England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
SIR MICHAEL HARRISON(SITTING AS A DEPUTY HIGH COURT JUDGE)
CO/10514/2009

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/12/2010

Lord Justice Aikens :

1. This appeal, from an order of Sir Michael Harrison (sitting as a Deputy High Court Judge) dated 22 April 2010, concerns a planning application by the appellants ("Vannes"). The Respondent to this appeal, ("RBKC") had refused Vannes planning permission for a change of use of an hotel at 41-43 Beaufort Gardens, London SW3 and for its re-development as nine self-contained residential units. Vannes appealed and the Secretary of State for Communities and Local Government ("SSCLG") appointed an inspector, Mr JO Head ("the Inspector"), who conducted an inquiry under section 78 of the Town and Country Planning Act 1990 ("the Act"). The Inspector conducted the inquiry from 30 June to 3 July 2009 and made his decision on 6 August 2009 allowing the appeal. RBKC then applied under section 288 of the Act to quash the decision. The SSCLG signed a consent order to the decision being quashed, but Vannes contested the claim. Sir Michael Harrison concluded that the Inspector had erred in law by failing to decide a "principal important controversial issue" at the inquiry and that this error vitiated the decision, which he therefore quashed.
2. Vannes appeals to this court with the permission of Mummery LJ. The SSCLG took no part in the appeal.

The factual background in more detail.

3. Beaufort Gardens is a quiet and wide cul-de-sac off the south side of Brompton Road. The street is within the Thurloe Estate and Smith's Charity Conservation Area, so that there is a statutory duty to pay special attention, in the exercise of planning functions, to the desirability of preserving or enhancing the character or appearance of the area. Beaufort Gardens is within a busy and prosperous part of central London, near to Hyde Park, the Victoria and Albert Museum and the Knightsbridge shopping area, including Harrods. It is thus within an area known as the "Knightsbridge Principal Shopping Centre", which is designated as an "International Centre" in the London Plan.
4. The buildings in Beaufort Gardens are substantial Victorian terraced houses with a similar design. They have six storeys above basements. Many buildings have been converted into self-contained flats but there is one hotel in use in the street and another former hotel that is vacant. Opposite the appeal site are 4-5 Beaufort Gardens, which Vannes has already converted into self-contained flats, the most expensive which was marketed at a sale price of £8.75 million.
5. 41-43 Beaufort Gardens was formerly the Parkes Hotel. It is now vacant. The proposal for change of use of the site from hotel to self-contained flats has always been regarded as an acceptable change of land use. The appeal scheme would provide 2 one-bedroom flats, 2 two bedroom flats, 2 four bedroom flats and a five bedroom flat. The proposal would therefore return the building to its original residential use. The proposed alterations to the exterior of the buildings would be minor, with re-instatement of the operational front doors of the individual houses and the removal of existing signage. There would also be subterranean excavation to provide swimming pools for two of the flats and also the installation of roof lights to the main roof of the existing buildings.

The London Plan and "affordable housing": a main issue of dispute at the Inquiry.

6. The London Plan is promulgated by the Mayor of London. It sets out the Mayor's major policy objectives for London. The third part of it is entitled "Living in London" and it concentrates on housing and the key public services. It is therefore concerned with planning policy. It sets out a number of "Policies" and there are explanatory paragraphs. Within this section of the Plan paragraph 3.46 states that the Mayor has adopted a "strategic target" that 50% of all additional housing should be "affordable". Policy 3A.8 defines "affordable housing" as "housing designed to meet the needs of households whose incomes are not sufficient to allow them to access decent and appropriate housing in their borough". There are two types of "affordable housing", as defined in paragraph 3.37 of the London Plan. They are "social housing" and "intermediate housing". It is not necessary to go into the details of the difference between them. Policy 3A.11 states that London boroughs should normally require "affordable housing provision" on a site (for which planning permission is sought) which has a capacity to provide 10 or more homes.
7. It has always been accepted that the site at 41-43 Beaufort Gardens has the capacity to provide 10 or more homes. So the "affordable housing" policy provisions of the London Plan applies to that site. However, Vannes has not made any proposal for affordable housing either on site, off site or by way of a financial contribution to RBKC for such housing. ^[1]
8. An important dispute at the Inquiry before the Inspector was whether the redevelopment of the Parkes Hotel site should provide for "affordable housing". That depended, in turn, upon other matters, one of which was whether the redevelopment would be economically viable. Vannes asserted that it would not be, but it said that it was worthwhile to re-develop the site in the context of its other plans in the area and overall. However, RBKC argued that the site redevelopment was economically viable. If that was the case, then, RBKC argued, there would be a very strong argument for insisting that Vannes provide "affordable housing", either on-site or off-site or by way of some economic contribution to RBKC for "affordable housing". However, Vannes told the Inspector that its "position" was that if the provision of "affordable housing" was a condition of the grant of planning permission that then it was unlikely that the re-development would go ahead.^[2]
9. In order to see how the issue of whether there should be provision of "affordable housing" in schemes put forward for planning permission fits into the overall planning policy regime for London and how this relates to the issues that the Inspector had to deal with at the Inquiry, it is necessary to examine further the relevant provisions of The London Plan. I therefore set out the principal policy provisions in the third part of the London Plan then applicable, to which the Inspector and the judge referred and which we were asked to consider.

