London councils sit on millions meant for building cheaper homes

Developers increasingly offer cash to councils instead of building new affordable homes.

London councils receive cash payments worth tens of millions of pounds from developers meant specifically for the building of affordable homes. But much of this money remains unspent despite the capital’s worsening housing crisis.

Research by the Bureau of Investigative Journalism reveals that a total of £161m of so-called commuted sums has not been spent by local authorities. Of this, tens of millions has been lying in London councils’ coffers for over five years.

The £161m affordable housing council cashpile – enough to build over 1,600 affordable homes – has alarmed housing campaigners concerned that local authorities are failing to use the money quickly enough to reduce the capital’s escalating accommodation crisis.

Get the data: Commuted sums in lieu of affordable housing

It is standard practice for developers to include  affordable homes in their schemes, as it is generally a condition of a project gaining planning permission. But housebuilders, particularly in central London, can make more money selling homes to the mainstream market. So, increasingly, developers prefer to give London councils straight cash payments towards affordable housing – the commuted sums.

Many inner London local authorities argue that they can potentially create larger numbers of affordable homes if they accept these payments and find sites in cheaper locations.

Now Freedom of Information disclosures obtained by the Bureau confirm these ‘commuted sums in lieu of affordable housing’ have significantly increased in value since 2011 and that there are large sums that have not been spent  by local authorities.

In the two years to March 2013, London councils received £132m in commuted sums from developers. In the previous three years London councils had received just £75m.

In 2008/2009, only nine councils received commuted sums. By 2012/2013, as land prices in central London rose, 24 councils received money in lieu of on-site affordable homes.

And there are now strong indications councils will receive even more cash via this route. Since April just two London councils – Westminster and Southwark – reached planning agreements with developers that could see them bank £135m towards affordable housing.

‘I think this is a really worrying trend,’ says Darren Johnson, Green Party chair of the London Assembly’s Housing Committee. ‘Councils accepting commuted sums mean it is even more likely we get luxury homes in one area and social housing ghettoes in another. I think it’s much more effective if units are built in the first place rather than give money for homes that may be built at some unspecified later date.’

Westminster City Council has received £62m in five years from commuted sums – 30% of the five year overall London total and more than any other London borough.

Though it has invested £59.6m in affordable housing from commuted payments during this time, Westminster still has £58m to spend. This indicates the council has a backlog of payments dating back beyond 2008.

Westminster said it is acting quickly to invest its £58m affordable housing cashpile. It has, the council stated, earmarked £20.6m to build 350 new affordable homes by 2017 through four separate initiatives.

The remaining £30.2m, it said, has been reserved for regeneration projects at Church Street, Ebury Bridge and Westbourne Green estates. Planning applications will be submitted over the next 12 months and they are expected to deliver 800 affordable homes in ten years.

But the Bureau has established that not all these homes will be new affordable units. Westminster has admitted some of its commuted sum money will be spent on replacing existing council housing rather than the generation of new homes.

Completely unacceptable

Joanna Kennedy, Chief Executive of Z2K an anti-poverty charity working with low income households in Westminster and across London: said: ‘This is completely unacceptable. Commuted sums should be spent on providing new homes at a time of desperate housing need. Westminster must use this money for its intended purpose to reliever the chronic suffering of its residents who deserve better.’

Tony Travers, local government expert at the London School of Economics said: ‘It is possible that some councils benefiting from increased cash through commuted sums could reduce their spend on housing investment that may have previously been budget for.’

But Cllr Daniel Astaire, Westminster City Council cabinet member for housing and business, said: ”Every last pound of Westminster’s affordable housing fund is already allocated to schemes that will ease overcrowding and provide new affordable homes for the city.’

Southwark, with 14,112 households on its housing waiting list last year, has confirmed to the Bureau it has £36m in unspent commuted sums. But the borough has announced plans to build 1,000 new affordable homes by 2020. It has created an affordable housing fund to distribute investment. Southwark, according to council documents, has identified 17 sites for 318 units to begin work by July 2015. The local authority said it is on track to meet its targets.

According to the GLA’s London Plan 2011, affordable housing should ‘normally’ be built on-site. Exceptional circumstances justifying a commuted sum include where special needs exist, such as large family houses, or where the council wishes to create a ‘more balanced community’.

But Rachel Fisher, National Housing Federation’s head of policy, said: ‘Given the extent of London’s housing crisis, £161m worth of unspent commuted sums is very worrying and clearly demonstrates that a commuted sum is rarely a reasonable alternative to delivering affordable homes as part of a mixed tenure scheme…

‘On-site delivery of affordable housing is the best way of ensuring that new housing developments are mixed communities with a good balance of different tenures.

‘In such cases where commuted sums are accepted, local authorities should establish a more efficient, effective and transparent process that helps deliver balanced developments that meet a range of local housing needs.’

The Bureau’s study shows that 11 inner London boroughs and the City of London account for 87% of the £180.75m in commuted sums received in London over the past five years, reflecting high house prices and land availability pressures in the city centre.

And there are strong indications that councils will in future years receive even more cash through the commuted sum route. In October, Southwark reached an agreement with the US private equity company, Carlyle Group that could see the south London local authority collect as much as £100m in commuted sums after it gave permission to demolish two office buildings next to Blackfriars Bridge which will be replaced by nine new towers including 489 new flats. The money has not yet been received by Southwark.

In the first five months of this financial year, Westminster reached agreements on nine separate schemes that should see it collect £35.665m.

Unspent money

The City of London Corporation, the Square Mile’s local authority, has £19.6m in unspent commuted sums. But it says it has committed to spending £6m of that £19.6m on affordable housing projects. Of Camden’s £9m unspent commuted sums, £1.6m was received before March 2008. It has committed £1.07m of its unspent £9m to projects that will contribute towards the delivery of 140 homes. The council says it is exploring nine other projects with the remaining money.

The Bureau’s study highlights that sharply rising commuted payments are largely confined to London. But in the last five financial years, the UK’s 12 largest cities outside London collected £12.6m in commuted sums and currently sit on a combined cashpile of £13.2m.

A number of councils are on the verge of further commuted sum receipts. Although the Bureau’s study did not ask for the value of commuted sums which have been agreed but not yet paid into council coffers, Tower Hamlets revealed it is expecting an additional £20m, Greenwich has received only £3.3m from an expected £17m commuted sum, and Islington indicated it is expecting another £2.9m.

Kate Henderson, chief executive of the Town & Country Planning Association, said: ‘While there is bound to be a time delay between councils receiving financial contributions from developers towards affordable housing and the delivery of these homes, it is likely that in a time of local authority budget cuts and resource constraints, councils will need to be given support to ensure that affordable housing contributions can be spent in a considered and effective way to deliver much needed housing in balanced communities.’