts the value of the property to 60 per cent of the prevailing market value through a Section 106 agreement (though in some low value property areas this can be increased to 75 per cent)
- The size of the house is limited to a maximum of 100 sq m gross internal floor area, and the plot can be no more than 0.1 hectares
- Permitted Development Rights are withdrawn
- The home must be well designed and energy and water efficiency must be equivalent to Code Level 3 standards
- A garage does not count towards the 100 sq m floorspace limit unless it is attached to the house and is not taken into account in the valuation of the property
- Each home has to be buildable (including the cost of the land) for around £140,000. With local houses prices for homes of this size being roughly £220,000 this means that, even after a 40 per cent affordable discount, the property is still in positive equity
In addition, applicants have to meet certain requirements to be able to build a home under the policy. These include: -
- They have to be in some form of housing need
- They have to have a strong local connection to the parish where they want to build. Applicants have to meet at least two of nine set criteria – see below
- They have to have a need to live there, which contributes in some way towards community sustainability
- They are unable to purchase a suitable home that is currently available on the open market, either within the parish or 5 km from the proposed plot
WHAT ARE THE LOCAL CONNECTION CRITERIA USED IN SHROPSHIRE?
To be eligible under the policy applicants have to meet at least two of these criteria: -
- Parents were permanently resident in the area at the time of the applicant’s birth, or
- Applicant was a permanent resident in the area for five years as a child attending a local school, or
- Currently living in the area, or
- Lived in the area for 15 continuous years as an adult, or
- Currently employed in the area, or
- Has an offer of work in the area, or
- A parent is a permanent resident in the area, or
- If applicant is over 55, has a son/daughter living in the area, or
- Other strong local connection (evidence required)
Since 2009 the council has enabled 256 affordable homes to be built this way for local people in housing need, and around 25 to 30 additional opportunities are coming forward annually.
All the homes are owner-occupied on a 100 per cent freehold basis.
Ensuring affordability in perpetuity
The affordable value is translated into an assumed percentage of open market value – normally 60 per cent. This percentage is written into the Section 106 agreement and is used to determine the valuation if there is a future sale.
‘Affordability’ and ‘local connection’ are enforced through restrictive covenants within the Section 106 agreement, and these are registered against the title of the land/property. The Section 106 is also registered as a Local Land Charge by the council. This means that anyone that builds a home this way cannot dispose of his or her property without the council’s formal written consent.
To help applicants and provide transparency for lenders the council has also published a draft Rural Exceptions Model Section 106 agreement for single plots on its website.
How does the process work for applicants?
If someone wants to build a home for themselves and has identified a potential plot they initially meet with the council’s development management team who undertake a free initial assessment of the plot’s suitability. The local councillor is also canvassed for their views at this pre-application stage.
If the development management team ‘approves’ the plot in principle the applicant is then referred to the Housing Enabling & Development Officer to assess the housing need, local connection and need to live locally criteria.
When both these hurdles have been cleared the applicant then prepares formal plans and makes a planning application in the usual way.
The Housing Enabling & Development Officer provides internal written advice to planning officers to confirm eligibility under the policy, which is publicly available on the planning file.
Applicants must also obtain written confirmation from the Town/Parish Council as to the validity of their ‘local connections’. The applicant is responsible for engaging with the council and demonstrating, to their reasonable satisfaction, that they meet the criteria (for example proof of address history, schooling, family connections, employment, other community connections etc). If the Town/Parish Council is satisfied with the local connection it confirms this to Shropshire Council.
Many banks and building societies will not lend money for the development of privately-owned homes, if their resale value is restricted in some way or they deem the local connection criteria too restrictive because it does not cascade out quickly enough.
In the early days of the initiative applicants encountered difficulties with the policy because they could not find lenders willing to provide mortgages. Shropshire Council therefore had to spend time with a number of lenders to explain the policy and to encourage them to still support the projects. This included the council holding workshops and providing draft Section 106 agreements for lender scrutiny and audit.
This resulted in three mortgage lenders being willing to offer at least one type of mortgage product. Each of the lenders use different criteria to decide who they will (and will not) give mortgages to and their legal departments will require a signed and executed copy of the Section 106 agreement and the full planning permission notice before they will deal with a mortgage application.
The lenders require applicants to provide a full set of plans and specifications, and detailed quotations for builders’ costs and professional fees. The lenders also need to know if the builder is NHBC registered. Additionally an architect must be instructed to monitor the build to ensure saleability if the property is subsequently repossessed and sold.
A projected cash flow is also required for each stage of the work.
Should someone need to sell their home there is a prescribed process they have to follow that seeks to find a local family with similar housing needs and affordability issues: -
- For an initial period of 12 weeks a local estate agent can only offer the home to potential qualifying people with a need for affordable housing who also have a strong local connection with either the parish, or live within a 10 km radius of the plot (settlements that have populations of more than 3,000 people are excluded from this radius)
- After 12 weeks, agents can then offer the home to those needing affordable housing who live anywhere within the Shropshire Council area (including settlements exceeding 3,000 persons); the home can also be offered for sale to the council or a body nominated by the council
- After a cumulative period of 16 weeks, the home may be sold without restriction. However, it must still be sold at the affordable discount price
In the unlikely event of the property failing to sell after a cumulative period of 24 weeks, the owner can apply to the council for all of the affordable housing restrictions to be removed from the Land Registry title. The dwelling may then be sold at full value on the open market with 50 per cent of the value of the difference between the affordable and market prices being paid to the council and recycled into the provision of affordable dwellings elsewhere in Shropshire.