Relevant Policy Provisions in the London Plan

10. Policy 3A.9 deals with "affordable housing" targets. It states:

"Policy 3A.9 Affordable housing targets.

DPD [Development Plan Document] policies should set an overall target for the amount of affordable housing provision over the plan period in their area, based on an assessment of all housing needs and a realistic assessment of supply.

In setting targets boroughs should take account of regional and local assessments of need, the Mayor's strategic target for affordable housing provision that 50 per cent of provision should be affordable and, within that, the Londonwide objective of 70 percent social housing and 30 per cent intermediate provision, and the promotion of mixed and balanced communities. They should take account of the most robust available assessment of housing capacity, and of potential sources of supply, such as:

local authority developments, including net from estate regeneration.

affordable housing schemes funded independently of planning contributions from private development

affordable housing secured through planning agreements or conditions on private residential or mixed use (including residential) development

long term vacant properties brought back into use

provision from non-self-contained accommodation."

11. Policy 3A.10 sets out various considerations regarding the provision of "affordable housing" in individual private residential and mixed-use schemes. It provides:

Boroughs should seek the maximum reasonable amount of affordable housing when negotiating on individual private, residential and mixed use schemes, having regard to their affordable housing targets adopted in line with Policy 3A.9, the need to encourage rather than restrain residential development and the individual circumstances of the site. Targets should be applied flexibly, taking account of individual site costs, the availability of public subsidy and other scheme requirements."

12. Paragraphs 3.52 to 3.54 which immediately follow Policy 3A.10 in the London Plan are also important. They stipulate:

"3.52 In estimating provision from private residential or mixed-use developments, boroughs should take into account economic viability and the most effective use of private and public investment, including use of financial contributions. The development control toolkit developed by the Three Dragons and Nottingham Trent University is one mechanism that will help. Boroughs should take account of the individual circumstances of the site, the part of the borough in which the site lies, the availability of public subsidy and other scheme requirements. The determination of the affordable housing requirements for a specific site needs to have regard to the borough targets set within the framework of Policy 3A.9 on the basis of maximising the potential for affordable housing.

3.53 There will be some sites that are capable of achieving more towards meeting the overall 50 per cent Londonwide affordable housing target and some less. It is recognised that in most cases, some level of subsidy will be necessary to achieve the maximum outturn, the exception being the highest value sites, where the desired level of affordable housing can be funded entirely from development value. Where a proposal for development relates solely to student housing, it will not normally be appropriate to apply a planning obligation for an element of social rent or intermediate housing (see paragraph 3.37).

3.54 The Mayor wishes to encourage, not restrain residential development and boroughs should take a reasonable and flexible approach on a site-by-site basis. Further guidance on the role of site appraisal and the toolkit is set out in the Housing SPG." .

The "Three Dragons" Toolkit and the evidence at the Inquiry on site "viability".

13. The "Housing SPG" mentioned in paragraph 3.54 is a reference to the "Housing Supplementary Planning Guidance" which was published by the Greater London Authority in November 2005. I will refer to it as "the Housing SPG". Section 18 of the Housing SPG is entitled "Negotiating the provision of affordable housing in individual private residential and mixed use schemes". Paragraph 18.11 appears under the heading "Assessment of economic viability of development". It states that boroughs should consider the economic viability of "the preferred outcome" (ie. the version of the scheme as put forward by the applicant for planning permission as accepted), the potential of the value of the site to contribute to funding the cost of affordable housing and the availability of public subsidy to support "affordable housing" in the development. Paragraph 8.13 explains that the Greater London Authority ("GLA") has developed a "toolkit" to assist boroughs and applicants in assessing the extent to which site value can support a range of "affordable housing" options. The reference in paragraph 3.52 of the London Plan to the "development control toolkit developed by the Three Dragons and Nottingham Trent University" and the reference in paragraph 3.54 of the London Plan to the Housing SPG for "further guidance on the role of site appraisals and the toolkit" all relate to the same thing. It is a reference to the GLA's Affordable Housing Development Control Toolkit, which is otherwise known as the "Three Dragons" toolkit. That is the name of a software application which has been developed by Nottingham Trent University.^[3]
14. The "Three Dragons" programme has a number of input values which can be used to determine whether the re-developed residential site value will exceed the existing use value of the site. If it does so then the site is "viable"; if it does not, then it is "not viable". At the Inquiry Vannes and RBKC called a total of eight expert witnesses to give specialist evidence relating to the "input values" to be used with the "Three Dragons" toolkit. The experts were cross-examined by counsel for the parties and submissions were made to the Inspector on the rival figures put forward. In summary, the toolkit result using the input values of RBKC was that the re-development would show a positive value of over £10 million. Using Vannes' input values, the toolkit result showed that there would be a deficit of over £7 million. The difference between the experts was of the order of £18-20 million.
15. The judge noted, at [6] his judgment, that the "the issue of whether it was economically viable to make any provision for affordable housing at all was a principal important controversial issue at the inquiry". The phrase "principal important controversial issue" is legally significant as I will explain below.

