Community Infrastructure Levy - Preliminary Draft Charging Schedule

Clare Eggington (Planning Policy Manager)
Development Plans,
Lichfield District Council,
Frog Lane,
Lichfield.
WS13 6YY

Dear Clare,

I am writing on behalf of the Lichfield Civic Society to comment on the Preliminary Draft Charging Schedule, dated March/2014, which sets out the proposed rates for the Community Infrastructure Levy (CIL). We note that this is the first stage of consultation and that there will be further opportunities for comment, notably when the draft CIL charging schedule is published and during the public examination process. Please accept that this letter as the Society's provisional comments.

Balancing infrastructure funding vs. the economic viability of developments

1. The Council should set a CIL rate which does not threaten the viability of sites it identified for development in the Local Plan.

2. In setting CIL rates the Council must use available evidence to strike an "appropriate balance" between the desirability of funding infrastructure from CIL and the potential to have a negative impact upon the economic viability of sites in the Local Plan.

3. CIL is expected to have a positive economic effect on development across a local plan area. When deciding CIL rates, an "appropriate balance" must be struck between additional investment to support development and the potential effect on the viability of developments.

4. CIL operates alongside other development obligations, e.g. affordable housing, and other mechanisms for contributing to the cost of infrastructure, e.g. Section 106 and Section 278 highway agreements. The Council should therefore clearly identify not only the infrastructure that will be delivered but also the extent to which CIL or other mechanisms will be used to address the funding gap.

CIL implications for the Local Plan

5. We expect that, at the point of adoption the Local Plan will have a 5-year housing land supply, with all sites which have outline planning permission, or better, escaping the CIL charge. We expect that this will apply to most of the Strategic Development Allocations (SDAs) in the Local Plan and all SDAs in Lichfield.

6. Consequently, we do not think that CIL will provide a significant income stream before 2020, or later. It is nevertheless important to set appropriate CIL rates as old style Section 106 pooling will come to an end in March 2015 and because CIL may be more significant to any allocation of Birmingham's overspill housing, which may flow from current housing studies by the GBSLEP.

Questions to consider through this consultation

7. Question 1: What are your views on the proposed rates and the evidence which has been used to recommend these?

a. We are disappointed that the CIL viability testing study, dated Dec 2012, undertaken by the Valuation Office Agency, has been omitted from the evidence base. In our opinion a charging schedule which proposes two charging zones (lower/higher) and CIL rates of 30 per m2 / 50 per m2 respectively, amounts to a "one size fits all" approach. This simultaneously fails to collect an adequate amount of CIL from larger properties in premium locations while undermining the viability of more modest homes likely to appeal to first time buyers or those seeking to downsize. While the internal area of homes will affect the CIL charge, we feel that additional CIL rates and CIL zones are required to achieve a more equitable CIL burden across different types of residential developments and to maximise CIL receipts.

b. For example Birmingham City Council have set CIL rates of 55 per m2 / 115 per m2 for its lower/higher rate residential development zones, with Sutton Coldfield classed as a higher rate zone. In contrast residential development across the local authority boundary in Little Aston will suffer a CIL rate of 50 per m2. As a consequence a 100 m2 / 150 m2 house in Little Aston will suffer a CIL charge which is 6,500 / 9,750 lower than a similar home in Sutton Coldfield. This clearly illustrates the pitfalls of setting CIL rates based on evidence which averages data across residential areas where developer margins are very different. We prefer the more granular approach taken by the Valuation Office Agency, both in considering margins across the economic cycle [1] and the addressing the variation in margins in different residential areas.

c. We suggest that the Council revisits the Valuation Office Agency's findings, and in particular looks at the differences in developer margins between green field and brown field sites and the developer margins in Cannock Chase and Tamworth, which in our opinion are a close proxy for the less affluent residential areas in Lichfield District.

d. We believe that Valuation Office Agency's work clearly makes the case for:

A nil rate CIL band to encourage the provision of open market homes on brownfield sites and less affluent areas. This would also apply to smaller retirement homes. A premium rate CIL of between 80 per m2 and 120 per m2 should be introduced for the most affluent areas.

e. Our proposals for a nil CIL rate band are set out in question 2 below and our analysis of the impact of the CIL charging schedule on site viability/deliverability are set out in question 3 below.

