Action on Housing – recent progress and waterfront guidance

STATES OF JERSEY

ACTION ON HOUSING – RECENT PROGRESS AND WATERFRONT GUIDANCE

Presented to the States on 30th September 2021 by the Council of Ministers

STATES GREFFE

2021  R.157

REPORT

Background and context

The proposed Government Plan 2022-25, published on 21 September, recognises and responds to the challenges in the Jersey housing market. These challenges are reflected in the House Price Index, which has increased year on year since 2017.

Housing construction has not kept pace with population increases in Jersey, particularly in recent years. Coupled with persistently low interest rates that incentivise buy-to-let investments, and the same post-covid property surge seen in other jurisdictions, this means that housing costs are a growing problem for many Jersey families, are making life harder for young islanders, and risk threatening our economic progress in future years.

These market forces are expected to continue throughout 2022, which is why it is important that government has a clear strategic plan of action but is also open to appropriate shorter-term intervention.

This plan was set out most recently in Creating Better Homes, published by the Minister for Housing and Communities1. The plan sets five strategic priorities (see diagram

below) that, taken together, represent a whole-system intervention in Jersey's housing market, supported by strong political leadership and a new partnership focus across the housing sector.

In addition, the draft bridging Island Plan sets out a range of land allocations and a housing policy framework to support an 80% increase in housing starts by 2025.

These strategic plans, both of which are informed by the work of the Housing Policy Development Board, are supported by significant programmes of government backed housing development, both in the open market and at affordable rates, with Andium Homes and SOJDC together scheduled to deliver over 900 homes between now and 2023, having already brought forward 800 in the last two years.

1 See: r.98-2021 at www.statesassembly.gov.je

Focus of the report

This report, set out in two parts, represents further progress on housing:

• PART ONE provides an update on delivering the Creating Better Homes action plan and summarises additional actions that government is currently exploring in response to the most recent reported pressures in the housing market.

• PART TWO sets out housing policy guidance for the Waterfront development, which details how government intends to secure additional delivery of affordable homes on both a shared equity and in-perpetuity basis.

Improving the quality and affordability of housing remains a strategic priority of this government[2].

Despite the progress summarised in this report, it will continue to take time to see the full impact of the Creating Better Homes plan.

But we are starting to see the impact of new neighbourhoods emerging in the north of St Helier, and advanced plans for hundreds of new homes on the Waterfront.

The draft Island Plan takes steps to support the development of affordable homes, including in Parish centres across the Island, and to ensure that the homes we build now create good places to live, using energy efficient and sustainable construction methods. Islanders should have confidence that addressing the housing challenges faced in Jersey is a central priority of Government.

PART 1 – CREATING BETTER HOMES Recent progress

The Creating Better Homes action plan sets out a roadmap to make progress across a range of housing sector challenges. The roadmap commits to clear delivery timescales over the coming months and years, as set out in the extract below.

Progress has been made across all five strategic priorities in the four months since the plan was published, as summarised in the table below.

Immediate next steps  

The Creating Better Homes plan sets a series of further deadlines by the end of 2021. These areas of priority focus include:

• Publishing a Fair Rents Plan, including new policies on social rents and the housing gateway

• Confirming an initial tranche of public estates land to be released for housing

• Policy analysis to inform the design of a new affordable purchase product in 2022, backed with £10m

• Housing Policy Input to the Island Plan examination

• Building the new Strategic Housing team to further strengthen the role of delivery partners in coordinating housing supply

• Publish interim findings from the Modern Methods of Construction political working group

Remaining open to appropriate intervention

The Creating Better Homes plan rightly recognises that making sustained changes in the Jersey  housing  market  requires  work  over  several  years  to  tackle  the  structural imbalance between supply and demand.

Since the publication of the plan in May, further evidence has come to light of even sharper increases in house prices. Notably, 1-, 2-, 3- and 4-bedroom homes were all at their highest mean price to date, in Q2 2021, with average prices shown in the chart below3.

3 See: House Price Index – second quarter 2021 (Statistics Jersey)

This is more than just a supply issue, and may require alternative, less traditional interventions to address this challenge. Ministers are considering what appropriate short-term intervention might be made in the coming months to appropriate seek to reduce  competition  in  the  Island's  housing  ownership  market,  in  addition  to  the coordinated and sustained action set out in the framework in Creating Better Homes.,

The Housing Policy Development Board considered a range of tax measures in this area, including increasing stamp duty, increasing rental income tax, and land value uplift capture.  But  the  Board  did  not  recommend  any  action  in  these  areas.  Instead, recommendations of the Board were focused on supply, planning, and rental aspects of the housing market.