The Inspector's Decision Letter of 6 August 2009

16. At [5] of his Decision Letter, the Inspector stated that there remained four issues for consideration. He identified these as:

"5. The main issues remaining are:

(i) Whether the potential of the site for housing provision would be maximised, having regard to the local context;

(ii) Whether the proposal would conflict with the aim of policy in The London Plan to secure the maximum reasonable contribution to the provision of affordable housing;

(iii) Whether adequate living conditions would be created for the occupiers of the proposed flats, with particular regard to amenity space; and

(iv) Whether an appropriate number, size and mix of dwelling units would be provided."

I note that, in contrast to the judge, the Inspector did not identify economic viability of the site as a "principal important controversial issue"; it was within what he identified as main issue (ii).

17. At [13], the Inspector noted that the appeal scheme was intended as a "high-end residential development that is aimed, either as one lot or as individual flats, at those very wealthy purchasers (often foreign nationals) who wish to locate in a relatively tightly-drawn area of central London where the supply of suitable property is limited…". He concluded that, given the nature of the proposed flats and the market at which they were aimed, the proposal would be "…in line with the aims of the London Plan to support London's development as "the main world city"". There is no quarrel with that conclusion.
18. In [14], the Inspector concluded that Beaufort Gardens can be regarded as "the right place" for a development of the number and type of units proposed which would be compatible with the character of the locality. Moreover, there would be no conflict with the Policy requirements of "…achieving the maximum intensity of use of the site for housing provision compatible with the local context". There is also no dispute about that conclusion.
19. At [15]-[34] of his Decision Letter, the Inspector then considered the issue of "affordable housing" on the proposed development site or off-site. At [15] he noted that the "affordable housing" policy was triggered for this site (because of its capacity for more than 10 homes) and at [16] he summarised the effect of Policy 3A.9 and 3A.10 which I have set out above. At [17] he noted that the need for an increased provision of "affordable housing" generally in the Royal Borough was not in dispute. At [18] he expressed some sympathy with the view that "affordable housing" might not sit easily with the type of housing proposed by Vannes, but he was not convinced that the on-site provision of "affordable housing" would be impossible. He noted that the evidence at the Inquiry centred on whether "…the appeal scheme would be sufficiently viable to support any provision of affordable housing, whether on or off-site".
20. At [20] the Inspector noted that the "toolkit" evidence on behalf of Vannes had shown a deficit for the development of £7,663,007, without the provision of any affordable housing. Alternative versions of the re-development by Vannes' experts all produced a negative result. At [21], the Inspector stated that "toolkit evidence" given by the District Valuer on behalf of RBKC produced a "positive sum" of between £10,338,000 and £11,792,000 depending on the precise details of the scheme adopted.
21. At [22] the Inspector said:

""22. These are significantly different result, arising in the main from a number of disputed input values. Evidence for both parties was given by professionally qualified and experienced surveyors and valuers and I do not attempt to determine which figures are "correct". However, I consider that the extent of the professional disagreement, detailed below, affects the weight that can be given to the toolkit results."