8. Question 2: What are your views on a nil charge for apartments?

a. We assume this question relates to residential (open market) housing, rather than affordable (i.e. social) housing [2]. We also note that residential annexes ("grannie flats") are CIL exempt. In principle we support a reduced CIL charge, and potentially a nil charge, for less viable (smaller) properties, which could include apartments. We are not sure whether it is permissible to apply different CIL rates dependent on the gross internal area of a dwelling. We don't consider that a nil CIL charge rate is justified for all apartments irrespective of their size. Why should a 1m six bedroom penthouse apartment attract a lower CIL levy than a bungalow with a similar gross internal area?

b. The economics of residential property construction is such that developer profit margins tend to rise as the home's size and selling price increases. This means that developers maximise their investment per hectare of land if they build a reduced number of multi bedroom/ multi garage homes. So market forces are acting in a direction contrary to the needs of the community. Over the next 15 to 20 years the community requires a significant increase in the percentage of the total dwelling stock which is made up of smaller and cheaper homes, which includes apartments. This is being driven by an ageing population and increasing life expectancy.

c. Consequently, in determining the mix of housing on a particular site, it may support the Council objectives, if a reduced level of developer contributions - via CIL or otherwise - was imposed on the least profitable categories of homes. We note that Dudley Metropolitan Borough Council have achieved this by specifying separate charging zones (geographic areas) and CIL rates for open market retirement housing vs. other open market housing. This approach could allow a lower/nil CIL rate to be applied to open market retirement housing while a higher CIL rate applied to all on other open market housing. As two CIL rates would apply to residential development in the same geographic area, the CIL charging schedule would support the provision of retirement housing in premium housing areas while applying the appropriate CIL rate on all other residential development. There seems much to recommend this approach. Also refer our response to question 5 - suggested charging zones and the associated CIL rates.

d. The Council's evidence in support of a nil CIL charge for apartments is weak [3].The report clearly states - refer paragraph 4.9.3 - that its conclusions are based on "hypothetical schemes" due to an absence of local data. It also says that the apartments that have been built recently "were in the very highest value areas". We do not believe that the final CIL viability report supports a nil CIL charge on apartments irrespective of their internal area.

9. Question 3: Do you think that the proposed charges are an appropriate balance between funding infrastructure and the potential effects (taken as a whole) of the imposition of CIL on the economic viability of development across the District?

a. The NPPF requires, inter alia, that the Council must (i) plan positively for the provision of community facilities (such as meeting places and sports venues) and other services to enhance communities and residential environments [4], and (ii) ensure that the viability and deliverability of developments is not threatened by the scale of obligations and policy burdens [5]. The charging schedule is expected to strike and appropriate balance between these conflicting objectives.

b. The table below is illustrative of the general approach to CIL charging we propose. The rates proposed by the Peter Brett Associates study are based on 20% affordable housing across all sites. The Valuation Office Agency study has shown that developer margins can be influenced by up to 50% depending on the percentage of affordable housing on a particular site. It therefore makes sense that sites with lower percentages of affordable housing should suffer higher CIL rates, and vice versa. It also seems logical that open market housing specifically aimed at retired people should suffer lower CIL rates because smaller homes are less profitable. This should allow two CIL rates to apply in the same location.

Indicative Residential CIL rates for market provision of homes
Residential CIL
rates per m2
Non-retirement housing Retirement
housing [$]
    Affordable
housing
Affordable
housing
Affordable
housing
Affordable
housing
      < 20%   => 20%   => 30%     0%
    ZONE 1 0 0 0 0
    ZONE 2 50 30 15 15
    ZONE 3 75 50 35 35
    ZONE 4 110 90 75 75
Notes: [$] - on sites of 15 dwellings or less where provision has been reduced on viability grounds alone.

10. Question 4: Do you have any comments regarding the Infrastructure Delivery Plan evidence used to support the Preliminary Draft Charging Schedule?

a. We think the evidence in the current draft of the Infrastructure Delivery Plan (IDP) is confusing. The CIL charging schedule is likely to come into force at a time when there will be a considerable pipeline residential development schemes with planning consent and where developer contributions are governed by the previous regime (S106 pooling + S278 highway agreements). This creates a number of difficulties. It is currently not possible to determine:

How much CIL/S106/S278/public sector grants will contribute to funding the IDP;

How much funding for items listed in the IDP has already been secured - either from developers or from the public sector - as a result of existing planning consents;

What the extent of the financing shortfall is and which unfunded assets are expected to be placed on the regulation 123 list, i.e. are earmarked for CIL funding;

Which items on the IDP list could potentially be delegated to Parish Councils under neighbourhood plans i.e. be part of the 15/25% of CIL receipts that will go directly to Parish Councils. This is especially relevant to Lichfield City Council.

b. We suggest that the Council ensures that the following information is available before the next CIL Draft Charging Schedule consultation takes place:

An analysis of the IDP's current funding gap - i.e. the shortfall between cost and funding which is currently available. This should be presented by major expenditure area e.g. transport, education, etc.;

An indicative regulation 123 list, showing assets to be funded via CIL and the extent to which CIL is expected to contribute to the funding GAP; For IDP items which have a funding gap, the Council should set out how it intends addressing the shortfall, whether by inclusion in the regulation 123 list or otherwise;

A list of items on the regulation 123 list, where the Council considers that it may be appropriate to task Parish Council's with infrastructure delivery using CIL receipts paid directly to these Parish Councils. This would be consistent with "Localism".

