North Devon Council and Torridge District Council Affordable Housing Research November 2019 Property People Strategy & Governance Finance North Devon Council & Torridge District Council Affordable Housing Research Contents Chapter 1: Background to the Report 3 About the Report 4 About Altair 6 Chapter 2: Intermediate Affordable Housing Research 7 Example Affordability Methodologies 8 Chapter 3: Income Datasets and Household Composition 13 Income Datasets 14 Household Composition 21 Chapter 4: Establishing Average Property Prices 27 Establishing Whether High and Low Values Exist 28 Average Property Prices 34 Chapter 5: Discounted Market Sale Housing Affordability 38 Lenders’ Views on Intermediate Housing 39 Income Multiples Approach 40 Affordability Assessment Approach 42 Recommended Affordability Approach 45 Setting Market Sale Discounts 46 Chapter 6: Shared Ownership Affordability 48 Shared Ownership Affordability Scenarios 49 Chapter 7: Commuted Sums 53 Background 54 Commuted Sum Methodologies 58 Recommended Approach 63 Appendix 1: SW Local Authorities Researched 66 Appendix 2: Living Rents Framework for Affordable Housing 68 Appendix 3: North Devon and Torridge Postcodes 70 Appendix 4: Property Price Detailed Analysis 71 Page | 2 North Devon Council & Torridge District Council Affordable Housing Research Chapter 1: Background to the Report This chapter summarises the purpose of the report and why the research has been commissioned by North Devon District Council and Torridge District Council. Page | 3 North Devon Council & Torridge District Council Affordable Housing Research About the Report Introduction 1.1.1. North Devon District Council (NDC) and Torridge District Council (TDC) (‘the Councils’) are preparing an updated Joint Local Plan that will contain several policies to directly manage the delivery of affordable housing through their planning processes. The Councils recognise it will be necessary to provide additional guidance on affordable housing to support the practical implementation of these policies, and they intend to deliver this through an Affordable Housing Supplementary Planning Document (AH SPD). 1.1.2. Altair Consultancy and Advisory Services Ltd (Altair) was commissioned to undertake research on the following areas, which will inform the proposed AH SPD and any supporting guidance published by the Councils, as appropriate: ▪ Establish criteria on the affordability of Discounted Market Sale Housing1 for those most in need. ▪ Research approaches to calculating financial contributions (commuted sums) for the delivery of affordable housing. The Brief 1.2.1. The Councils’ brief for this research was to: ▪ Establish household income and purchasing power necessary for different sizes of dwelling (by bed spaces and persons), reflecting a deposit acceptable to mortgage lenders and taking into consideration the composition of the households forming and likely to purchase such properties. ▪ Research whether there are differentials in purchasing power across the districts, such as attributed to high and low value areas, or on any other geographical basis. If so, specifically identify such value areas across individual or combined local authority areas and set out the scope and nature of the applicable approaches and differentials. ▪ Research mortgage lender views on Discounted Open Market Housing and any issues on its practical use. Report on the acceptability of including clauses on income multipliers and/or an initial purchase prices within Section 106 agreements. Additionally, provide comparable advice for shared ownership dwellings. 1 The latest National Planning Policy Framework (NPPF) guidance defines Discounted Market Sale as housing sold at a discount of at least 20% below local market value. Eligibility is determined with regard to local incomes and local house prices and provisions should be in place to ensure housing remains at a discount for future eligible households. Page | 4 North Devon Council & Torridge District Council Affordable Housing Research ▪ Research alternatives and provide recommendations on the most appropriate method for the Councils to adopt in calculating commuted sums in lieu of on-site affordable housing. The Report 1.3.1. This report summarises the key steps we have taken to develop a model to determine what households most in need can afford to spend on intermediate housing and the setting of appropriate Market Sale Housing discounts. The report also recommends an approach for calculating commuted sums in lieu of on-site affordable housing provision. 1.3.2. To inform our conclusions on these areas, we have researched local authorities across the South West, drawn on similar research we have conducted on housing affordability and referred to local authorities we are aware of having relatively detailed intermediate housing policies, in particular Discounted Market Sale Housing, set out in their AH SPDs (or similar documents). Our findings and recommendations are therefore informed by a desktop review of local authority planning policy and associated documents that we could readily find available on local authority websites and through secondary research. 1.3.3. This report is structured into the following key chapters: ▪ Chapter 1 – Background and purpose of the report. ▪ Chapter 2 – Overview of our intermediate affordable housing research, including examples of local authority / other approaches to determining housing affordability. ▪ Chapter 3 – Overview of key datasets and assumptions used to establish household income and household composition for different sized properties. ▪ Chapter 4 – Establishing a methodology for calculating average property prices for North Devon and Torridge for different sized properties. ▪ Chapter 5 – Establishing a methodology to determine what households most in need in North Devon and Torridge – defined as those with lower quartile incomes – can afford to spend on Discounted Market Sale Housing and the setting of appropriate Market Sale Housing discounts. ▪ Chapter 6 – Analysis of Shared Ownership affordability for those most in need in North Devon and Torridge. ▪ Chapter 7 – Overview of key approaches to calculating financial contributions (commuted sums) for the delivery of affordable housing and the recommended approach for the Councils. Page | 5 North Devon Council & Torridge District Council Affordable Housing Research About Altair 1.3.4. Altair is a leading housing and property consultancy bringing together sector experts with a wealth of experience. Our clients cover a range of organisations in the housing sector, including registered providers, local authorities, Arm’s Length Management Organisations (ALMOs), private developers, contractors, Homes England and representative bodies. 1.3.5. We provide leading-edge strategic advice and support at a senior level. Our core services cover the following areas: ▪ Strategy and Governance – We provide strategic and practical advice on governance issues, growth strategies, risk management and more. ▪ Property (Development and Regeneration) – We add value by bringing together public and private sector partners to realise programmes and projects. ▪ Finance – We provide expert technical and practical advice on a wide range of financial and treasury matters. ▪ People (HR and Recruitment) – We provide interim management expertise and recruit to executive and non-executive positions, in addition to a range of HR services. 1.3.6. For more information about Altair, please visit our website: www.altairltd.co.uk Page | 6 North Devon Council & Torridge District Council Affordable Housing Research Chapter 2: Intermediate Affordable Housing Research This chapter summarises our research of approaches taken by local authorities and other organisations to establish the affordability of intermediate housing. Page | 7 North Devon Council & Torridge District Council Affordable Housing Research Example Affordability Methodologies Overview 2.1.1. Following a desktop and secondary research exercise of local authority and other organisations’ approaches to determining the affordability of intermediate housing, we concluded that there is not one standard / recognised approach taken across the sector. 2.1.2. While our research found a range of approaches taken, the key datasets and assumptions required to determine housing affordability could be categorised into the following two areas: ▪ The household composition of different sized households and their economic status (i.e. how many working adults are living in different sized properties, what are their incomes and are they full time or part time workers?); and ▪ The percentage of household income spent on housing costs (i.e. mortgage payments for Discounted Market Sale Housing) that is considered affordable. 2.1.3. The above datasets and assumptions can then be used to derive the ‘purchasing power’ of different sized households (i.e. what size mortgage can a household afford to pay for), and these can be compared to average property prices to determine appropriate discounts for Discounted Open Market Sale homes. Purpose of the Research Exercise 2.2.1. The purpose of this initial research exercise was to establish whether there was a standard approach taken to establish the affordability of intermediate housing, including recognised or standard datasets and methodologies. We therefore: ▪ Undertook desktop research of local authorities across the South West (Appendix 1); and ▪ Referred to similar research we have conducted on housing affordability. 2.2.2. We refer