22. The Inspector then analysed the input figures of the two parties in some detail under the headings "Market value of the flats", "Building costs", "Existing use value", "Interest charges", and "VAT". In each case the Inspector records the rival evidence and considers the merits of the various versions in some detail. On "Market value of the flats" the Inspector does not state which evidence he prefers. On "Building costs" he states at [26] that he is inclined to the view that the figure should be less than those stated by Vannes' experts. On "VAT" the Inspector finds that costs incurred were not recoverable: [31]. But overall he concludes: " I have no basis to determine that figure with any reliability or to confirm whether the District Valuer's figure is the more realistic one".
23. On "Existing use value", "Interest charges" the Inspector identifies the differences between the experts and the reasons for them, but reaches no conclusion on which approach or figure is preferable. The Inspector concludes his analysis of this evidence at [32] of his Decision, which I should quote in full:

"32. The toolkit analysis is not a policy requirement in determining affordable housing provision, paragraph 3.52 of The London Plan indicating that it is just "one mechanism that will help". Given the number of uncertain input values noted above, the inability of the professional witnesses to reach agreement on them at the inquiry, and their significant cumulative value, I consider that, in this case, none of the toolkit results is sufficiently robust to enable any significant weight to be attached to it in determining the provision of affordable housing that could be expected from the appeal proposal, I turn, therefore, to the other considerations in Policy 3A.10 and paragraph 3.52."

24. The Inspector then reiterated the difficulties of incorporating affordable units into the proposed development. The Inspector's overall conclusion on the issue of whether there should be adherence to the policy of providing "affordable housing" within the proposed scheme is set out at [34]. Again I should quote it in full:

"34. The appellant's position is that, if affordable housing is a requirement, the appeal scheme is unlikely to go ahead. In that case, no new residential development would result and the building would either remain unused or the hotel use would be reinstated. Policy 3A.10 of The London Plan refers to the need to encourage rather than restrain residential development and to take account of the particular circumstances of the site, applying targets flexibly taking into account individual site costs and other scheme requirements. Having regard to all the circumstances, including the specialised nature of the area in which the building is situated and lack of reliance that can be placed on the toolkit results, it would, in my judgment, be unreasonable to require affordable housing provision in the case of the appeal proposal. There would, therefore, be no conflict with the aim of policy in The London Plan to secure the maximum reasonable contribution to the provision of affordable housing."

25. The Inspector concluded, therefore, that it would unreasonable to require "affordable housing" in the appeal proposal. One of his reasons for this conclusion is "…the lack of reliance that can be placed on the toolkit results". However, that is not the only reason given. The others are: (i) the need to encourage rather than restrain residential development; (ii) the need to take account of the particular circumstances of the site; (iii) the need to apply targets flexibly, taking into account individual site costs and other scheme requirements; and (iv) the specialised nature of the area in which the building is situated.
26. The Inspector then considered other aspects of the proposal, which were the provision of amenity space and the mix of units. He set out his overall conclusion in [44], which I should also quote in full:

"44. I have already concluded that, having regard to its context, there would be no conflict with the aim of policy to maximise the potential of the site for housing provision. There are no firm grounds to require affordable housing provision and the amenity space provision and mix of units would be acceptable given the location of the site and the nature of the proposed development. I find that the proposed development is, therefore, acceptable, subject to the conditions that were discussed at the inquiry and to the S106 Agreement that has been submitted."

The decision of Sir Michael Harrison

27. The challenge to the Inspector's decision before the judge was founded on what was characterised as the Inspector's "failure to grapple with" a key determinative issue of the appeal to him, viz. the economic viability of making any provision for "affordable housing". At [39] of his judgment, Sir Michael said that he was struck by "…the absence of any meaningful conclusion on the issue of the viability of affordable housing". The judge expressed some sympathy for the Inspector's predicament, having been faced with differing professional expert evidence. But he also noted that this was not an unusual situation for an Inspector at a Planning Inquiry: [40].
28. At [41] the judge accepted that the use of the "toolkit" exercise was not, of itself, a policy requirement. However, he noted that both parties had adopted the GLA Toolkit (or "Three Dragons" toolkit) as the appropriate mechanism to assess whether it was economically viable to provide any affordable housing and the evidence at the Inquiry "…centred on whether the appeal scheme would be sufficiently viable to support any provision of affordable housing…". The judge concluded that, in those circumstances, "…it was incumbent upon the Inspector to reach a conclusion on that issue. It was a principal important controversial issue at the Inquiry which the Inspector had to decide".
29. The judge held, at [42], that the Inspector's conclusion that the toolkit results were not sufficiently robust to enable any significant weight to be attached to them in determining the "affordable housing" issue was an "…inadequate way of dealing with the matter in circumstances where he [had] not made any real attempt to try and grapple with the issues". The judge therefore found, at [43], that the Inspector "…failed to grapple properly with the issue of the economic viability of providing any affordable housing on or off-site".
30. The judge expressed his overall conclusion at [44]. He said:

"In this case, the economic viability of providing any affordable housing on or off-site was undoubtedly a principal important controversial issue at the inquiry which the Inspector had to decide. In my view, he failed to determine it properly or at all. That is an error of law which vitiates the decision. The importance of deciding that issue is emphasised by the undisputed need for affordable housing and by the policy provisions relating to affordable housing to which I have referred. In my view, it was unlawful to grant planning permission without deciding the viability issue in those circumstances."