11. Question 5: Do you agree with the charging zones suggested, and the rates linked to these?

a. We assume that this question related to CIL rates for residential development, as this in the only instance where the charging schedule proposes to vary CIL rates across the District?

b. CIL charging zones are merely a mechanism for mapping CIL rates onto residential areas. We have already criticised the charging schedule's two tier approach as over simplistic. Only a 30 per m2 or a 50 per m2 CIL rate is proposed. We criticised this approach because the current charging schedule fails to take proper account of the impact of (a) the rise in developer margins when the percentage affordable housing falls and (b) the wide range of house prices and therefore developer margins within both higher and lower CIL charge zones. It follows that we also believe that CIL zones should be amended so that the appropriate CIL rate can be applied in the appropriate location.

c. Question 2 above recommended the approach taken by Dudley Metropolitan Borough Council which was to seek to apply lower CIL rates to open market retirement housing compared to other open market housing. Dudley Metropolitan Borough Council also propose applying higher CIL rates to sites with a low percentage of affordable housing. This makes sense if the aggregate burden of developer obligations is to be kept to a sensible level. It also means that smaller sites and other locations where affordable housing is impractical can make a higher CIL contribution.

d. The Local Plan says that larger population centres such as Lichfield City are the most appropriate locations for providing additional housing for the growing number of elderly residents. Unfortunately some of these locations also have expensive housing and a shortage of smaller homes. This has been made visible by changing in housing benefit a.k.a. the "spare bedroom" tax. Since developers seek to avoid building smaller homes on the basis of reduced profitability, we think there is a case for a nil CIL rate zones for open market retirement housing within major population centres. Affordable housing owned by social landlords suffers no CIL charge.

e. We suggest that once the CIL charging schedule has been revised the CIL charging zones map be updated accordingly.

12. Question 6: Do you agree with the differential rates for the different types of development?

a. Our views regarding CIL rates for residential development have been covered elsewhere in this document. Regarding employment land, the District has a poor track record in bringing employment land forward for development. The exception being distribution warehouses along the A38. This cannot be put down to the recent recession as the trend goes back to the Staffordshire and Stoke-on-Trent Structure Plan in the 1990's. This unfortunately continues to be the case. Developments like Friarsgate have struggled to get off the ground and the development pipeline for new retail, industrial and office space is negligible. We therefore have to concur with the views of the Valuation Office Agency and Peter Brett Associates, namely that the evidence supports a nil CIL rate for the majority of employment land which is earmarked for development over the Local Plan period.

b. The CIL liability falls due when development commences. In the absence of meaningful levels of development on employment sites, the associated CIL rates are mute.

c. We do think there is a case to look at retail development which is directly associated with residential development, e.g. small retail sites on new estates. We suggest that meaning of "Neighbourhood Convenience" is clarified. We expect that recent trends where multiple businesses share one retail outlet, e.g. newsagent/post office or petrol station/food retailer, will continue. We think these neighbourhood convenience shops should be encouraged and that CIL rates should be set to achieve this. We may provide additional comments during the next consultation round.

13. Question 7: Do you have any views as to whether the Council should offer discretionary relief for exceptional circumstances?

a. We assume this question relates to discretionary charitable relief available under regulations 44, 45 or both, i.e. charitable institutions which do not qualify for mandatory exemption under regulation 43.

b. We understand that organisations registered as charities by the Charity Commission automatically qualify for mandatory exemption under regulation 43. This would apply to larger organisations such as the National Trust, Staffordshire Wildlife Trust, National Memorial Arboretum, etc. We think it sensible to make provision for discretionary charitable relief for certain organisations which do not qualify under regulation 43. Given the changes that local government is undergoing it is foreseeable that community based organisations may acquire property under the Assets of Community Value / Community Right to Bid regulations. If a community based organisation wished to expand premises in order to improve services delivered to the community on a not-for profit basis, then we think the Council should be in a position to grant partial exemption from CIL.

c. The Council should clarify whether it intends giving full CIL relief via its nil CIL rate for "Public / institutional facilities i.e. education, health, community and emergency services". If this definition is broad enough there may be no need to provide partial relief via regulation 44/45. However, if the application of this nil CIL rate is to be more tightly constrained then discretionary relief may be appropriate, as set out below. We suggest the following wording:

"Subject to the requirements of the Regulations, the Council offers discretionary charitable relief:

(a) Where the proposed charitable development will be used to fund the provision of services to residents of the District; and

(b) That charitable relief shall be given at the rate of 25% of the amount of CIL due."

