One of the country’s biggest housebuilding companies has been avoiding affordable housing obligations in London simply by arguing that to include more affordable homes within developments would not be viable.
Berkeley Group has successfully persuaded planning authorities that it could not make a profit from its developments if it met affordable housing targets.
Yet Berkeley has reported profits of £2.9billion over the past seven years. The company’s founder and chairman is set to be paid nearly £10million per year over the next five years.
Affordable housing targets set by councils, including Croydon, are based on local demand and supply, the costs of housing locally and local wages. The targets are usually expressed as a percentage of new housing supply.
The targets are not legally binding, and if a developer can demonstrate through a site-specific financial viability test that the target makes a development uneconomic, then the requirement can be reduced or waived.
In Croydon, the £1.4billion town centre redevelopment of the Whitgift Centre is promising to build 967 homes. The Mayor of London granted approval in January for the scheme with just 20 per cent of the new homes to be affordable. This despite Mayor Khan having a policy which is supposed to insist that at least 35 per cent of all new housing developments should be “affordable”.
The Mayor accepted the case made by the multi-billion-dollar international developers that their Croydon scheme would not make them big enough profits if they were forced to provide an additional 140 flats at rents below the market rate. It is understood that City Hall assessed the Croydon case based on the risk – or threat – that the developers, Westfield and Hammerson, might pull the plug on the scheme if forced to deliver more affordable housing.
Now it is not being suggested that the Croydon developers are necessarily pulling a fast one over the viability of their scheme, but research by The Guardian newspaper into other developers shows that when it comes to affordable quotas from local authorities, it is the megabucks developers who really call the shots.
The Guardian reports that, apart from a few exceptions (such as developments where planning consents were gained by a previous owner), in a staggering 93 per cent of Berkeley’s London developments, the company told local authorities that their affordable housing targets were unviable.
Using Land Registry data, the Grauniad looked at 57 recent developments by Berkeley in the capital.
In one example, Berkeley sold 71 homes in Ebury Square, near Victoria, for a total of £358million. The company told Westminster council that as the development was refurbishing an existing building that contained 60 units, only 11 additional homes would be generated. This meant, under Westminster planning rules, that Berkeley was obliged to build only one affordable home.
Instead of building it on site, Berkeley made a payment to the council of £1.6million towards low-cost housing elsewhere in the borough.
To add insult to the injury, the site which generated this massive pay-out for Berkeley had previously been publicly owned. It was a police section house, owned by the Metropolitan Police. It was sold off by the Met as part of its efforts to make ends meet. It was sold for £23.6million.
As The Guardian puts it, “The profit on this single development is thought to be in excess of £200million.”
A company statement provided to the newspaper claimed: “Berkeley has a sustainable, successful business model that enables it to perform well throughout the economic cycle, as demonstrated by its results of recent years and creation of fantastic new communities and long term value. We are justly proud of our track record in building 10 per cent of London’s much-needed private and affordable homes.”
So that’s alright then.
The newspaper adds: “Berkeley’s profits mark it out as the most successful builder in a sector that has reaped huge rewards in recent years. The Guardian’s research shows the top nine quoted builders collectively have amassed £16.9billion in pre-tax profits since 2010. Just last year, nine of Britain’s biggest builders’ profits topped £4.56billion.”
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