31. Mr Cosgrove, who had appeared for RBKC before the judge, as well as before us, also raised another argument before Sir Michael. This was that the Inspector had acted irrationally in relying on the position of Vannes that the appeal scheme was unlikely to go ahead if "affordable housing" was required. The argument was that this position was based on Vannes' own evidence on the economic viability of the appeal scheme, which was the very issue on which the Inspector had chosen not to reach a definitive view. Therefore any reliance on Vannes' own position based on its own evidence was irrational. The judge decided at [45] that, as he had decided the appeal on Mr Cosgrove's main argument, he did not need to deal with that point. However, the judge expressed the view that although it was for the Inspector to decide what weight to give to Vannes' stated position, "…insofar as that position was dependent on the issue of viability, the Inspector's failure to decide that issue would infect his reliance on [Vannes'] stated position". Mr Cosgrove relied on that conclusion before us as an additional basis for resisting the appeal.

The arguments and the issues on the appeal.

32. Mr Daniel Kolinsky, who appeared for Vannes before us, argued that the judge was wrong to hold that the Inspector had reached an unlawful decision. He submitted first, that the Inspector correctly understood the policies set out in the London Plan, particularly Policy 3A:10. Secondly, he argued that the Inspector was not obliged to reach decisions either on the economic viability of the proposed scheme overall or the various aspects of the expert evidence on the viability of the proposed scheme, given how widely they differed and the underlying uncertainty in the area. Mr Kolinsky argued that the Inspector was entitled to conclude he could give little weight to the viability projections, given his findings as to the differences between the experts and the general uncertainty. Thirdly, Mr Kolinsky submitted that the Inspector correctly directed himself to the range of considerations which Policy 3A:10 indicated could be material to the determination of the maximum reasonable amount of "affordable housing" in any given case. Fourthly, Mr Kolinsky argued that the weight to be given to the viability of the scheme and other considerations relevant to Policy 3A:10 was a matter for the Inspector.^[4] He adequately explained what weight he had given to the various considerations and why he had done so. Therefore the judge was wrong to conclude that the Inspector had erred in law in reaching his decision.
33. For RBKC, Mr Cosgrove argued, first, that the judge was correct, at [6], to characterise the issue of whether it was economically viable to make any provision for "affordable housing" in the proposed scheme as a "principal important controversial issue". Accordingly, it was incumbent upon the Inspector to reach a decision on that question, based upon the evidence he had received. Secondly, Mr Cosgrove submitted that it is clear that the Inspector failed to reach any proper conclusion on that issue or to grapple properly with the evidence on the various "input figures" that were given by the rival experts. The Inspector should have determined which of the expert approaches was correct and there was nothing to prevent him from doing so. Therefore, thirdly, Mr Cosgrove argued that the judge was correct in holding that the Inspector's failure to determine whether the economic viability of "affordable housing" on or off-site was an error of law that vitiated the Inspector's decision. Fourthly, as a further argument, Mr Cosgrove submitted that the Inspector's conclusion that it would be unreasonable to require "affordable housing" in the case of this proposed scheme was vitiated by the fact that the Inspector took into account Vannes' "position" that if "affordable housing" was a requirement of permission, the appeal scheme was unlikely to go ahead. That position depended upon Vannes' own arguments, not upon an objective determination of whether the appeal scheme was viable or not.
34. In the light of these arguments, I think that the following issues arise on this appeal: (1) Was the Inspector obliged, as a matter of law, to determine which party's expert was correct in approach and which "input" figures he preferred in relation to the various aspects of the economic viability of the proposed scheme? Does a decision not to do so mean that he failed to reach a conclusion on a "principal important controversial issue" and so erred in law? (2) If the Inspector was not so obliged, is his decision vitiated by any other aspect of his consideration of policy or other relevant matters concerning the provision of "affordable housing" in the case of the appeal proposal? (3) Is the Inspector's conclusion that it would be unreasonable to require "affordable housing" in this case vitiated by taking account of Vannes' statement of its "position" that if the provision of "affordable housing" was a condition of the grant of planning permission then the scheme was unlikely to go ahead?