14. Question 8: Should the Council allow CIL payments to be made in instalments?

a. The Council consultation paperwork states that the CIL liability is due when development commences with full payment normally due within 60 days. We think this is unduly harsh, especially where the CIL liability is to be settled in cash rather than in kind. We think that CIL payments should be made in instalments, subject to a 'de minimus' level. Our reasons and suggestions are set out below.

b. In many situations, e.g. transport improvements and schools, there may be a considerable time gap between when CIL funds are received and when they are spent. It should be noted that education, transport and the strategic road network comprise over 80% of the circa 100m of expenditure listed in the Infrastructure Delivery Program. In these circumstances the Council's current proposals would require the developer to fund the CIL payment - probably via an overdraft facility - while the Council simply puts the money on deposit until local government is in a position to finance the project.

c. We think the principle should be that the timing of developer cash flows (CIL/S106/S278) should "meet and match" the cash flows required to deliver facilities and infrastructure. Our suggestions on how to achieve this are set out in the following two paragraphs.

d. Where spending on new facilities or infrastructure is imminent, the Council should allow payment by instalments with full settlement of the CIL liability occurring on the earlier date of (a) when the individual property is sold or (b) when the CIL payment is expected to be spent on facilities or infrastructure.

e. Where spending on new facilities or infrastructure is expected to be subject to a substantial delay, the Council should allow deferral of a percentage of the CIL liability to a date when the CIL payment is expected to be spent. This deferral should be available at the request of the developer and be subject to entering into a legally binding agreement and posting the appropriate collateral e.g. performance guarantee, funds in escrow, etc.

15. Question 9: Do you have any other comments?

a. We thank the District Council for the opportunity to participate in in this consultation. We accept that this is the first stage of public consultation and that the Council's proposals for CIL are still under development. We expect to provide additional comments at the next consultation stage.

b. We hope that the Council will be in a position to supply the missing information listed under question 4 above.

c. We suggest clear definitions are included in the CIL charging schedule for the various types of development that are subject to the charge. In the absence of precise definitions there could be a lack of clarity about the charge applying to particular developments. Winchester City Council's adopted charging schedule is an example of clear definitions.

Conclusion

16. In reviewing the CIL charges, the Council should take account of Local Plan evidence, namely that over the next twenty years the District's retired population is expected to increase by over 65%, while those of working age or below are expected to increase by under 10%. It is therefore critical that the CIL viability testing not only looks at the economic viability of the average family home, but specifically looks at the economic viability of smaller homes, including those with selling prices in the bottom quartile. Failure to do so may result in CIL charges which encourage developers to meet the Local Plan's housing target by including a disproportionate amount of housing targeted at workers who commute. This would be inconsistent with the principles of sustainable development.

17. It should be borne in mind that the Valuation Office Agency's work demonstrated that developer contributions - whether by way of CIL, S106 or S278 - can only support around two-thirds of the capital expenditure listed in the Infrastructure Development Plan (IDP), even if affordable housing is restricted to 20% of new homes. It is therefore imperative that the IDP is refined to identify infrastructure which is essential for development to proceed, rather than aspirational, i.e. "nice to have". We suggest that while a substantial funding gap exists, the regulation 123 list should only include essential infrastructure with a sensible balance across various infrastructure categories.

18. We note that the IDP list is dominated by expenditure of three main types (a) education, (b) transport and (c) the trunk road network. We suggest that this expenditure is more closely related to family homes, which are more likely to include occupants of school going age and those who use the road network during the rush hour. We suggest the Council should review its CIL charging basis to ensure that various types of housing bear an equitable CIL charge e.g. new retirement housing should not be expected to contribute at the same rate to new school places or rush hour road capacity, since the occupants are much less likely to require this type of infrastructure.

Yours sincerely,

John Thompson
Hon Chairman,
Lichfield Civic Society.
22nd April 2014

[1] NPPF 174 requires that cumulative developer obligations should be set at a level such that they "facilitate development throughout the economic cycle"

[2] Regulation 50: A collecting authority must give full relief from paying the levy on the portions of the chargeable development intended for social housing

[3] Section 4.9 / Table 4.5, Final CIL viability report, Peter Brett Associates, Jan/2014

[4] Refer NPPF 40

[5] Refer NPPF 173