Vacant Building Credit: Developers positioned to reap windfall profits

Rodic Davidson Architects are currently involved in a number of new-build apartment schemes where our clients look set to benefit from a recent, and very significant, change in planning policy. The new policy, quietly introduced by the government on 1st December 2014, is likely to provide windfall profits to those who are holding or acquiring vacant properties for redevelopment. ‘Vacant Building Credit’ applies where a building is brought back into any lawful use including where it will be demolished and replaced by a new building. The ‘credit’ effectively removes the floorspace of a vacant existing building from affordable housing calculations. This is a very significant change with immediate benefit to developers currently holding development premises to which affordable provision previously applied and also, we suspect, providing short term opportunities for acquisition before the policy becomes fully understood and factored into sale prices.

The key change is that affordable housing contributions will now only apply to the increase in floor space. The government has not yet provided detailed guidance – including, critically, the definition of ‘vacancy’. The statement by the Minister of State, Brandon Lewis, specifically required that Vacant Building Credit shall only apply to vacant buildings and not to those that are either occupied or abandoned. Given the amounts of money involved and the present lack of precise definition, we suspect that specific cases are very likely to be challenged by Local Authorities with terminology tested in court.

Where there is an overall increase in floorspace in the proposed development, the local Planning Authority is required to calculate the amount of affordable housing contributions in accordance with their Local Plan and the National Planning Policy Framework (NPPF). Vacant Building Credit is then applied – The ‘credit’ being the financial equivalent of the gross floorspace of any ‘relevant vacant’ buildings being brought back into use or demolished as part of the scheme and deducted from the overall affordable housing contribution.

The statement by Brandon Lewis can be read in full here

The change in policy has caused considerable press coverage, most of which appears to have been negative.  The nationwide policy – intended to encourage housing development on brownfield sites – exposes the enormous regional differences in the housing market in the UK.

Given the extreme pressure and very high land values in Central London it is perhaps not surprising that the inner city Boroughs appear to have responded with vigorous, cross-party, unanimous criticism of the new policy with the Guardian reporting, for example, John Walker, director of planning at Westminster, describing Vacant Building Credit as “a government gift [to developers]”, saying that it has, “sent shockwaves across all the boroughs”. “There will be some sites where we get absolutely nothing,” he said. “On a forthcoming scheme we agreed that £9.1m was viable and we would lose all of that as a result of the vacant building credit. On just three schemes we consented [in a planning meeting] on 13 January we lost £29m. It is insane.”. James Murray, executive member for housing at the London Borough of Islington, saying of Vacant Building Credit that, “The real impact of this is to increase landowners’ and developers’ profits at the expense of the affordable housing we desperately need.”.