The Legal Principles

35. It seems to me that the following legal principles are relevant to this appeal. The first group concerns the importance of an Inspector taking account of local planning policy. A local planning authority and a Inspector appointed by the Secretary of State who have to consider an application for planning permission must have regard to the provisions of the "development plan" so far as material to the application and must have regard to any other material considerations.^[5] The "development plan" includes the "development plan documents" (taken as a whole) that have been adopted or approved in relation to the area concerned.^[6] For London, those include the London Plan. In order to have "regard to" a development plan, the authority considering it (whether it be the planning authority or an Inspector) must understand it, or else it cannot have a "proper regard" for it.^[7] A failure properly to construe or apply policy or material guidance may be a valid ground for challenge if the decision maker has misunderstood the policy or has adopted an unreasonable interpretation of it.^[8] It is common ground that the Housing SPG, although not a part of the "development plan", is a material consideration.
36. Secondly, on an Inspector's duties: an Inspector has a duty to consider and reach conclusions on the "principal important controversial issues" that are raised in the Inquiry before him. He must give reasons for his decision that are intelligible, adequate and comprehensible to a reader who can thereby understand why the matter was decided in the way that it was.^[9] An Inspector's decision must have regard to all relevant material considerations and, if it does not, he will have erred in law. However the weight to be given to a material consideration is a matter of planning judgment and is not a question of law; it is for the relevant planning authority. Provided that a planning authority (including an Inspector) has properly taken a material consideration into account, it is entitled (if it is reasonable to do so) to say that it gives no weight at all to that particular consideration.^[10]
37. Thirdly, on the court's approach to an Inspector's Decision Letter. When an Inspector's Decision Letter is being considered by a court, it must be read in good faith. The Inspector has to take a view on the planning merits of a proposed scheme. A judge is not entitled to substitute his own view on planning matters for the Inspector's.^[11]

Issue (1): Was the Inspector obliged, as a matter of law, to determine which party's expert was correct in approach and which "input" figures he preferred in relation to the various aspects of the economic viability of the proposed scheme? Does a decision not to do so mean that he failed to reach a conclusion on a "principal important controversial issue" and so erred in law?

38. The question of the economic viability of the proposed scheme arose at the Inquiry because the Inspector was bound to take account of two policies in the London Plan. First, the policy set out in Policy 3A.9 that the Mayor of London has a strategic target of 50% "affordable housing" in any scheme overall; and secondly, the policy set out in Policy 3A.10 that boroughs should seek the maximum reasonable amount of "affordable housing" when negotiating on individual private, residential and mixed use schemes. "Economic viability" is a part of the question of "affordable housing" because paragraph 3.52 of the London Plan stipulates that in estimating the provision from private residential developments, boroughs should take into account "economic viability" and the most effective use of private and public investment.
39. However, economic viability is only one element which has to be taken into account when considering whether or not there should be a provision for "affordable housing". It is important to recall that Policy 3A.10 also states that boroughs should have regard to the need to encourage rather than restrain residential development and should take account of the individual circumstances of a particular site. The latter point is also emphasised in paragraph 3.52 of the London Plan, which also refers to the factor of where the site lies within the borough concerned. Paragraph 3.54 again emphasises the Mayor's wish to encourage and not to restrain residential development as well as the need for boroughs to take a "reasonable and flexible approach on a site-by-site basis".
40. So it seems to me that a, or perhaps the, "principal important controversial issue(s)" that the Inspector had to consider in this case was whether there should be a requirement for the provision of "affordable housing" on (or off) the development site. Contrary to the view of the judge, at [44], I would not regard the economic viability of providing affordable housing on or off-site as a "principal important controversial issue" at the Inquiry. That issue is a sub-set of the "principal important controversial issue" of whether there should be a provision for "affordable housing" in the scheme proposed. The latter had become such an issue because of the policies laid down in the London Plan to which I have referred and the fact that Vannes had not made any provision at all for "affordable housing" in its scheme, either on or off-site. It was RBKC's case, effectively, that because the proposed redevelopment scheme was economically viable, therefore there should be a provision of "affordable housing" in the scheme, in line with the policies set out in the London Plan.
41. I accept, therefore, that the Inspector had to consider and reach a conclusion on whether there should be any provision for "affordable housing" in the scheme for which planning permission was sought. The question is whether it follows from that conclusion that the Inspector also had to reach decisions (1) that he must use particular figures for input values for the purposes of seeing whether the development plan was economically viable and, if so, (2) on which figures he must use. Or was it sufficient for him to conclude, as he did, that the figures were insufficiently "robust" for any results using them to be useful in deciding whether there should be a provision for "affordable housing"?
42. The first task the Inspector had on the topic of economic viability of the proposed development was to make an evaluation of a mass of evidence on what input values should be used with the "Three Dragons" software in order to produce a figure which would show whether the re-developed residential site value would exceed the existing use value of the site at 41-43 Beaufort Gardens. The Inspector had to consider that evidence carefully; in other words I accept that he had to "grapple with" that evidence. The Inspector had to decide whether he could place any (and if so how much) reliance on the input value figures that both sides had produced. If the figures were themselves subject to variables or uncertainties, then the results that emerged from their use in the "Three Dragons" software would themselves be unreliable. That would mean that the overall result on whether the proposed development was economically viable or not viable would also be unreliable. That would have a knock-on effect on the issue of whether there should be a provision for "affordable housing" in the proposed development.
43. I have no doubt that the Inspector did "grapple with" the various input figures in the sense that he understood the evidence that was put before him and he evaluated the reliability of the figures. That is clear from a fair reading of his Decision Letter at [23] – [31]. But it does not follow that the Inspector had to reach a decision that he must choose one or other of the figures proposed as input values and then follow through with those figures to a conclusion that the proposed development was, or was not, economically viable. In my view if the Inspector concluded that none of the rival input figures could be regarded as reliable or likely to produce a useful result when fed into the "Three Dragons" software, he was duty bound to say so. It would have been irrational for him to have reached a conclusion that none of the input figures were reliable but he nevertheless felt obliged to decide which was the "least unreliable" so that they could then be used with the "Three Dragons" software and so produce a figure on economic viability which would, by definition, also be unreliable. An unreliable conclusion on economic viability of the proposed development would, in turn, be an unsound basis on which to reach any conclusion on whether there should be a provision of "affordable housing" in the proposed development scheme.
44. At [32], the Inspector noted "the number of input values that were uncertain". That is a finding of fact. No basis was advanced before us for challenging that finding as being unreasonable or irrational; nor could it be, given the evidence of the experts which the Inspector summarised. The Inspector also noted that the professional witnesses were unable to reach agreement on the input figures. That is a fact. The Inspector further noted that the input values had, together, a "significant cumulative value". That too is a finding of fact which is not challenged.
45. It follows that I would answer Issue (1) by saying, first, that the issue of economic viability of the development site was only a part of the relevant "principal important controversial issue". The relevant "principal important controversial issue" was whether there should be a provision for "affordable housing" in the development scheme. Secondly, the Inspector was bound to evaluate the evidence on the input figures for use with the "Three Dragons" software. He did so. Thirdly, if the Inspector concluded that the input figures were unreliable and would lead to unreliable results, he was duty bound to say so. He did so. Therefore, fourthly, the Inspector did not err in law in deciding that he could not use any of the input figures to arrive at a conclusion, using the "Three Dragons" software, on the economic viability of the proposed development.

