ADD2493 Build to Rent Development Research

1.1 An increasing number of planning applications for Build to Rent (BtR) residential development are being referred to the Mayor of London which has become an important sector in the London residential market. Where a planning application does not propose the relevant ‘Threshold’ level of affordable housing as set out in the Publication London Plan, the application must follow the Viability Tested Route. This involves the submission of a Financial Viability Assessment (FVA) to justify the proposed level of affordable housing.

1.2 The GLA Viability Team reviews FVAs submitted in support of these schemes to ensure that the level of affordable housing and other planning obligations are maximised in line with the existing development plan and the Publication London Plan. The research will assist the Mayor and boroughs in maximising the level of affordable housing and other public benefits in these schemes.

1.3 The commissioning of the report is also in line with the recommendations of the Mayor’s CV-19 Housing Delivery Taskforce Report which advised that the GLA should undertake research on investment models for BtR.

1.4 While some market information for BtR transactions is publicly available, the nature of the sector in which deals are made between developers and providers/ investors without systematic recording on the Land Registry, is such that comprehensive market evidence is often not available. This has led to different and disputed valuation methodologies being adopted by viability consultants in some cases.

1.5 The advice will take the form of market research from a property consultancy that undertakes an agency role for BtR transactions and that is able to advise on transactions involving BtR development. It will focus on types of transactions that occur in the marketplace, the capital values achieved and the relationship between rental values and capital values (known as the ‘yield’), which is an important factor when valuing BtR developments.

2.1 The advice sought is likely to comprise of the following:

• information on transactions of Built to Rent development schemes, including rental values, capital values, investment yields and operating expenses;

• a market overview, relating to the status of equity investment and debt funding and current trends; and

• an overview of the financial structure of typical delivery vehicles.

2.2 The above information will help ensure that assumptions adopted in FVAs for BtR developments are reflective of the market, and to maximise affordable housing provision through the planning process, as required by the development plan and the Publication London Plan.

2.3 The research will also inform the update to the Mayor’s affordable housing viability guidance and related documents.

3.1. No adverse equality impacts are identified in relation to this procurement. The commissioning of this report will ensure that the GLA will be able to robustly assess viability assessments submitted alongside planning applications. This will help achieve the Mayor’s policies within the Publication London Plan and Affordable Housing and Viability Supplementary Planning Guidance which seek to maximise the provision of genuinely affordable homes for Londoners.

3.2. Consequently, there are no negative equality impacts in carrying out this work and there are positive impacts on groups with protected characteristics in need of affordable housing.

4.1. There are no substantial risks related to this commission.

4.2. The Mayor is committed to increasing the level of affordable housing delivered through the planning process. To achieve this, the Mayor's Publication London Plan sets out a strategic target that half of new homes should be affordable (Policy H4).

4.3. There are no conflicts of interest to note for the officers involved in the drafting or clearance of this decision form.

5.1. Approval is sought for the expenditure of up to £ 35,000 to commission a report on the market economics of Build to Rent Development in London.

5.2. The cost will be funded by the Development Management Viability budget which is supported by fee income received from applicants.

5.3. As this work relates to a consultancy contract, officers have to ensure that the requirements of the Authority’s Contracts & Funding Code are adhered to and that the requirements relating to consultancy services within the Authority’s Financial Regulations and Expenses & Benefits Framework are also adhered to.

6.1 The sections above indicate that the decision requested of the Assistant Director falls within the Mayor’s statutory powers under section 30 of the Greater London Authority 1999 (as amended) (“the Act”), acting on behalf of the Authority, to do anything he considers will promote the improvement of the environment in Greater London; and in formulating the proposals in respect of which a decision is sought officers have complied with the Authority’s related statutory duties to:

(a) pay due regard to the principle that there should be equality of opportunity for all people;

(b) consider how the proposals will affect:

i. the health of persons in Greater London,

ii. the health inequalities between persons living in Greater London;

iii. the achievement of sustainable development in the United Kingdom; and

iv. climate change, and the consequences of climate change; and

(c) consult with appropriate bodies.

6.2 The Mayor also has a subsidiary power pursuant to Section 34 of the Act to do anything which is calculated to facilitate or, is conductive or incidental to the exercise of any of the statutory functions. In this case this piece of work is incidental to the section 30 powers defined above as well as section 334 and 339 of the Act.

6.3 Section 334 of the Act requires the Mayor to prepare and publish a spatial development strategy (known as the London Plan). Section 339 of the Act requires the Mayor to keep the London Plan under review, especially matters which may be expected to affect the development of Greater London or the planning of its development. The decision in this case, may reasonably be regarded as facilitating, being conductive or incidental to, the exercise of the Mayor’s power detailed above.