The second priority of the Creating Better Homes action plan does recognise the importance of managing demand for housing. In particular, it focuses on the role that new migration controls can play in the future and takes steps to ban new share transfer sales to restrict off-island access to the Jersey property market.

At this stage, Ministers are closely considering all possible measures and potential policy intervention options. Any such policy options will be data led to ensure there is no  unintended  consequence  to  the  Jersey  Housing  Market,  and  will  include opportunities  to  strengthen  funding  options,  utilize  existing  housing  controls  and appropriate regulatory controls, where required.

Ministers recognise that there are complex relationships within the Island's housing market and will consider these options carefully, but quickly, before taking any suitable, available action.

Housing Policy Guidance: Waterfront development

BACKGROUND AND SUMMARY Background

1. The waterfront is a complex, in the region of £1bn development programme. It is intended to deliver significant public benefits, including high quality new public realm, infrastructure investments and sports and leisure provision.
2. Establishing a  guidance framework  to  maximise  affordable  homes  in  the development is challenged by a range of factors, including the operating parameters established for SOJDC in P.73/2010 and the way that market conditions will vary over the delivery period through to anticipated completion in 2033.
3. The planning objectives for the Waterfront development are established by the South West St Helier Planning Framework, which was adopted, following extensive community engagement and a formal public consultation exercise, in  December  2019.  The  development  footprint  is  formed  by  three  Key Opportunity Sites (KOS) identified in the Framework and relevant guidance is enclosed at appendix A1 for these sites, which are:

• KOS 1 – Esplanade Quarter (East)

• KOS 2 – Esplanade Quarter (West)

• KOS 3 – Aquasplash / Cineworld

4. The  Regeneration  Steering  Group  (RSG)  have  discussed  the  Waterfront development throughout its conceptual development, fulfilling their role to provide  a  guiding  framework  for  the  activities  of  the  States  of  Jersey Development Company, as established in P.73/2010.
5. In line with commitments in the Common Strategic Policy, the guiding strategy of RSG has been to maximise the opportunity presented by the development for investment in high quality public realm and infrastructure. In this way, RSG have encouraged SOJDC to create a new and desirable destination for St Helier residents and islanders alike and to respond to several long-term strategic challenges  facing  the  regeneration  of  town,  with  a  particular  focus  on sustainable transport, movement, and connectivity.
6. This guidance is therefore required to manage competing tensions within the overall  development.  In  particular,  and  as  required  by  P.165/2020  (as amended), it seeks to provide a framework that can maintain the overall viability of the development – including all public realm improvements and other community and leisure uses – while also maximising the proportion of affordable units. It also seeks to provide a mechanism to respond to the phased nature of the development and the potential for changes in the wider housing and construction markets over time.

7. The salient point in the proposition, P.165/2020 is set out in

Summary

8. Ministers have produced this additional housing policy guidance, as requested by the States Assembly in their vote of 10 February 2021 (P.165/2020), to ensure that their existing strategic plans to address housing affordability in Jersey  might  be  supplemented  by  additional  measures  in  the  Waterfront development.
9. The guidance establishes both  Strategic Principles, which frame the way decisions should be made in relation to issues addressed by the guidance, and Specific Principles that relate to the Waterfront development.
10. The  specific  principles  provide  that,  in  advancing  their  plans  for  the development Waterfront development, SoJDC will:

• Take such steps as are necessary to provide that the development and the units thereon are structured by way of Flying Freehold, thereby ensuring no foreign buy to let sales.

• Follow the prescribed approach to controlling domestic buy to let sales, which will see priority given to owner occupiers and buy to let units only made available subsequently on the decision of the Housing and Communities Minister.

• Ensure that a minimum 15% of the units eventually constructed are provided for a first-time buyer schemes where homes will be sold at a discount to market value and for which access and eligibility criteria will be established by the Minister for Housing and Communities.

11. The Minister for Treasury and Resources, as the Government's shareholder representative, will write to the Board of SoJDC to give effect to this Housing Policy Guidance, which applies only to the States of Jersey Development Company and only in respect of the Waterfront development.

HOUSING AFFORDABILITY AND PUBLIC BENEFIT The role of government backed development  

12. Affordable homes bring real public benefits to Jersey. They ensure we are an inclusive society, that all children can get a good start in life and that our family and friends can live and age well.
13. Government  recognises  that  it  is  has  a  role  in  giving  direct  backing  to development that improves housing affordability and has a range of policies that actively support the creation of more category A' affordable homes for rent and purchase. These policies include:

• Public borrowing of £250m to provide stable, low-cost financing to Andium  Homes  and  other  housing  trusts.  This  money  has  funded massive  improvement  in  the  standard  of  affordable  homes  and  is supporting the development of new affordable homes.