Issue (2): If the Inspector was not so obliged, is his decision vitiated by any other aspect of his consideration of policy or other relevant matters concerning the provision of "affordable housing" in the appeal proposal.

46. The Inspector concluded, at [32], that "none of the toolkit results is sufficiently robust to enable any significant weight to be attached to it in determining the provision of affordable housing that could be expected from the appeal proposal". That is a somewhat compressed conclusion. If it is taken with the preceding paragraphs of the Decision Letter and given a broad and fair reading, it means that the Inspector concluded that the input figures were not sufficiently "robust"- ie. reliable - to produce any sufficiently reliable figure on the economic viability of the proposed development using the "Three Dragons" toolkit. The reference to "it" in the sentence I have quoted above must be to "the toolkit results" ie. whether the re-developed residential site value will exceed the existing use value of the site; in other words, whether the proposed development would be economically viable.
47. If the Inspector was entitled to conclude that it could not reliably be determined whether the proposed development would be economically viable, then in my view it was reasonable for the Inspector also to conclude that he could not place any "significant weight" on that factor of economic viability when determining whether or not there should be a provision of "affordable housing" in the proposed development scheme. It is difficult to see what other weight could be placed on that factor in the circumstances. Questions of weight to be attached to a particular factor are a matter for the Inspector and not the court. Accordingly, the conclusion reached in the Inspector's Decision Letter at [32] quoted above does not disclose an error of law.
48. The Inspector took account of the other relevant policy considerations set out in the London Plan and the Housing SPG, to which he refers in [15], [16]-[17], [19] and [32]-[34] of his Decision Letter. The Inspector stated expressly, at [32], that he would consider the other policy considerations set out in Policy 3A.10 and paragraph 3.52 of the London Plan. Therefore, subject to Issue (3), I conclude that there was no error of law in the approach of the Inspector in dealing with other policy factors when deciding on whether there should be a requirement of "affordable housing" in the case of the appeal proposal.

Issue (3): Is the Inspector's conclusion that it would be unreasonable to require "affordable housing" in this case vitiated by him taking account of Vannes' statement that if "affordable housing" is a condition then the scheme was unlikely to go ahead?