This arrangement is to balance trying to ensure that these properties remain affordable in perpetuity with minimising the financial risks for lenders to ensure that such properties are ‘mortgageable’.
Since 2009 only two of the homes have been sold – one a completed property; the other a partially constructed home. The council says that most people who take part don't stress over the restrictive covenant on their homes; they are just relieved to have a property that they can afford where they need to live. Consequently very few people have decided to sell or move on.
About a fifth of the homes that have been built are for households who are down-sizing. Many of these are elderly people seeking smaller homes to meet their changing housing need - typically single level bungalows. Though affordability may not be an issue, due to accumulated equity, if there are no suitable homes available locally to meet their verified medical condition, they too can qualify for the policy and build a home to meet their housing need.
Shropshire Council introduced its Single Plot Exception Sites policy in 2009, to help facilitate the delivery of affordable self built homes in rural areas across the county. The policy permits individual modestly-sized new privately built homes on sites that would not secure planning permission for open market housing, provided the household building the home is in housing need, has a strong local connection and a need to live locally.
A Section 106 agreement restricts the value of the property to 60 per cent of the prevailing market value, and the home is limited to 100 sq m gross internal floor area. The policy is currently delivering 25 to 30 properties a year – roughly 15 per cent of the county’s current average affordable housing provision.
Initiator: Public Sector
Affordability: Low Cost
Built Form: Detached
No. Units 256
For the purposes of this Toolkit we have made the following definitions:
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RESULTS TO DATE
In October 2015, when this case study was drafted 256 self build affordable homes had received planning permission with signed and registered Section 106 agreements.
On average, since 2009, when the policy was introduced around 25 to 30 homes completed each year.
A further 88 are currently under construction and 20 are seeking approval.
CASE STUDY – TYPICAL HOUSEHOLD THAT HAS PARTICIPATED
Hannah Jones, 25, and her fiancé, Theo Hodnett, 27, spent months looking for a home around Ludlow, but couldn’t find anything in their price range. “We were facing the prospect of renting indefinitely because we couldn’t afford to buy a house of our own and prices were only going up,” she says. After an increasingly desperately search Theo, a carpenter, suggested they build their own home via the Shropshire Single Plot Exception Site policy. Having passed the local connection test and the other criteria the couple put in a planning application to build a house on land given to them by Hodnett’s parents near Richards Castle, a village just down the road from Ludlow. Two years later work began on their three-bedroom house and the building was completed in 2014.
In all, they spent around £125,000. They took out a £120,000 self-build mortgage with the Halifax on a two-year fixed rate of 3.9 per cent. The finished house is now worth between £280,000 and £300,000. However, if sold, it would only be available to suitable local people and the price would be limited to 60 per cent of the market value.
Shropshire Council says it was not difficult to set up the initiative, and it attracted wide cross-party support from local politicians. Councils that are very rural in nature generally recognise the acute demand there is for new affordable housing for local people. It also helps if the local development plan already has some policies that support new affordable private homebuilding. In Shropshire’s case the initiative was drafted, consulted on and approved in a matter of months.
Once established the policy does create some resource implications, as each plot has to be assessed to check it is appropriate, and each applicant has to provide supporting evidence that they qualify for housing support. This involves proof of incomes, accounts, shares, policies, investments or bonds (if someone is self employed).
PROPOSED REFINEMENTS TO THE INITIATIVE
Now that the initiative has been operating for six years the team at Shropshire has spotted a trend for some people to design ‘single’ level homes with a large footprint (and a similar sized ‘roof space’ above). Although Permitted Development rights are removed, there is sometimes the suspicion locally that there is the potential for unregulated conversion of the roof space to create extra rooms - so the council plan to tighten up on this by preparing some amendments to the policy.
EXCEPTION SITES – THE POLICY BACKGROUND
Exception Site policies such as that which is applied by Shropshire Council can play an important role in delivering affordable private homebuilding opportunities.
Many rural areas face significant housing challenges with house prices, on average, almost seven per cent higher in rural areas than they are in urban areas. These constraints impact on labour and entrepreneurial mobility and undermine local and national economic growth.
The Briefing Notes on Affordable housing and exception sites and Examples of how councils use the planning system to encourage opportunities set out the policy context and different ways in which some councils are enabling affordable privately built housing through their policies and local initiatives.
LONDON ROAD SERVICED PLOTS SITE
In addition to its Single Plot Exception Sites policy Shropshire Council is also progressing a large serviced plots initiative off London Road, on the edge of Shrewsbury.
The site is mainly improved grassland and grade 2/3 agricultural land bounded by the river Severn on the East, where the site slopes down relatively steeply.
Approximately 5.17 hectares is available and this will accommodate approximately 48 homes. The site has been assessed as being suitable for limited low density, sensitively designed housing.
The main aim of releasing the land for sale is to provide serviced plots. The policy will bring forward a sustainable site for development in an area that has access to the historic town centre and local amenities, events, schools and key employment sites. The land accesses a main transport corridor from the A5 into the centre of the town and is adjacent to an employment site.
According to the council there has been considerable interest in the plots so far, with more than 100 people registering an interest in the wide range of plots that will be available. Those on the register include people who cannot afford to buy and are looking for a modest, functional, home; there will also be plots for those who are more aspirational and want a more distinctive looking home. All plots include utilities connections and they are expected to be marketed later this year.
256 affordable privately built homes have been granted permission
This case study was compiled with reference to the following sources:
Shropshire Council Communities and Housing team
The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.
For further information, please visit:
www.nacsba.org.uk or www.selfbuildportal.org.uk