• Affordable homes for rent are subsidised, on average, by at around 20% of market rates; and affordable homes for purchase – such as through the Andium Home Buy scheme – must meet specific affordability criteria.

• Scarce land is made available through the planning process to ensure more affordable homes can be built – whether on rezoned sites or in developments on public land.

14. The Minister for Housing and Communities, in his Creating Better Homes plan, continues to back Andium Homes' plan to build 3000 new affordable homes by 2030 and commits to actions that will help achieve this, such as putting in place a long-term pipeline of land release by the end of 2021.
15. Given  the  significant  public  benefits  that  derive  from  the  provision  of affordable homes, it is right that significant public investment is in place to secure these benefits. It is equally right that the vast majority of islanders that are able to afford to rent or buy without public support, should do so.
16. In this context, the States of Jersey Development Company (SoJDC) have an important role to play as the government backed open market developer, to supplement private sector development, increase supply, and contribute to improving housing affordability for all Islanders.

Wider public benefits  

17. SoJDC schemes also deliver a range of wider public benefits. In line with commitments in the Common Strategic Policy, the guiding strategy of RSG for

the Waterfront development has been to maximise the opportunity presented by  the  development  for  investment  in  high  quality  public  realm  and infrastructure.

18. In this way, RSG have encouraged SOJDC to create a new and desirable destination for St Helier residents and islanders alike and to respond to several long-term  strategic  challenges  facing  the  regeneration  of  town,  with  a particular focus on sustainable transport, movement, and connectivity. The scheme responds by proposing the inclusion of:

• public realm improvements, including landscaping and new shared open space

• a new sports facility

• improvements to sea defences and access

• improvements to Route de la Liberation and the Esplanade, and

• a modern public parking facility.

19. This guidance is therefore required to manage competing tensions within the overall  development.  In  particular,  and  as  required  by P.165/2020  (as amended), it seeks to provide a framework that can maintain the overall viability of the development – including all public realm improvements and other community and leisure uses – while also maximising the proportion of affordable units. It also seeks to provide a mechanism to respond to the phased nature of the development and the potential for changes in the wider housing and construction markets over time.

WATERFRONT DEVELOPMENT GUIDANCE Strategic Principles  

20. The strategic principles are:

1. The Regeneration Steering Group (RSG) continues to provide a guiding framework for the activities of the States of Jersey Development Company (SoJDC), as established in P.73/2010.
2. This  guiding  framework  includes  advising  SoJDC  as  to  the  political priorities for the reinvestment of any profit from development.
3. In providing this advice RSG will have regard to a range of considerations, including but not limited to:

1. The priorities established in Common Strategic Policy and other strategic plans;
2. The business  plan  of  the  SoJDC  and  additional  information provided by SoJDC in respect of the relevant development; and

3. A proportionate assessment, which may be conducted by a third party, of the viability of a scheme in respect of the political priorities for reinvestment established under strategic principle B.

4. Where political  priorities  for  reinvestment  include the provision  of  a product offered on anything other than general open market terms, SOJDC will consult with the Minister for Housing and Communities, specifically on the nature of that such product.
5. Where additional financial support is required from Government to ensure the viability of a scheme, the policy justification for this will be set out as part  of  any  relevant  Ministerial  Decision,  having  regard  to  the considerations undertaken in line with strategic principle C.

Specific Principles  

21. In advancing their plans for the Waterfront development, SoJDC will:

6. Take such steps as are necessary to provide that the development and the units thereon are structured by way of Flying Freehold, thereby ensuring no foreign buy to let sales.
7. Control any necessary use of buy to let sales in the following way:

• Ensure units are brought forward for sale in tranches that are made available to different categories of buyer prioritised in discussion with the Housing and Communities Ministers

• Ensure that buy to let sales are reserved to the final tranche of sales, and only made available on decision of the Housing and Communities Minister  and  after  a  reasonable  period  has  passed  to  allow  those prioritised groups to access sales. In releasing any tranche of buy to let sales, ensure that:

the maximum number of units that can be bought by any local investor  is  capped  to  1  in  the  first  instance,  subject  to demand, which can be reviewed in line with demand data as the Developments is progressed.

those units are sold with appropriate restrictions that require they  be  let  for  stable,  medium-term  tenures  within  a framework  of  stable  rental  increases,  in  perpetuity (recognising that exception provisions will be required to accommodate certain family or other circumstances).