49. Mr Cosgrove's further argument is that the Inspector's statement in [34] of Vannes' "position" at the Inquiry on "affordable housing" was to a position that depended on the determination of the economic viability issue in Vannes' favour. That was because the "position" of Vannes depended on their toolkit input figures being correct. As the Inspector did not determine the issue of economic viability, he therefore could not properly take account of Vannes' stated "position" when reaching his overall conclusion, in [34], that it would be unreasonable to require an "affordable housing" provision in the case of the appeal proposal.
50. The judge stated, at [45], that it was for an Inspector to decide what weight to attach to Vannes' stated position that if "affordable housing" were required the scheme was unlikely to go ahead. But, he continued, "…insofar as that position was dependent on the issue of viability, the Inspector's failure to decide that issue would infect his reliance on [Vannes'] stated position".
51. I do not read the first sentence of [34] of the Inspector's Decision Letter in the way that Mr Cosgrove submits we should. I read it as a simple statement of fact: that it is Vannes' present position. I do not read it as a statement that depends on the Inspector accepting Vannes' expert evidence about the input values or the result of the "Three Dragons" toolkit exercise. There is nothing to suggest that Vannes' position is dependent on such a conclusion. The second sentence of [34] only expresses the obvious logical consequences if the scheme were not to go ahead; viz. there would be no new residential development and so the Parkes Hotel site would remain unused or its hotel use would be reinstated.
52. The Inspector then referred again to the policy considerations set out at Policy 3A.10 of the London Plan. Next he expressed his conclusion on what I have characterised as a "principal important controversial issue", ie. that of whether there should be an "affordable housing" provision in the case of the appeal proposal. He stated that he had had regard to "all the circumstances". If, as I read the Decision Letter, Vannes' position is not dependent on any finding by the Inspector on the correctness of its figures on input values and so its case on the development's economic viability, then I cannot see how taking Vannes' stated position into account vitiates the Inspector's decision on the issue of whether there should be requirement of "affordable housing". In my view, when reaching his decision on that issue, the Inspector was entitled to take into account the stated position of Vannes that if there was an "affordable housing" requirement, then the appeal scheme was unlikely to go ahead.
53. Apart from the allegation that the Inspector failed to decide the issue of economic viability, it is not suggested that he failed to consider other relevant policy factors. Accordingly, I conclude that the Inspector did not err in law in reaching his decision on the issue of whether there should be a provision for "affordable housing". Therefore, the decision of the Inspector, stated at [44] of his Decision Letter, cannot be impugned for error of law.

Conclusion.

54. Accordingly, I would allow the appeal, set aside the order of Sir Michael Harrison and restore the decision of the Inspector.

Lord Justice Richards:

55. I agree.

Lord Justice Mummery:

56. I also agree.

Note 1   The Inspector noted in his Decision that RBKC has, at present, no formal guidance or arrangements for the provision of off-site “affordable housing” or for financial contribution in lieu of on-site provision. He felt unable to resolve the question of whether Vannes had made an offer of financial contribution which had been rejected by RBKC: [17] of the Decision.    [Back]

Note 2   The Inspector notes this at [34] of his Decision Letter.    [Back]

Note 3   Paragraph 8.14 of the Housing SPG states that there is no requirement to use that specific toolkit to undertake the exercise of seeing whether a specific scheme and other financial appraisal methodologies may be appropriate. But it was accepted at the Inquiry, before the judge and before us that it was appropriate in this case.     [Back]

Note 4   Mr Kolinsky relied on statements of Lord Hoffmann in Tesco Stores Ltd v Sec of State for the Environment [1995] 1 WLR 759 at 780.     [Back]

Note 5   See section 70 of the Town and County Planning Act 1990, together with section 79(4) and Sch 6.    [Back]

Note 6   Section 38(2)(b) of the Planning and Compulsory Purchase Act 2004.    [Back]

Note 7   See South Somerset DC v Sec of State for the Environment [1993] 1 PLR 80 at 82 per Hoffmann LJ, with whom Russell and Purchas LJJ agreed.    [Back]

Note 8   R v Derbyshire CC ex p Woods [1998] Env LR 277 at 290 per Brooke LJ. Butler-Sloss LJ and Sir John Balcombe agreed.    [Back]

Note 9   South Bucks DC v Porter (No 2) [2004] 1 WLR 1953 at [36] per Lord Brown of Eaton-under-Heywood. The other law lords agreed with him.    [Back]

Note 10   Tesco Stores Ltd v Sec of State for the Environment [1995] 1 WLR 759 per Lord Hoffmann at 780F-G and 784 B-C. The other law lords did not specifically concur with Lord Hoffmann’s speech, but did not dissent from it either.    [Back]

Note 11   South Somerset DC v Sec of State for the Environment [1993] 1 PLR 80 at 87 per Hoffmann LJ. Russell and Purchas LJJ agreed.     [Back]