High Court blocks Tory plan to slash levy for affordable housing

Developers stood to gain £1bn windfall a year from ‘vacant building credit’

An “insane” Government planning policy that could have allowed luxury landlords to escape more than £1bn a year in affordable-housing payments has been quashed by the High Court.

The housing minister Brandon Lewis unveiled the “vacant building credit” at the end of 2014, but it immediately came under fire from councils experiencing chronic housing shortages.

The credit allowed developers planning to convert vacant office buildings into flats to pay only an affordable-housing levy on new space created, rather than on the whole building. Before this, housebuilders had an obligation to include affordable homes in all new developments or pay councils a contribution for building such homes locally.

Westminster council in London claimed it could lose £1bn a year from its affordable-housing pot and a senior official branded the policy “insane”. A potential payment from the Abu Dhabi Investment Council and developer Finchatton on their redevelopment of the former US Navy HQ in Mayfair, could have shrunk from £17.6m to just £8.6m, it said.

In addition, a policy which excluded developments of 10 homes and just under 11,000 square feet or less, from the requirement to provide or contribute to affordable housing provision, was also scrapped.

But a legal challenge by West Berkshire District council and Reading borough council has resulted in a judge ruling that part of the policy was incompatible with the statutory planning framework. The two councils had warned they would have had to cut the number of affordable homes they built by 15 to 30 per cent a year.

Daniel Farrand, the head of planning at law firm Mishcon de Reya, said: “This means that councils will be able to once again levy affordable housing requirements on developments in accordance with their own Local Plan policies.”

Peter Dines, at Gerald Eve, called the decision “a clear blow for the Government”.

Mr Lewis originally introduced the plans to boost housebuilding and bring vacant properties back into use. Some planning advisers believed the credit would help encourage more housebuilding outside London where house price inflation has been lower. But there were concerns some London developers would deliberately kick tenants out of offices to convert them into flats.

Tessa Jowell, the Labour politican and London mayoral hopeful, welcomed the ruling: “The vacant building credit has done untold damage to London… It has been clear for months that the Government got this badly wrong.” And the pressure group Generation Rent said: “Developers must at the very least help build homes that are genuinely affordable.”

But Brian Berry, the chief executive of the Federation of Master Builders, warned: “This decision threatens to accentuate the housing crisis by casting a dark cloud on small local builders just when these firms are beginning to show signs of real growth.”

The Department for Communities and Local Government said it was “disappointed by the outcome” and will be seeking permission to appeal.

“We’ve got Britain building and we’re determined to maintain this momentum, including by reducing the red tape and extra costs that prevent smaller developments from getting built,” the DCLG added.