Rents and annual rent increases will be determined within the terms of the lease

8. Ensure  that  a  minimum  15%  of  the  units  eventually  constructed  are provided for a first-time buyer shared equity scheme where homes will be sold at a discount to market value [specifications to be added], for which access  and  eligibility  criteria  will  be  established  by  the  Minister  for Housing and Communities.
9. The requirement can be varied on a pro rata basis if, under the protocols established under principle I (below), an equivalent number of affordable homes can be developed elsewhere on the site.
10. Any development surplus, as a result of Shared Equity purchase will be re- invested  to  fund  future  provision  and  regeneration,  including  the development of affordable housing, equating to a £24m subsidy.

 Principle I: Protocols to establish the viability of affordable homes in perpetuity  

22. SOJDC  is  established  by  the  States  Assembly  a  self-financing  agency. Accordingly,  and  unlike  Andium  Homes,  there  is  no  on-going  financial relationship between the Company and public finances, and no provisions are made in any Government Plan to provide direct additional funding. SOJDC operate in the private market and, in financing the Waterfront (and other) developments, are exposed to the considerations of private sector lenders.  

23. Two forms of affordable homes are proposed in this guidance.  

24. Existing viability assessment has shown that a minimum threshold of 15% shared equity units can be delivered in the development whilst meeting the requirement of P.165/2020 to maintain the overall viability of the development

– including all public realm improvements and other community and leisure uses. Shared Equity units help islanders own a home at below market rate, with the opportunity to take full ownership over a longer period. In this regard, Shared Equity units represent a full market value asset for the purposes of development financing.  

25. Where units are sold or rented at below market value in perpetuity, they can never be sold at market value, and a reduced value must be recorded on the balance sheet. The effect of this is to challenge the overall value of the development, and hence challenge the loan to value ratio that lenders require. This makes securing financing for the development more difficult.  

26. Viability discussions with SOJDC have not, to date, shown that affordable homes in perpetuity can be accommodated with the Waterfront development within the requirements of P.165/2020 – that is, not while maintaining the overall viability of the development – including all public realm improvements and other community and leisure uses. To the extent that there is a trade-off between affordable homes and wider public benefits, P.165/2020 is clear that priority is to be given to securing those wider public benefits that have been required by RSG.  

27. In considering this challenge, ministers wish to avoid setting a hard outcome at this stage and propose instead a flexible mechanism that can seek to maximise within the development, the inclusion of affordable homes for sale or rent in perpetuity. That mechanism will operate in the following way:

• Both  ministers  and  SOJDC  commit  to  the  intention  to  develop affordable homes in perpetuity, for which access and eligibility criteria will be established by the Minister for Housing and Communities.

• A sub-committee of the RSG will be established to give on-going consideration to ways in which this intention can be delivered. The Chair of the sub-committee will be the Minister for Treasury and Resources and the Vice-Chair will be the Minister for Housing and Communities.

• The RSG will establish a Terms of Reference for the sub-committee before a final planning application for the Waterfront development is submitted that sets relevant requirements, including the following:

That SOJDC will seek guidance from the sub-committee periodically,  and  before  the  instigation  of  each  delivery phase in the Waterfront development

That  guidance,  in  line  with  the  strategic  and  specific principles set out in the document, will consider the most up to date available information on development viability, and will advise SOJDC where affordable homes in perpetuity should be incorporated into the forthcoming development

That guidance will be bound by the terms of P.165/2020, such that it will not – as a result of requiring additional delivery of affordable homes in perpetuity – prejudice the delivery of the development including the delivery of all public realm improvements and other community and leisure uses

In considering development viability, the sub-committee will have regard to all material factors including pre-application and  post-application  design  considerations;  construction industry position and volatility; housing market position and need;  and  opportunities  to  vary  planned  landscaping, infrastructure, development financing and other aspects of the  scheme  appropriately  in  order  to  provide  additional headroom to invest in affordable homes while ensuring a high quality finished development.

Pre-sale financing

28. P.73/2010 requires that: "before committing to construction costs SoJDC will have to secure a sufficient level of legally binding pre-sales or pre-lets to fund the costs of constructing the first phase of a scheme." 

29. Buy  to  let  presales  have  previously  played  a  key  role  in  meeting  this requirement, which is intended to reduce risk. Without recourse to buy to let sales, SOJDC may not be able to secure sufficient presales to satisfy this requirement. The reduced up-front value of the proposed shared-equity units will also require that more units will need to be sold to meet the threshold.  
30. It is therefore recognised that some adjustment may be required, either to this guidance or to the provisions of P.73/2010, should the two directions come into conflict.  

APPENDIX A1  

Waterfront development planning guidance - extract from the South West St Helier Planning Framework4

4 Available at: https://www.gov.je/PlanningBuilding/LawsRegs/IslandPlan/PlansFrameworks/pages/waterfron tdevelopmentframework.aspx